Paper 3 Tax Laws - Sauda.Com · 14. Assessment, levy, collection and payment of service tax, exemptions, CENVAT Credit for service tax, returns, appeals, revisions, advance rulings,

3.1

Paper 3 Tax Laws

Syllabus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2Bird's-eye View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4Line Chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.10Frequency Table Showing Distribution of Marks . . . . . . . . . . . . . . . . . 3.11Frequency Table Showing Marks of Compulsory Questions . . . . . . . . 3.12Legends for the Graphs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.13

Study Material Based Contents

1. (Study I) Introduction and Important Definitions . . . . . . . . . . . 3.15

2. (Study II) Capital and Revenue Receipts . . . . . . . . . . . . . . . . 3.28

3. (Study III) Basis of Charge and Scope of Total Income . . . . . . 3.32

4. (Study IV) Incomes Which Do Not Form Part of Total Income . 3.42

5. (Study V) Computation of Total Income Under Various Heads 3.55

6. (Study VI) Aggregation of Income, Set-off or Carry Forward of Losses and Deductions from Total Income . . . . . . . 3.143

7. (Study VII) Taxation of Individuals, HUF, Firms, Association of Persons, Cooperative Societies and Non Residents 3.169

8. (Study VIII) Filing of Returns, Signatures, E-Filings Assessment and Reassessment . . . . . . . . . . . . . . . . . . . . . . . . . 3.206

9. (Study IX) TDS and Other Related Tax Matter . . . . . . . . . . . . . 3.232

10. (Study XII) The Wealth Tax Act, 1957 . . . . . . . . . . . . . . . . . . . . 3.261

11. (Study XIII) Service Tax - Background, Administrative and Procedural Aspects . . . . . . . . . . . . . . . . . . . . . . . . . 3.292

12. (Study XIV) Levy, Collection and Payment of Service Tax along with CENVAT Credit Rules. . . . . . . . . . . . . . . 3.300

13. (Study XV) Value Added Tax (VAT) — An Overview . . . . . . . . 3.329

14. (Study XVI) Computation and Other Procedural Aspects Relating to VAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.337

15. (Study XVII) Appointment, Jurisdiction and Powers of Authorities and the Certifications for Professionals . . . . . . . . . . 3.361

16. Objective Questions . . . . . . . . . . . . . . . . . . . . . . . . . 3.364

Question Paper of June, 2012 . . . . . . . . . . . . . . . . . 3.405

Question Paper of December, 2012 . . . . . . . . . . . . 3.412

Question Paper of June, 2013 . . . . . . . . . . . . . . . . . 3.419

Question Paper of December, 2013 . . . . . . . . . . . . 3.425

3.2

Syllabus

Paper 3 Tax Laws (100 marks)

Level of knowledge: Working knowledge.

Objectives:

(i) To impart knowledge of the basic principles underlying the substantiveprovisions of Direct and Indirect tax laws to the students.

(ii) To equip students with application of principles and provisions of direct tax lawsin computatiogn of income and taxation of a ‘person’ excluding companies undervarious heads of income and their assessment procedures.

Detailed Contents:

PART A: (60 Marks)

The Income-Tax Act

1. Definitions, concept of income, previous year, assessment year, residential status.2. Distinction between capital and revenue receipts and expenditure.3. Basis of charge and scope of total income (Incomes deemed to accrue or arise in

India and deemed to be received in India).4. Incomes which do not form part of total income.5. Computation of total income under various heads, such as - salaries, income from

house property, profit and gains of business or profession, capital gains, incomefrom other sources.

6. Income of other persons included in assessee’s total income; aggregation ofincome and set off or carry forward of losses; various deductions to be made incomputing total income, rebates and reliefs applicable rates of taxes and taxliability.

7. Taxation of every person excluding companies, viz., individuals including non-residents, Hindu Undivided Family, firms, association of persons, cooperativesocieties, trusts and charitable and religious institutions, etc.

8. Provisions concerning procedure for filing returns, signatures, e-filing assessmentand reassessment.

9. Tax deducted at source, collection, recovery and refund of tax; provisions ofadvance tax.

10. Charge of banking cash transaction tax, taxable banking , transaction, value oftaxable banking transaction, collection, recovery, return, assessment, rectification,interest on delayed payments, penalty, appeal, power to make rules.

3.3

11. Charge of fringe benefits tax, fringe benefits and deemed fringe benefits, valuation,payment and return of fringe benefits, assessment, issue of notice, advance tax inrespect of fringe benefits.

12. Wealth TaxCharge of wealth tax; assets, deemed assets and assets exempt from tax,valuation of assets, computation of net wealth, return of wealth and provisionsconcerning assessment.

PART B: (20 Marks)

Service Tax

13. Background, Statutory provisions, taxable services, valuation, administrativemechanism and procedural aspects, rate and computation of tax.

14. Assessment, levy, collection and payment of service tax, exemptions, CENVATCredit for service tax, returns, appeals, revisions, advance rulings, role ofPracticing Company Secretaries.

PART C: (20 marks)

Value Added Tax

15. Legislative background, concept of VAT - while paper on VAT, Report ofEmpowered Committee of State Finance Ministers, Constitutional provision,relationship of VAT with inter-state commerce and works contract tax, liabilityunder VAT, withdrawal of Central Sales Tax; Goods and Service Tax;

16. Computation, procedural aspects including registration, filling of returns, rates oftax, assessment, credit and set-off, returns, refunds, audit, appears, revision andappearances.

17. Appointment, jurisdiction and powers of authorised, certifications for professionals18. Concept of VAT on services, VAT in other countries, scope for Company

Secretaries.

3.4

Bird's-Eye View

Paper 3

Tax Laws

Question Paper Based Contents of Last Five Examination

Years Q. No. Chapter PageNo.No. Name

2011Dec.

1. (a)(b)(c)

2. (a)(b)

3. (a)(b)(c)

4.(a)(i)(ii)(iii)(iv)(v)(b)

5.(a)(i)

(ii)(iii)

(iv)(v)(b)

6. (a)

(b)

7. (i)

(ii)(iii)

1616

8

19559515555

106

48

910

57

8

12

1212

Objective Questions" " Filing of Returns, Signatures, E-Filings Assessment andReassessmentObjective QuestionsComputation of Total Income Under Various Heads" " " "TDS and Other Related Tax MatterComputation of Total Income Under Various HeadsIntroduction and Important DefinitionsComputation of Total Income Under Various Heads" " " "" " " "" " " "The Wealth Tax Act, 1957Aggregation of Income, Set-off or Carry Forward of Lossesand Deductions from Total IncomeIncomes Which Do Not Form Part of Total IncomeFiling of Returns, Signatures, E-Filings Assessment andReassessmentTDS and Other Related Tax MatterThe Wealth Tax Act, 1957Computation of Total Income Under Various HeadsTaxation of Individuals, HUF, Firms, Association ofPersons, Cooperative Societies and Non ResidentsFiling of Returns, Signatures, E-Filings Assessment andReassessmentLevy, Collection and Payment of Service Tax along withCENVAT Credit Rules" " " "" " " "

387388

216389

9899

244832275757575

274

15147

210235266100

184

216

318319319

3.5

(iv)(v)

8. (i)(ii)

(iii)

(iv)

(v)

16161314

15

14

14

Objective Questions" " Value Added Tax (VAT) — An OverviewComputation and Other Procedural Aspects Relating toVATAppointment, Jurisdiction and Powers of Authorities andthe certifications for ProfessionalsComputation and Other Procedural Aspects Relating toVAT " " " "

390391335

351

363

351351

2012June

1. (a)(b)(c)

2. (a)(b)(c)

3. (a)(b)

(c)4. (a)

(b)(c)(i)

(ii)(iii)

5. (a)(b)(i)

(ii)(iii)

6. (a)

(b)(i)(ii)(iii)

7. (i)(ii)

(iii)

1616

516

5556

510

910

58

55547

714

1612

12

Objective Questions" " Computation of Total Income Under Various HeadsObjective QuestionsComputation of Total Income Under Various Heads " " " " " " " "Aggregation of Income, Set-off or Carry Forward of Lossesand Deductions from Total IncomeComputation of Total Income Under Various HeadsThe Wealth Tax Act, 1957TDS and Other Related Tax MatterThe Wealth Tax Act, 1957Computation of Total Income Under Various HeadsFiling of Returns, Signatures, E-Filings Assessment andReassessmentComputation of Total Income Under Various Heads " " " " " " " "Incomes Which Do Not Form Part of Total IncomeTaxation of Individuals, HUF, Firms, Association ofPersons, Cooperative Societies and Non Residents " " " "Introduction and Important DefinitionsIncomes Which Do Not Form Part of Total IncomeObjective QuestionsLevy, Collection and Payment of Service Tax along withCENVAT Credit Rules " " " "

391393101393102102104

16184

275244267

70

211105

707047

186172

2249

394

326320

3.6

(iv)(v)

8. (i)(ii)

(iii)(iv)

(v)

12121614

1314

14

" " " " " " " "Objective Questions Computation and Other Procedural Aspects Relating toVATValue Added Tax (VAT) — An OverviewComputation and Other Procedural Aspects Relating toVATComputation and Other Procedural Aspects Relating toVAT

320321395

355336

356

341

2012Dec.

1. (a)(b)(c)

OR (c)2. (a)

(b)3. (a)

(b)(i)(ii)(iii)(c)

4. (a)(b)(i)

(ii)(c)

5. (a)

(b)

(c)(d)

6.(a)(i)(ii)(iii)

1616

7

516

595558

57

556

7

98

810

8

Objective Questions" " Taxation of Individuals, HUF, Firms, Association ofPersons, Cooperative Societies and Non ResidentsComputation of Total Income Under Various HeadsObjective QuestionsComputation of Total Income Under Various HeadsTDS and Other Related Tax MatterComputation of Total Income Under Various Heads" " " "" " " "Filing of Returns, Signatures, E-Filings Assessment andReassessmentComputation of Total Income Under Various HeadsTaxation of Individuals, HUF, Firms, Association ofPersons, Cooperative Societies and Non ResidentsComputation of Total Income Under Various Heads" " " "Aggregation of Income, Set-off or Carry Forward of Lossesand Deductions from Total IncomeTaxation of Individuals, HUF, Firms, Association ofPersons, Cooperative Societies and Non ResidentsTDS and Other Related Tax MatterFiling of Returns, Signatures, E-Filings Assessment andReassessment" " " "The Wealth Tax Act, 1957Filing of Returns, Signatures, E-Filings Assessment andReassessment

395396

18984

397106246108108108

217108

1728585

162

172241

217211267

211

3.7

(b)(c)(i)

(ii)(iii)

7. (i)(ii)

(iii)

(iv)(v)

8. (i)(ii)

(iii)(iv)(v)

10555

1612

11

1614

1614

141414

The Wealth Tax Act, 1957Computation of Total Income Under Various Heads" " " "" " " "Objective QuestionsLevy, Collection and Payment of Service Tax along withCENVAT Credit RulesService Tax - Background, Administrative and ProceduralAspectsObjective QuestionsComputation and Other Procedural Aspects Relating toVATObjective QuestionsComputation and Other Procedural Aspects Relating toVAT" " " "" " " "" " " "

277777777

398

322

298398

322399

357357357357

2013June

1. (a)(b)(c)

2. (a)(b)

(c)

3. (a)

(b)

(c)(d)

4. (a)(b)

(c)5. (a)

(b)

1616

516

7

8

7

6

96

96

510

5

Objective Questions" " "Computation of Total Income Under Various HeadsObjective QuestionsTaxation of Individuals, HUF, Firms, Association ofPersons, Cooperative Societies and Non ResidentsFiling of Returns, Signatures, E-Filings Assessment andReassessmentTaxation of Individuals, HUF, Firms, Association ofPersons, Cooperative Societies and Non ResidentsAggregation of Income, Set-off or Carry Forward of Lossesand Deductions from Total IncomeTDS and Other Related Tax MatterAggregation of Income, Set-off or Carry Forward of Lossesand Deductions from Total IncomeTDS and Other Related Tax MatterAggregation of Income, Set-off or Carry Forward of Lossesand Deductions from Total IncomeComputation of Total Income Under Various HeadsThe Wealth Tax Act, 1957Computation of Total Income Under Various Heads

399400109401

190

217

190

158242

152247

163110278111

3.8

(c)6.(a)(i)

(ii)(iii)(b)

(c)(i)(ii)(iii)

7. (i)

(ii)

(iii)(iv)(v)

8. (i)(ii)

(iii)(iv)

(v)(b)(v)(a)

38

559549

11

12

1212121614

14141314

Basis of Charge and Scope of Total IncomeFiling of Returns, Signatures, E-Filings Assessment andReassessmentComputation of Total Income Under Various Heads" " " "TDS and Other Related Tax MatterComputation of Total Income Under Various HeadsIncomes Which Do Not Form Part of Total IncomeTDS and Other Related Tax MatterService Tax - Background, Administrative and ProceduralAspectsLevy, Collection and Payment of Service Tax along withCENVAT Credit Rules " " " " " " " " " " " "Objective QuestionsComputation and Other Procedural Aspects Relating toVAT " " " " " " " "Value Added Tax (VAT) — An OverviewComputation and Other Procedural Aspects Relating toVAT

34

2147878

2427147

236

297

323323326323402

353353359336

359

2013Dec.

1. (a)(b)(c)

2. (a)(b)(c)

3. (a)(b)

(c)4. (a)

(b)

(c)5. (a)

16165165158

556

59

Objective Questions" " Computation to Total Income Under Various HeadsObjective Questions Computation to Total Income Under Various HeadsIntroduction and Important DefinitionsComputation to Total Income Under Various HeadsFiling of Returns, Signatures, E-Filings, Assessment andReassessment Computation to Total Income Under Various Heads " " " " Aggregation of Income, Set-off or Carry Forward ofLosses and Deductions from Total Income Computation of Total Income Under Various HeadsTDS and Other Related Tax Matter

402403112404112

22112

21878

113

164113249

3.9

(b)(c)

6.(a)(i)(ii)(iii)(b)

(c)(i)(ii)(iii)

7. (i)

(ii)(iii)(iv)(v)

8. (i)(ii)

(iii)(iv)(v)

109112419412

121212121614

141314

The Wealth Tax Act, 1957TDS and Other Related Tax MatterIntroduction and Important Definitions" " Capital and Revenue ReceiptsIncome Which Do Not Form Part of Total IncomeIntroduction and Important DefinitionsTDS and Other Related Tax MatterIncome Which Do Not Form Part of Total IncomeLevy, Collection and Payment of Service Tax along withCENVAT Credit Rules" " " "" " " "" " " "" " " "Objective QuestionsComputation and Other Procedural Aspects Relating toVAT" " " "Value Added Tax (VAT) — An OverviewComputation and Other Procedural Aspects Relating toVAT

278243

2222294921

23648

325327325328328404

360354336

354

3.10

Line Chart Page

3.11

Frequency Table Showing Distribution of Marks

Chap.

No.

Years

Chapter Name

09

June

09

Dec.

10

June

10

Dec.

11

June

11

Dec.

12

June

12

Dec.

13

June

13

Dec.Total Ave.

1. Introduction and Important Definitions 2 4 4 3 3 13 29 2.9

2. Capital and Revenue Receipts 4 3 7 0.7

3. Basis of Charge and Scope of Total... 3 9 5 17 1.7

4. Incomes Which Do Not Form Part of... 2 3 2 3 6 2 7 25 2.5

5. Computation of Total Income Under... 8 40 36 31 34 33 42 40 23 31 318 31.8

6. Aggregation of Income, Set-off or Carry. 2 14 4 6 9 3 5 5 11 5 64 6.4

7. Taxation of Individuals, HUF, Firms,... 18 9 7 8 9 10 12 11 11 95 9.5

8. Filing of Returns, Signatures, E-Filings.. 5 4 11 13 9 13 2 8 7 4 76 7.6

9. TDS and Other Related Tax Matter 12 3 15 5 3 8 5 11 15 12 89 8.9

10. The Wealth Tax Act, 1957 15 5 5 10 9 9 8 7 6 5 79 7.9

11. Service Tax Background, Administrative 5 5 5 5 20 2.0

12. Levy, Collection and Payment of Service 20 25 24 15 15 15 20 5 20 25 184 18.4

13. Value Added Tax (VAT) — An Overview 10 5 5 5 5 5 5 2 5 47 4.7

14. Computation and Other Procedural... 30 25 15 15 15 15 15 25 18 15 188 18.8

15. Appointment, Jurisdiction and Powers of. 5 5 5 15 1.5

16. Objective Questions 21 20 15 35 30 30 25 28 10 20 234 23.4

3.12

Frequency Table Showing Marks of Compulsory Questions

Chap.

No.

Years

Chapter Name

09

June

09

Dec.

10

June

10

Dec.

11

June

11

Dec.

12

June

12

Dec.

13

June

13

Dec.Total Ave

1. Introduction and Important Definitions

2. Capital and Revenue Receipts

3. Basis of Charge and Scope of Total...

4. Incomes Which Do Not Form Part of...

5. Computation of Total Income Under... 5 5 5 5 5 5 30 3.0

6. Aggregation of Income, Set-off or Carry...

7. Taxation of Individuals, HUF, Firms,... 5 5 5 15 1.5

8. Filing of Returns, Signatures, E-Filings... 5 5 0.5

9. TDS and Other Related Tax Matter 0 0.0

10. The Wealth Tax Act, 1957

11. Service Tax Background, Administrative.

12. Levy, Collection and Payment of Service.

13. Value Added Tax (VAT) — An Overview

14. Computation and Other Procedural...

15. Appointment, Jurisdiction and Powers of.

16. Objective Questions 10 10 10 10 10 10 10 10 10 10 100 10.0

3.13

Legends for the GraphsS

ho

rt N

ote

s

Dis

tin

gu

ish

Be

twe

en

De

sc

rip

tiv

e

Pra

cti

ca

l

3.14

FOR NOTES

3.15

Star Rating

On the basis of Maximum marks from a chapter Nil

On the basis of Questions included every year from a chapter j

On the basis of Compulsory questions from a chapter Nil

1 Introduction and

Important Definitions

This Chapter Includes: Income Tax; Income [Section 2(24)]; Agricultural Income[Section 2(1A)]; Person [Section 2(31)], Assessee; Assessment; Assessment Year[Section 2(9)]; Previous Year (Section 3); Company, Indian Company and PrincipalOffice; Residence and Tax Liability (Section 6); Test of Residence for Individuals;Tests of Residence for Hindu

Marks of Short Notes, Distinguish Between, Descriptive & Practical Questions

3.16 OOOO Solved ScannerSolved ScannerSolved ScannerSolved Scanner CS Executive Programme M-I Paper 3

CS Executive Programme (Module I)

OBJECTIVE QUESTIONS

2008 - Dec [1] {C} (a) Choose the most appropriate answer from the given options inrespect of the following:

(vi) Any rent or revenue derived from land may be treated as agricultural income if!(a) It is derived from land(b) The land is situated in India(c) The land is used for agricultural purpose(d) All the above conditions are satisfied.

(viii) The incidence of taxation depends on the !(a) Residential status of the assessee(b) Accommodation of the assessee(c) Citizenship of the assessee(d) Marital status of the assessee. (1 mark each)

Answer:

(vi) (d)(viii) (a)

2008 - Dec [2] (a) Re-write the following sentences after filling-up the blank spaces withappropriate word(s)/figure(s):

(ii) Income accrued and received outside India is taxable in case of a ____.(1 mark)

Answer:

(ii) Resident and Ordinarily resident

2008 - Dec [2] (b) State, with reasons in brief, whether the following statements arecorrect or incorrect:

(i) Sandeep, a trader, purchases standing crops and sells it after harvesting. Hisincome will be treated as agricultural income. (2 marks)

Answer:

(i) The statement is incorrect.

For an income to be treated as ‘Agricultural income’, basic and subsequentoperations of agriculturist which include cultivation of the ground, sowing of theseeds, weeding, digging etc. have to be there. In this case, Sandeep, ispurchasing ready crops, hence his income will not be treated as agriculturalincome.

[Chapter #### 1] Introduction and Important Definitions OOOO 3.17

2009 - June [1] {C} (b) Re-write the following sentences after filling-in the blank spaceswith appropriate word(s)/figure(s):

(i) Income of a business commenced on 1st March, 2014 will be assessed duringthe assessment year._____________. (1 mark)

Answer:

(i) 2014 -15

2009 - Dec [1] {C} (a) Choose the most appropriate answer from the given options inrespect of the following having regard to the provisions of the relevant direct tax laws :

(i) Income-tax in India is charged at the rate(s) prescribed by –(a) The Finance Act(b) The Income-tax Act(c) The Central Board of Direct Taxes(d) The Ministry of Finance. (1 mark)

Answer:

(i) (a) The Finance Act

2010 - June [1] {C} (a) Choose the most appropriate answer from the given options inrespect of the following having regard to the provisions of the relevant direct tax laws:

(i) Which of the following income is agricultural income—(a) Rent received from agricultural land(b) Income from dairy farm(c) Income from poultry farm(d) Dividend from a company engaged in agriculture.

(ii) The term ‘income includes the following types of incomes—(a) Legal(b) Illegal(c) Legal and illegal both(d) None of the above.

(iii) Every year, the residential status of an assessee—(a) May change(b) Will certainly change(c) Will not change(d) None of the above. (1 mark each)

Answer:

(i) (a) Rent received from agricultural land(ii) (c) Legal and illegal both(iii) (a) May Change


2010 - June [1] {C} (b) State, with reasons in brief, whether the following statementsare correct or incorrect:

(i) An Indian company is always resident in India no matter where and to whatextent its control and management is situated. (1 mark)

Answer:

(i) Correct

2010 - Dec [1] {C} (a) Choose the most appropriate answer from the given options inrespect of the following having regard to the provisions of the relevant direct tax laws:

(i) Income accruing from agriculture in a foreign country is taxable in the case of anassessee who is —(a) Resident(b) Not-ordinarily resident(c) Non-resident(d) None of the above.

(ii) Foreign income received in India during the previous year is taxable in the caseof —(a) Resident(b) Not-ordinarily resident(c) Non-resident(d) All of the above. (1 mark each)

Answer:

(i) (a) Resident(ii) (d) All of the above.

2010 - Dec [2] (a) State, with reasons in brief, whether the following statements are trueof false:

(i) An income derived from land situated in India is agricultural income. (2 marks)

Answer:

(i) False: Income derived from land situated in India and used for agriculturalpurpose is an agricultural income

2011 - June [1] {C} (a) Write the most appropriate answer from the given options inrespect of following having regard to the provisions of the relevant direct tax laws:

(iv) Which of the following income is an agricultural income —(a) Income from brick making(b) Income from agriculture land situated in Pakistan(c) Prize from government on account of higher crop yield(d) Compensation received from insurance company on account of loss of crop

(1 mark)

Answer:

(d) Compensation received from insurance company on account of loss of crop


2011 - Dec [1] {C} (b) Re-write the following sentences after filling-in the blank spaceswith appropriate word(s)/figure(s):

(i) The residential status of an assessee is determined for the relevant ________.(1 mark)

Answer:

(i) Previous Year

2011 - Dec [2] (a) State, with reasons in brief, whether the following statements are trueor false:

(i) Prize given to Suresh by the Government of Madhya Pradesh on account ofhigher crop yield is an agricultural income.

(iii) Sandeep Ltd. is a company registered in Japan. The control and managementof its affairs is wholly situated in India. Sandeep Ltd. is non-resident company inIndia. (2 marks each)

Answer:

(i) False: Prize given to Mr.Suresh is not an agricultural Income for him. Since, theprice is not related to basic as well as subsequent operation on land. However,it will be included under the income from other sources

(iii) False: As the control and management of affairs of Sandeep Ltd. is whollysituated in India therefore Sandeep Ltd. is a resident company in India

2012 - June [1] {C} (a) Write the most appropriate answer from the given options inrespect of the following having regard to the provisions of the relevant direct tax laws:

(ii) Income earned and received outside India but later on remitted to India, istaxable in the case of —(a) All the assessees(b) Resident and ordinarily resident in India(c) Non-resident(d) None of the above. (1 mark)

Answer:

(d) None of above.

2012 - Dec [1] {C} (a) Write the most appropriate answer from the given options inrespect of the following having regard to the provisions of the relevant direct tax laws:

(ii) Which of the following may be a ‘not ordinarily resident’ in India—(a) Partnership firm(b) Joint stock company(c) Association of persons(d) Hindu Undivided Family. (1 mark)

Answer:

(ii) (d) Hindu Undivided Family



(iv) Total income of a person is determined on the basis of his —(a) Residential status in India(b) Citizenship in India(c) Both (a) and (b) above(d) None of the above. (1 mark)

Answer :

(iv) (a) Residential status in India

2013 - June [2] (a) State, with reasons in brief, whether the following statements aretrue or false:

(v) Income from lease of land for grazing of cattle required for agricultural pursuitsis agricultural income. (1 mark)

Answer :

(v) True, income received from lease of land for grazing of cattle required foragricultural pursuits is agricultural income.


(i) Once a person is a resident in a previous year, he shall be deemed to beresident for subsequent previous year also. (1 mark)

SHORT NOTES

2010 - Dec [3] (b) Write notes on the following:(ii) ‘Assessee’ under section 2(7) (4 marks)

Answer:

An Assessee is a person by whom any tax or any other sum of money (for exampleinterest, penalty, fine, etc) is payable under the Income Tax Laws and includes –

1. A person in whose respect proceedings for determining income has commencedby the Income Tax Department. Thus, a person may become assessee even if noamount is payable by him under the Income Tax Act.

2. A Deemed assessee i.e. a person who himself is not an assessee but is treatedas an assessee for the purposes of the Income tax Act. For example the trustee ofa trust is a deemed assessee in respect of the trust. The income earned is theincome of the trust but is assessed in the hands of the trustee as his income.

3. An assessee in default i.e. a person on whom certain obligations have beenimposed under the Income Tax Act but who has failed to carry out thoseobligations. For example any person who employs another person has to deduct


income tax at source from the taxable salary of the employee and pay the taxdeducted at source to the government within the prescribed time as income taxpaid on behalf of the employee. In case the employer fails to carry out theseobligations, he becomes an assessee in default.

2013 - Dec [6] (c) Write short notes on the following:(i) Assessment year (2 marks)

DISTINGUISH BETWEEN

2009 - June [3] (a) Distinguish between the following:(iv) 'Previous year' and ' assessment year'. (2 marks)

Answer:

Assessment Year Previous Year

Assessment year is the year in whichreturn of Income for the F. Y. ended on31st March is filed.

Previous year is the year in which income isearned

Assessment year always starts from 1stApril and ends on 31st Marchimmediately following the end of theFinancial Year

All previous year whether first or subsequentshall always end on 31st of March. However,start of first previous year shall depend uponthe existence of source of Income.

The period of Assessment year isalways 12 month commencing on the1st day of April

The period of previous year is of maximum of12 months. It can exist even for a day if thesource of income newly coming intoexistence, in the said financial year is on31st March.

2009 - Dec [3] (a) Distinguish between the following:(i) ‘Gross total income’ and ‘total income’. (4 marks)

Answer:

S.No. Gross Total Income Total Income

1. Gross total income means aggregateamount computed under five headsof income i.e. salary, house property,business and profession, capitalgains and other sources

Total Income means the taxableincome arrives after allowingdeductions under section 80C to 80Ufrom the gross total income


2. The Gross total income is more thanor equal to total income

The tax is calculated on total income

3. Rounding off provision does notapply to Gross total Income

Total income shall be rounded off tothe nearest multiple of10

2011 - Dec [4] (a) Distinguish between the following:(i) ‘Gross total income’ and ‘total income’. (3 marks)

Answer:

Please refer 2009 - Dec [3] (a)(i) on page no.21

2012 - June [6] (b) Distinguish between the following:(ii) Scope of total income of ‘resident and ordinary resident’ and ‘non-resident’.

(3 marks)

Answer:

The following incomes from whatever source derived form part of total income in caseof resident in India/ordinarily resident in India:(a) Any income which is received or is deemed to be received in India in the relevant

previous year by or on behalf of such person;(b) Any income which accrues or arises or is deemed to accrue or arise in India during

the relevant previous year;(c) Any income which accrues or arises outside India during the relevant previous

year.The following incomes from whatever source derived from part of Total Income in caseof Non-resident in India;

(a) Any income which is received or is deemed to be received in India during therelevant previous year by or on behalf of such person;

(b) Any income which accrues or arises or is deemed to accrue or arise to him inIndia during the relevant previous year.

2013 - Dec [6] (a) Distinguish between the following:(i) ‘Person’ and ‘assessee’.(ii) Tax liability of ‘resident individual’ and ‘non-resident individual’.

(3 marks each)

DESCRIPTIVE QUESTIONS

2013 - Dec [2] (c) Under what circumstances, an individual will be considered ‘non-resident’ for income-tax purposes and on what income he will be liable to be assessed?

(5 marks)


CS Inter Gr. I


2004 - June [1] {C} (a) Income earned by a mutual concern from mutual activities is nottaxable. Comment. (3 marks)

Answer:

Income earned by a mutual concern from mutual activities is not taxable. A mutualconcern is liable to tax in respect of interest earned from investment in the banks. Thegeneral observation that mutual concern should not be treated as taxable income is,therefore, subject to three exceptions expressly provided in the Act. Firstly, income,accruing to a life or non-life mutual insurance concern is liable to tax. Secondly, incomederived by a trade, profession or similar association from specific services performedfor its members is chargeable to tax. Thirdly, income from insurance business carriedon by a cooperative society is taxable in all cases and is to be computed in accordancewith rules in the First Schedule.

2004 - Dec [1] {C} (b) "Every assessee is a person, but every person need not be anassessee." Critically examine the statement with reference to the relevant definitionsunder the provisions of the Income-tax Act, 1961. (3 marks)

Answer:

“Every assessee is a person, but every person need not be an assessee.” Thestatement is very true. A person is an assessee only if any tax or any other sum ofmoney (for example interest, penalty, fine, etc) is payable under the Income Tax Lawsand includes –• A person in whose respect proceedings for determining income has commenced

by the Income Tax Department. Thus, a person may become assessee even if noamount is payable by him under the Income Tax Act.

• A Deemed assessee i.e. a person who himself is not an assessee but is treated asan assessee for the purposes of the Income tax Act. For example the trustee of atrust is a deemed assessee in respect of the trust. The income earned is theincome of the trust but is assessed in the hands of the trustee as his income.

• An assessee in default i.e. a person on whom certain obligations have beenimposed under the Income Tax Act but who has failed to carry out thoseobligations. For example any person who employes another person has to deductincome tax at source from the taxable salary of the employee and pay the taxdeducted at source to the government within the prescribed time as income tax


paid on behalf of the employee. In case the employer fails to carry out theseobligations, he becomes an assessee in default.On the other hand an assessee will always be a person since person includes:1. An individual2. A Hindu Undivided Family (HUF)3. A company4. A Partnership Firm5. An Association of Persons (AOP)6. A Body of Individuals (BOI)7. A Local Authority8. Every artificial judicial person.

For example, x, an individual has earned total income of 1,90,000 in the previous year.He is a person but not an assessee because his total income is less than the maximumexemption limit of 2,00,000/- and no tax or any other sum is due from him.

2005 - Dec [4] (c) "Income of the previous year is assessable as the income ofimmediate following financial year." State the exceptions to this rule. (3 marks)

Answer:

In the following circumstances the income is taxed in the same year it is earned. Thisis called the ‘Accelerated assessment’.

1. Shipping business of non – resident (Section 172)

2. Assessment of a person leaving India (Section 174)

3. Assessment of AOP or BOI formed for a particular event or purpose (Section

174A)

4. Assessment of person likely to transfer property to avoid tax (Section 175)

5. Discontinued business (Section 176).

2007 - June [3] (b) Briefly answer the following:(ii) Who is a non-resident? (1 mark)

Answer:

An individual/HUF is considered non – resident, when he/she does not satisfy any of thebasic conditions as under.

Basic Conditions:

(a) He / she is in India in the previous year for a period of 182 days or more.(b) He / she is in India for a period of 60 days or more during the previous year and 365

days or more during 4 years immediately preceding the previous year.A firm, AOP and a BOI will be non – resident if control and management of its affairsis wholly situated outside India.A company will be considered to be a non – resident in any previous year if controland management of its affairs are situated completely or partly outside India.


2007 - June [4] Comment on the following statements:(iv) The incidence of income-tax depends upon the residential status of an

assessee. (3 marks)

Answer:

Tax incidence of an assessee depends on his residential status. Section 5 provides forthe scope of total income as the basis of liability to tax, which defines it in terms of theresidential status of the assessee.

Section 6 of the Income tax Act prescribes the test to be applied to determine theresidential status of all tax payers for the purposes of income tax. For instance, whetheran income, accrued to an individual outside India, is taxable in India depends upon theresidential status of individual in India. Similarly, whether an income earned by a foreignnational in India (or outside India) is taxable in India depends on the residential statusof the individual, rather than on his citizenship.

Therefore, the determination of the residential status of a person is very significantin order to find out his tax liability.

2007 - Dec [3] Comment on the correctness or otherwise of the followingstatements/propositions with reference to the relevant provisions of tax laws:

(iv) The residential status of an assessee does not affect his tax liability. (5 marks)

Answer:

Incorrect Statement

The scope of total income of all assesses is dependent upon the residential status ofthe assessee. The total income is different in case of a person resident in India and aperson non-resident in India. Further, in case of an individual or HUF being “notordinarily resident in India”, the meaning of total income shall be slightly different. Sincethe total income of an assessee varies according to his residential status in India, theincidence of tax shall also vary according to such residential status in India.

2008 - June [1] {C} (a) Attempt the following:(ii) “Income earned by a mutual concern from mutual activities is not taxable.”

Comment. (3 marks)

Answer:

Income earned by a mutual concern from mutual activities is not taxable. A mutualconcern is liable to tax in respect of interest earned from investment in the banks. Thegeneral observation that mutual concern should not be treated as taxable income is,therefore, subject to three exceptions expressly provided in the Act. Firstly, income,accruing to a life or non-life mutual insurance concern is liable to tax. Secondly, incomederived by a trade, profession or similar association from specific services performedfor its members is chargeable to tax. Thirdly, income from income insurance businesscarried on by a cooperative society is taxable in all cases and is to be computed inaccordance with rules in the First Schedule.


PRACTICAL QUESTIONS

2004 - Dec [2] (c) Teji, a citizen of India, is an export manager of Arjun Overseas Ltd.,an Indian company since 1st May, 2009. He has been regularly visiting USA for exportpromotion. He spent the following days in USA during the last five years:

Previous year ended Number of daysspent in USA

31.3.2010 319 days31.3.2011 150 days31.3.2012 270 days31.3.2013 310 days31.3.2014 295 days

Determine his residential status for the assessment year 2014-15 assuming thatprior to 1st May, 2009 he had never travelled abroad. (5 marks)

Answer:

Total stay in India

Year No of days in India

2009 !10 46

2010 !11 215

2011 !12 96

2012 !13 55

2013 !14 70

During previous year 2013-14 his stay in India is 70 days and in the four precedingyears 46 + 215 + 95 + 56 = 412 days.Resident in India (Condition of 182 days for citizen not applicable as he has gone foremployment abroad)2012 !2013 ==== 55 days (Non – Resident)2011 !2012 ==== 96 days but more than 365 days in the 4 preceding previous years.

Hence, resident2010 !2011 ==== 215 days (Resident)2009 !2010 ==== 46 days (Non – Resident)Prior to 2008 !2009 === Resident

Since, Teji satisfies the first condition of being resident in at least 2 out of 10previous years prior to relevant year and the 2nd condition of being in India for 730 daysor more in the 7 preceding previous years therefore; he is resident and ordinarilyresident in India.


2005 - June [1] {C} (a) Armello, a German national, came to India for the first timeduring the year 2009-10. During the financial years 2009-10, 2010-11, 2011-12,2012-13 and 2013-14, he was in India for 130 days, 75 days, 59 days, 100 days and 80days respectively. Determine his residential status for the assessment year 2014-15.

(3 marks)

Answer:

In this case, Armello does not stay for 182 days during the financial year 2013-14.Therefore, he fails to fulfill the first basic condition. Having stayed for more than 60 daysduring 2013-14, he stayed only for 364 days during the preceding four financial years.Thus he fails to fulfill even the second basic condition. Consequently, his residentialstatus for the Assessment Year 2014-15 relevant to the Financial Year 2013-14 is thatof a non-resident.

Repeatedly Asked Questions

No. Question Frequency

1 Descriptive Question of:Income earned by a mutualconcern from mutual activities is not taxable. Comment.

04 - June [1] {C} (a), 08 - June [1] {C} (a) (ii) 2 Times

2 Distinguish between on ‘Gross total income’ and ‘totalincome’. 09 - Dec [3] (a) (i), 11 - Dec [4] (a) (i)

2 Times

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On the basis of Questions included every year from a chapter Nil


2 Capital and Revenue Receipts

This Chapter Includes: Capital & Revenue Receipts (Conceptual Analysis) Capital& Revenue Receipts in relation to business activity.



OBJECTIVE QUESTIONS


(i) Which of the following is not an example of capital receipt!(a) Money received on issue of shares(b) Money received on sale of land

[Chapter #### 2] Capital and Revenue Receipts OOOO 3.29

(c) Money received on sale of goods(d) None of the above. (1 mark)

Answer:

(i) (c)


(iv) Ashok Exports Ltd. realised surplus of 1,00,000 consequent to change inexchange rate of currency. This surplus is a revenue receipt. (2 marks)

Answer:

(iv) The statement is correct.

If by virtue of exchange operations profits be made during the course of businessand in connection with business transactions, the excess receipt on account ofconversion of one currency in to another would be revenue receipts; otherwisethey would be capital receipts.

DISTINGUISH BETWEEN

2010 - Dec [5] (a) Distinguish between the following:(iv) ‘Capital expenditure’ and ‘revenue expenditure’ (4 marks)

Answer:

Capital expenditure, even if incurred for the purpose of earning income, is notdeductible while computing taxable income; unless the law expressly so provides.Revenue expenditure, on the other hand, is deductible while computing taxable incomeunless the law provides specifically to disallow such expenditures wholly or partly(b) Capital expenditure is incurred in acquiring, extending or improving a fixed asset,

whereas revenue expenditure is incurred in the normal course of business as aroutine business expenditure

(c) Capital expenditure produces benefits for several previous years, whereas revenueexpenditure is consumed within one previous year

(d) Capital expenditure makes improvements in earning capacity of a business;revenue expenditure maintains the profit making capacity of a business

(e) Capital expenditure usually is a non-recurring outlay, whereas revenue expenditureis normally a recurring outlay.

2013 - Dec [6] (a) Distinguish between the following:(iii) ‘Capital receipts’ and ‘revenue receipts’. (3 marks)



2008 - Dec [3] (a) Attempt the following:(i) “Income-tax is a tax on income and not a tax on every item of money received.”

Explain this statement with reference to capital and revenue receipts.(3 marks)

Answer:

(i) Income-tax is a revenue law. Only revenue receipts which are not capital innature are taxed under the Income-tax act. To understand this properly first weneed to understand the difference between capital and revenue receipts.

Capital Receipts: An amount referable to fixed capital is a capital receipts. Fixedcapital is that which is not involved directly in the process of business but remainsunaffected by the process. Every capital receipts is exempted from tax unless otherwiseexpressly taxable. Certain receipts are not taxable but have been made taxable undersection 45.

Example: Transfer of capital assets is treated as capital receipts since source ofIncome itself is being sold but still chargeable to tax under section 45.

Revenue Receipts: An amount referable to circulating capital is a revenue receipts.Circulating capital is that part of the capital which is turned over in the business andwhich ultimately results in profit or loss. Every revenue receipt is taxable, unlessotherwise expressly exempted under the Act.

Example: Agricultural income though revenue receipt is exempt from tax undersection 10(1)

CS Inter Gr. I

PRACTICAL QUESTIONS

2005 - Dec [2] (a) State, with reasons in brief, whether the following receipts/expensesare capital or revenue in nature:

(i) Ankit Ltd. received 3 lakh as compensation from Bhushan Ltd. for prematuretermination of a contract of agency.

(ii) Sales tax collected from the buyer of goods.(iii) Pretty Ltd., instead of receiving royalty year by year, received it in advance in

lump sum.

[Chapter #### 2] Capital and Revenue Receipts OOOO 3.31

(iv) Payment of 60,000 as compensation for cancellation of a contract for thepurchase of machinery with a view to avoid an unnecessary expenditure.

(v) An employee director of a company was paid 1.5 lakh as a lump sumconsideration for not resigning from the directorship. (5 marks)

Answer:

(i) Receipt in substitution of a source of income is a capital receipt. Therefore, theamount received by Ankit Ltd, from Bhushan Ltd, for premature termination of anagency contract is a capital receipt through the same is taxable under the headincome from profit and gains from business and profession.

(ii) Sales tax is the liability of a seller to pay to the government on the sale of goodsmade by him, which is allowed as deduction as revenue expenditure. If any partof sales tax is collected from the buyer of goods, which may be treated as arevenue receipt. Thus, the sales tax collected from buyer of goods is a revenuereceipts.

(iii) Receipts of lump sum royalty in lieu of future royalties is a revenue receipts, asit is an income from royalty

(iv) This is a capital expenditure, as any expenditure incurred by a person to freehimself from a capital liability is a capital expenditure. In the given case, thepayment of 60,000 for cancelling the order for purchase of the machinery hashelped the assessee to become free from an unnecessary capital liability.

(v) The amount of 1,50,000 received for not resigning from the directorship is areward received from the employer. Therefore, it is a revenue receipt.

2007 - June [1] {C} Attempt the following:(iii) Rani Textiles Ltd., a manufacturing company in the field of textiles, installed a

dust inhalation plant of 200 lakhs in the factory in order to protect the health ofits workmen. Whether the expenditure so incurred is capital in nature?

(3 marks)

Answer:

(iii) False: the fact of the above is similar to the case where the assessee, amanufacturer of textiles, installed a dust inhalation plant in his factory in order toprotect the health of his workmen. Expenditure incurred on the said plant wasdecided to be treated as revenue expenditure. Therefore, expenditure of 200lakhs incurred for installation of dust inhalation plant in order to protect the healthof workmen is revenue and not an expenditure of capital in nature.

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3 Basis of Charge and

Scope of Total Income

This Chapter Includes: Change of Income-tax, Exceptions, Meaning & scope oftotal income..


[Chapter #### 3] Basis of Charge and Scope of Total Income OOOO 3.33


OBJECTIVE QUESTIONS


(iii) Income accruing in India in previous year is taxable for –(a) Resident(b) Not ordinarily resident(c) Non-resident(d) All of the above. (1 mark)

Answer:

(iii) (d) All of the above


(i) Past untaxed profit of the financial year 2003-04 brought to India in 2013-14 ischargeable to tax in the assessment year 2014-15 in the hands of —(a) All the assessees(b) Resident and ordinarily resident in India(c) Non-resident in India(d) None of the above. (1 mark)

Answer :

(i) (d) None of the above

SHORT NOTES

2010 - Dec [6] (a) Write short notes on the following:(i) Taxability of income by virtue of business connection (3 marks)

Answer:

Any income which arises, directly or indirectly, from any activity or a businessconnection in India is deemed to be earned in India. Business connections may be inseveral forms e.g. a branch office in India or an agent or an organization of anon-resident in India. Formation of a subsidiary company in India to carry on thebusiness of the non-resident parent company would also be a business connection inIndia. Any profit of the non-resident which can be reasonably attributable to such partof operations carried out in India through business connections in India are deemed tobe earned in India. Some instances of a non-resident having business connection inIndia are given below:


C Maintaining a branch office, for the purchase or sale of goods or transacting otherbusiness.

C Appointing an agent in India, for the systematic and regular purchase of rawmaterials or other commodities, or for sale of the non-resident goods for otherbusiness purposes

C Erecting a factory in India where the raw produce purchased locally is worked intoa form suitable for export abroad

C Forming a local subsidiary company to sell the products of the non-resident parentcompany

C Having financial association between a resident and a non-resident company.

DISTINGUISH BETWEEN

2011 - June [4] (b) Distinguish between the following:(ii) 'Slab rate' and 'flat rate' of income-tax. (3 marks)

Answer:

Slab rate of tax is a tax by which the tax rate increases as the taxable base amountincreases. Slab taxes attempt to reduce the tax incidence of people with a lower abilityto pay, as they shift the incidence increasingly to those with a higher ability to pay.Flat rate of tax is a tax system with a constant tax rate. An income tax having a singlerate for all tax payers regardless of level and type. Flat rate of taxes offers simplicity inthe taxation system.


2013 - June [5] (c) Explain the incomes which are deemed to accrue or arise in India.(5 marks)

Answer:

Income deemed to accrue or arise in India.

(1) The following incomes shall be deemed to accrue or arise in India :—(i) All income accruing or arising, whether directly or indirectly, through or from

any business connection in India, or through or from any property in India, orthrough or from any asset or source of income in India or through the transferof a capital asset situate in India.


[Explanation 1].— For the purposes of this clause —(a) in the case of a business of which all the operations are not carried out

in India, the income of the business deemed under this clause to accrueor arise in India shall be only such part of the income as is reasonablyattributable to the operations carried out in India ;

(b) in the case of a non-resident, no income shall be deemed to accrue orarise in India to him through or from operations which are confined to thepurchase of goods in India for the purpose of export ;

(c) in the case of a non-resident, being a person engaged in the business ofrunning a news agency or of publishing newspapers, magazines orjournals, no income shall be deemed to accrue or arise in India to himthrough or from activities which are confined to the collection of news andviews in India for transmission out of India ;]

(d) in the case of a non-resident, being—(1) an individual who is not a citizen of India ; or(2) a firm which does not have any partner who is a citizen of India or

who is resident in India ; or(3) a company which does not have any shareholder who is a citizen of

India or who is resident in India, no income shall be deemed toaccrue or arise in India to such individual, firm or company throughor from operations which are confined to the shooting of anycinematograph film in India.]

[Explanation 2.—For the removal of doubts, it is hereby declared that"business connection" shall include any business activity carried out througha person who, acting on behalf of the non-resident,—(a) has and habitually exercises in India, an authority to conclude contracts

on behalf of the non-resident, unless his activities are limited to thepurchase of goods or merchandise for the non-resident; or

(b) has no such authority, but habitually maintains in India a stock of goodsor merchandise from which he regularly delivers goods or merchandiseon behalf of the non-resident; or

(c) habitually secures orders in India, mainly or wholly for the non-residentor for that non-resident and other non-residents controlling, controlled by,or subject to the same common control, as that non-resident:

Provided that such business connection shall not include any businessactivity carried out through a broker, general commission agent or any otheragent having an independent status, if such broker, general commission agentor any other agent having an independent status is acting in the ordinarycourse of his business:


Provided further that where such broker, general commission agent or anyother agent works mainly or wholly on behalf of a non-resident (hereafter inthis proviso referred to as the principal non-resident) or on behalf of suchnon-resident and other non-residents which are controlled by the principalnon-resident or have a controlling interest in the principal non-resident or aresubject to the same common control as the principal non-resident, he shall notbe deemed to be a broker, general commission agent or an agent of anindependent status.Explanation 3.— Where a business is carried on in India through a personreferred to in clause (a) or clause (b) or clause (c) of Explanation 2, only somuch of income as is attributable to the operations carried out in India shall bedeemed to accrue or arise in India.][Explanation 4.— For the removal of doubts, it is hereby clarified that theexpression "through" shall mean and include and shall be deemed to havealways meant and included "by means of", "in consequence of" or "by reasonof".Explanation 5.— For the removal of doubts, it is hereby clarified that an assetor a capital asset being any share or interest in a company or entity registeredor incorporated outside India shall be deemed to be and shall always bedeemed to have been situated in India, if the share or interest derives, directlyor indirectly, its value substantially from the assets located in India;]

(ii) Income which falls under the head "Salaries", if it is earned in India.Explanation.— For the removal of doubts, it is hereby declared that theincome of the nature referred to in this clause payable for—(a) service rendered in India; and(b) the rest period or leave period which is preceded and succeeded by

services rendered in India and forms part of the service contract ofemployment, shall be regarded as income earned in India;

(iii) income chargeable under the head "Salaries" payable by the Government toa citizen of India for service outside India ;

(iv) a dividend paid by an Indian company outside India ;(v) income by way of interest payable by—

(a) the Government ; or(b) a person who is a resident, except where the interest is payable in

respect of any debt incurred, or moneys borrowed and used, for thepurposes of a business or profession carried on by such person outsideIndia or for the purposes of making or earning any income from anysource outside India ; or


(c) a person who is a non-resident, where the interest is payable in respectof any debt incurred, or moneys borrowed and used, for the purposes ofa business or profession carried on by such person in India;

(vi) income by way of royalty payable by—(a) the Government ; or(b) a person who is a resident, except where the royalty is payable in respect

of any right, property or information used or services utilised for thepurposes of a business or profession carried on by such person outsideIndia or for the purposes of making or earning any income from anysource outside India ; or

(c) a person who is a non-resident, where the royalty is payable in respectof any right, property or information used or services utilised for thepurposes of a business or profession carried on by such person in Indiaor for the purposes of making or earning any income from any source inIndia :

Provided that nothing contained in this clause shall apply in relation to somuch of the income by way of royalty as consists of lumpsum considerationfor the transfer outside India of, or the imparting of information outside Indiain respect of, any data, documentation, drawing or specification relating to anypatent, invention, model, design, secret formula or process or trade mark orsimilar property, if such income is payable in pursuance of an agreementmade before the 1st day of April, 1976, and the agreement is approved by theCentral Government :

[Provided further that nothing contained in this clause shall apply in relationto so much of the income by way of royalty as consists of lumpsum paymentmade by a person, who is a resident, for the transfer of all or any rights(including the granting of a licence) in respect of computer software suppliedby a non-resident manufacturer along with a computer or computer-basedequipment under any scheme approved under the Policy on ComputerSoftware Export, Software Development and Training, 1986 of theGovernment of India.]Explanation 1.— For the purposes of the [first] proviso, an agreement madeon or after the 1st day of April, 1976, shall be deemed to have been madebefore that date if the agreement is made in accordance with proposalsapproved by the Central Government before that date; so, however, that,where the recipient of the income by way of royalty is a foreign company, theagreement shall not be deemed to have been made before that date unless,before the expiry of the time allowed under sub-section (1) or sub-section (2)of section 139 (whether fixed originally or on extension) for furnishing the


return of income for the assessment year commencing on the 1st day of April,1977, or the assessment year in respect of which such income first becomeschargeable to tax under this Act, whichever assessment year is later, thecompany exercises an option by furnishing a declaration in writing to theAssessing] Officer (such option being final for that assessment year and forevery subsequent assessment year) that the agreement may be regarded asan agreement made before the 1st day of April, 1976.Explanation 2.— For the purposes of this clause, "royalty" meansconsideration (including any lumpsum consideration but excluding anyconsideration which would be the income of the recipient chargeable underthe head "Capital gains") for—

(i) the transfer of all or any rights (including the granting of a licence) in respectof a patent, invention, model, design, secret formula or process or trade markor similar property ;

(ii) the imparting of any information concerning the working of, or the use of, apatent, invention, model, design, secret formula or process or trade mark orsimilar property ;

(iii) the use of any patent, invention, model, design, secret formula or process ortrade mark or similar property ;

(iv) the imparting of any information concerning technical, industrial, commercialor scientific knowledge, experience or skill ;[(iva) The use or right to use any industrial, commercial or scientific equipmentbut not including the amounts referred to in section 44BB;]

(v) the transfer of all or any rights (including the granting of a licence) in respectof any copyright, literary, artistic or scientific work including films or videotapes for use in connection with television or tapes for use in connection withradio broadcasting, but not including consideration for the sale, distribution orexhibition of cinematographic films ; or

(vi) the rendering of any services in connection with the activities referred to insub-clauses (i) to [(iv), (iva) and(v).][Explanation 3.— For the purposes of this clause, "computer software" meansany computer programme recorded on any disc, tape, perforated media orother information storage device and includes any such programme or anycustomized electronic data.][Explanation 4.— For the removal of doubts, it is hereby clarified that thetransfer of all or any rights in respect of any right, property or informationincludes and has always included transfer of all or any right for use or right touse a computer software (including granting of a licence) irrespective of themedium through which such right is transferred.


Explanation 5.— For the removal of doubts, it is hereby clarified that theroyalty includes and has always included consideration in respect of any right,property or information, whether or not—(a) the possession or control of such right, property or information is with the

payer;(b) such right, property or information is used directly by the payer;(c) the location of such right, property or information is in India.Explanation 6.—For the removal of doubts, it is hereby clarified that theexpression "process" includes and shall be deemed to have always includedtransmission by satellite (including up-linking, amplification, conversion fordown-linking of any signal), cable, optic fibre or by any other similartechnology, whether or not such process is secret;]

(vii) Income by way of fees for technical services payable by—(a) the Government ; or(b) a person who is a resident, except where the fees are payable in respect

of services utilised in a business or profession carried on by such personoutside India or for the purposes of making or earning any income fromany source outside India ; or

(c) a person who is a non-resident, where the fees are payable in respect ofservices utilised in a business or profession carried on by such person inIndia or for the purposes of making or earning any income from anysource in India:

[Provided that nothing contained in this clause shall apply in relation to anyincome by way of fees for technical services payable in pursuance of anagreement made before the 1st day of April, 1976, and approved by theCentral Government.]Explanation 1.—For the purposes of the foregoing proviso, an agreementmade on or after the 1st day of April, 1976, shall be deemed to have beenmade before that date if the agreement is made in accordance with proposalsapproved by the Central Government before that date.]Explanation [2].—For the purposes of this clause, "fees for technical services"means any consideration (including any lumpsum consideration) for therendering of any managerial, technical or consultancy services (including theprovision of services of technical or other personnel) but does not includeconsideration for any construction, assembly, mining or like project undertakenby the recipient or consideration which would be income of the recipientchargeable under the head "Salaries".]


(2) Notwithstanding anything contained in sub-section (1), any pension payableoutside India to a person residing permanently outside India shall not be deemedto accrue or arise in India, if the pension is payable to a person referred to in article314 of the Constitution or to a person who, having been appointed before the 15thday of August, 1947, to be a Judge of the Federal Court or of a High Court withinthe meaning of the Government of India Act, 1935, continues to serve on or afterthe commencement of the Constitution as a Judge in India.[Explanation.—For the removal of doubts, it is hereby declared that for thepurposes of this section, income of a non-resident shall be deemed to accrue orarise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) andshall be included in the total income of the non-resident, whether or not,—(i) The non-resident has a residence or place of business or business connection

in India; or(ii) The non-resident has rendered services in India.

PRACTICAL QUESTIONS

2011 - June [4] (a) For the assessment year 2014-15, Hari is a non-resident in India.From the information given below, find out his income chargeable to tax for theassessment year 2014-15:

(i) Royalty received by him outside India from the Government of India: 17,000.(ii) Technical fees received from an Indian company in Germany for advice given

by him in respect of a project situated in Iran: 1,17,000.(iii) Income from a business situated in Sri Lanka (goods are sold in Sri Lanka, sale

consideration is received in Sri Lanka but business is partly controlled in SriLanka and partly in India): 2,17,000.

(iv) Income received in Nepal from a business connection in India: 3,17,000.(v) Gift in foreign currency from a friend received in India on 20th January, 2014:

` 80,000.(vi) Past untaxed profit of 2000-01 brought in India on 10th April, 2013: 27,000.

(6 marks)

Answer:

Income of Hari a non resident shall be chargeable

to tax for AY 2014-15 as under

Royalty received by him outside India from the Government of India 17,000

Technical fees received from an Indian company in Germany for advicegiven by him in respect of a project situated in Iran Nil


Income from a business situated in Sri Lanka (goods are sold in SriLanka, sale consideration is received in Sri Lanka but business ispartly controlled in Sri Lanka and partly in India)

Nil

Income received in Nepal from a business connection in India 3,17,000

Gift in foreign currency from a friend received in India on 20th January,2014 80,000

Past untaxed profit of 2000-01 brought in India on 10th April, 2013 Nil

Total 4,14,000

3.42

Star Rating


On the basis of Questions included every year from a chapter jj


4 Incomes Which Do Not

Form Part of Total Income

This Chapter Includes: Provisions regarding Section 10,10A, 10B, 11, 12, 12A, 13& 13A Special Provisions for newly established units in special regions, issuesrelating to trusts, Charitable organisation, etc. Tax exemption to political parties.


[Chapter #### 4] Incomes Which Do Not Form Part of.. OOOO 3.43


OBJECTIVE QUESTIONS


(iv) Remuneration for rendering services on a foreign ship is exempt in the case of!(a) A resident(b) A non-resident who is not a citizen of India(c) Not ordinarily resident(d) A citizen of India. (1 mark)

Answer:

(iv) (b)


(v) Literary awards instituted by the Central Government are exempted from income-tax. (1 mark each)

Answer:

(v) Correct

2010 - June [2] (a)Re-write the following sentences after filling-in the blank spaces withappropriate word(s)/figure(s):

(i) The maximum exemption limit under the Income-tax Act, 1961 in case of awoman who is less than 60 years of age and who is non-resident in Indiais____________. (1 mark)

Answer:

(i) ` 2,00,000


(iii) Which of the following income is not included in the term ‘income’ under theIncome-tax Act, 1961 —(a) Profit and gains(b) Dividend(c) Profit in lieu of salary(d) Reimbursement of travelling expenses.


(v) The maximum exemption under section 10(10AA) in case of leave encashmentis —

(a) ` 3,50,000

(b) ` 3,00,000

(c) ` 10,00,000

(d) ` 5,00,000. (1 mark each)

Answer:

(iii) (d) Reimbursement of travelling expenses

(v) (b) ` 3,00,000


(i) Which of the following income is not exempt under section 10 —(a) Share in total income of firm(b) Income from agriculture in Lahore(c) Bonus of life insurance(d) Income from mutual funds. (1 mark)

Answer:

(i) (b) Income from agriculture in Lahore- As per section 2(1A) the Income shouldbe derived from land situated in India and the land should be used foragricultural purpose. Hence, exemption under section 10 shall not beavailable from the income of land which is situated outside India.


(ii) Voluntary contribution received by electoral trust shall be exempt in all cases.(2 marks)

Answer:

(ii) False: The voluntary contribution received by the electoral trust is exempt onlyif the electoral trust distributes to any political party , registered under section29A of the Representation of the People Act, 1951, during previous year 95% ofthe aggregate donations received by it during the said previous year along withthe surplus, if any brought forward from any earlier previous year; and suchelectoral functions in accordance with the rules made in this regard by theCentral Government.

2012 - Dec [2] (a) State, with reasons in brief, whether the statement is true or false:(i) There is no difference between ‘exemption’ and ‘deduction’. (1 mark)


Answer:

(i) False: If an income is exempt from tax, it shall not be included in thecomputation of income. Exemption can never exceed the amount of income.Deduction is generally given from income chargeable to tax. Deduction can beless than or equal to or more than the amount of income.


(v) Which of the following income is exempted from tax —(a) Agricultural income in Kolkata(b) Interest on government securities(c) Income from salaries(d) Capital gains. (1 mark)

SHORT NOTES

2008 - Dec [4] (b) Write short notes on the following:(ii) Essential conditions for claiming exemption under section 11 in the case of a

charitable trust. (3 marks)

Answer:

Income of a charitable trust is exempt according to the provisions of sections 11, 12,12A, 12AA and 13. The trust should be one which is established in accordance with lawand its objects should fall within the definition of the term ''charitable purpose''.

Essential conditions for exemption

The following main conditions are essential for claiming exemption under Section 11 –(a) The property from which income is derived should be held under a trust or other

legal obligation.(b) The property should be held for charitable or religious purposes. In the case of a

charitable trust created on or after April 1, 1962, the further conditions are:C The trust should not be created for the benefit of any particular religious

community or caste.C No part of the income should directly or indirectly be for the benefit of the settler

or other specified persons.C The property should be held wholly for charitable purposes.

(c) The three conditions mentioned above also apply to religious trust created on orafter April 1, 1962.

(d) The exemption is confined to only such portion of the trust's income which isapplied to charitable or religious purposes or is accumulated for applying to suchpurposes within the limits of accumulation permitted under section 11(1) and (2).


(e) The exemption is restricted to such portion of the income as is applied to charitableor religious purposes in India except in the cases covered by section 11(1)(c).

(f) The exemption from tax will not be available to any religious or charitable trust orinstitution in respect of business profits, unless:C The business is carried on by the trust wholly for public religious purposes and

the business consists of printing and publication of books or publication of booksor is of a kind notified by the Government.

C The business is carried on by the institution wholly for charitable purposes andthe work in connection with the business is mainly carried on by the beneficiariesof the institution and separate books of account are maintained by thetrust/institution of such business.

(g) Trusts or institutions can carry out business activities if business activities areincidental to the attainment of its objectives and separate books of account aremaintained. In other words, irrespective of whether any business is carried on bysuch a trust or institution or the business undertaking itself is held in trust, in eithercase, the trust or institutions is charged to tax on such profits and gains at the ratesof tax applicable in the case of individuals, association of persons, body ofindividuals, etc., if the above conditions are not satisfied.

2009 - Dec [2] (b) Write short notes on the following:(iii) Exemption of income of newly established units in special economic zone.

(3 marks)

Answer:

(iii) Under Section 10AA a deduction of such profits and gains as derived by anassessee being an entrepreneur from the export of articles or things or providingany services, as the case may be from his unit shall be allowed from the totalincome of the assessee. The deduction under this section shall be allowed asunder for a total period of 15 relevant years.

1 For the first 5 consecutiveassessment years beginning withthe assessment year relevant tothe previous year in which the unitbegins to manufacture sucharticles or things or provideservices.

100% of the profits and gains derivedfrom the export of such articles orthings from services.

2 Next 5 consecutive assessmentyears

50% of such profits and gains


3 Next 5 consecutive assessmentyears

So much of the amount notexceeding 50% of the profits as isdebited to profit and loss account ofthe previous year in respect of whichthe deduction is to be allowed andcredited to SEZ ReinvestmentReserve Account amount and utilizedfor the purpose of the business of theassessee.

2011 - Dec [5] (a) Write short notes on the following:(ii) Treatment of agricultural income for tax purposes. (3 marks)

Answer:

There is no tax on agricultural income but if an assessee has non-agricultural incomeas well as agricultural income such agricultural income is included in his total incomefor the purpose of computation of income tax on non-agricultural income.

The reason for totally exempting agricultural income from the scope of centralincome tax is that under the Constitution, the Parliament has no power to levy a tax onagricultural income. Indirect way of taxing agricultural income -This concept is knownas partial integration of taxes. It is applicable to individuals, HUF, unregistered firms,AOP, BOI and artificial persons.

Two conditions which need to satisfy for partial integration are:

1. The net agricultural income should exceed 5,000 for the year and2. Non-agricultural income should exceed the maximum amount not chargeable to

tax.

2012 - June [5] (b) Write short notes on the following:(iii) Agricultural income. (3 marks)

Answer:

Agricultural income means:(a) Any rent or revenue derived from land, situated in India and is used for agricultural

purposes;(b) Any income derived from such land by agricultural operations including processing

of the agricultural produce;(c) Income attributable to a farm house subject to certain conditions.

2013 - June [6] (c) Write short notes on the following:(ii) Income of political parties under section 13A (2 marks)


Answer :

(ii) Income of political parties under section 13A

Any income of a political party which is chargeable under the head "Income fromhouse property" or "Income from other sources" or Capital gains" or any incomeby way of voluntary contributions received by a political party from any personshall not be included in the total income of the previous year of such politicalparty :

Provided that— (a) such political party keeps and maintains such books of account and other

documents as would enable the Assessing Officer to properly deduce itsincome therefrom;

(b) in respect of each such voluntary contribution in excess of twenty thousandrupees, such political party keeps and maintains a record of suchcontribution and the name and address of the person who has made suchcontribution; and

(c) the accounts of such political party are audited by an accountant asdefined in sub-section (2) of section 288 :

Provided further that if the treasurer of such political party or any other personauthorised by that political party in this behalf fails to submit a report undersub-section (3) of section 29C of the Representation of the People Act, 1951 (43of 1951) for a financial year, no exemption under this section shall be availablefor that political party for such financial year.

2013 - Dec [6] (c) Write short notes on the following:(iii) Taxation of agricultural income. (2 marks)

DISTINGUISH BETWEEN

2009 - June [3] (a) Distinguish between the following:(iii) 'Exempted incomes under section 10' and 'deductions under section 80'.

(2 marks)

Answer:

(iii) Sections 10, 10AA, and 13A deal with income which does not form part of anassessee's total income. While section 10 provides a list of income absolutelyexempt from tax, sections 10A, 10AA, 10B, 10BA, and 13A deal with specificexemptions available to newly established industrial undertakings in free tradezones, and political parties. These exemptions are provided from social, political,Constitutional considerations, for avoiding double taxation, on the basis of casualand non-recurring nature ,on the basis of non-residents and non-citizens status,


on the basis of Certain specific securities, bonds, certificates, funds and the like,on the basis of Education, science, research, achievements, rewards, sports,charity, on the basis of certain types of bodies, funds and institutions, Subsidiesto promote business, and international, economic, and other considerations.Sikkim is the only state of India where citizens do not pay income tax. Residentsof Sikkim are eligible for this exemption but excluding the non-Sikkimese spouseof a Sikkimese

2010 - June [3] (b) Distinguish between the following:(ii) ‘Free trade zone’ and ‘special economic zone’. (2 marks)

Answer:

Free Trade Zone, popularly known as FTZ, is an area where goods may be tradedwithout any barriers imposed by customs authorities like quotas and tariffs. Free TradeZone (FTZ) is a special designated area within a country where normal trade barrierslike quotas, tariffs are removed and the bureaucratic necessities are narrowed in orderto attract new business and foreign investments whereas Special Economic Zone is oneor more areas of a country where the tariffs and quotas are eliminated and bureaucraticrequirements are lowered so that more companies are attracted to the area. Thecompanies establishing in the area also gets extra incentives for doing business.

2012 - June [6] (b) Distinguish between the following:(iii) Taxation of voluntary contribution received by a ‘charitable trust’ and ‘corpus

donations’. (3 marks)

Answer:

Voluntary contribution received with a specific direction that they shall form part of thecorpus of the trust or institutions are fully exempt under Section 11. While, voluntarycontributions not being contributions made with a specific direction that they shall formpart of the corpus of the trust/institution are covered under u/s 12 and shall be deemedto be income derived from property held under trust.

Corpus donations can not be treated as income in view of the exception underSection 12, so that such corpus donatioins need not be applied for the objects asrequired for other donations. It is not unusual for trusts to receive such donations forspecified purposes.


2013 - Dec [6] (b) Discuss the taxation of voluntary contribution received by a‘charitable trust’ and ‘corpus donations’. (5 marks)


CS Inter Gr. I

SHORT NOTES

2007 - Dec [5] (a) Write short notes on the following with reference to the provisions ofthe Income-tax Act, 1961:

(iii) Taxation of agricultural income. (4 marks)

Answer:

(iii) Agricultural income is fully exempt from tax, but individual assesse’s are requiredto club agricultural income along with other sources of income while filing returnsbased on the specific slab rates. Resultantly, the rate of taxation is higher forthem. The methodology followed for calculating assessee's tax liability withagricultural income is:1. Tax is first calculated on the assessee's net agricultural income plus total

non-agricultural income.2. Tax is then calculated on the basic exemption slab increased by the

assessee's net agricultural income.3. Amount of tax payable by the assessee is the difference between the above

two.This methodology is followed only if assessee's non-agricultural income is

in excess of the basic exemption slab and agricultural income is higher than

` 5,000.


2005 - June [1] {C} (c) Discuss the tax liability of the following:(ii) Income of notified mutual funds. (1 mark)

Answer:

Any income of the following Mutual Funds is not chargeable to tax:(a) a Mutual Fund registered under SEBI Act or regulations made thereunder;(b) a notified Mutual Fund set by a public sector bank, or a public financial institution

or authorized by RBI.

2005 - Dec [3] (a) A group of 10 persons intends to establish a charitable trust andseeks your advice as to the conditions to be fulfilled for availing the benefitscontemplated under Sections 11 and 12 of the Income-tax Act, 1961. Specify suchconditions. (5 marks)


Answer:

Subject to the provision of Sec 62, 63 of Income Tax Act 1961, the income of charitabletrust to the extent specified in the act is exempt from taxation altogether providedprescribed conditions are satisfied. Such Relevant income does not even form part ofthe total income of the trust. Sec 11 deals with the exemption of income from propertyheld in trust or other legal obligation for charitable purposes wholly or in part.Sec 12 deals with exemption of income derived from such trust from voulantrycontribution. Sec 12A deals with condition for applicability of Sec 11 and 12.

Conditions for claiming Exemption:

1. Application for registration of trust to be made in the prescribed form No. 10A alongwith necessary documents with the CIT in any financial year. Every order grantingor refusing registration shall be passed before the expiry of six months from theend of the month in which application was received u/s 12A.

2. Audit of the Accounts of trust shall be performed by an accountant defined u/s 288of the Income Tax Act, 1961 and the audit report, in the prescribed form shall befurnished along with the return of income for the relevant assessment year, wherethe total income of the trust as computed under this Act without giving effect toprov. 11 & 12 exceeds the maximum amount (A.Y. 2014-15 it is 2,00,000) whichis not chargeable to income tax in any previous year.

3. Properties and investment should be held in the name of the trust

4. Income earned by the trust shall be applied for charitable purpose where charitablepurpose includes any other object of general public utility (Supreme Court hasobserved the meaning of the expression charitable purpose as " charitable purposeincludes not only relief of the poor, education and medical relief alone but otherobjects of the general utility also).

5. The trust shall apply atleast 85% of the accumulation must be applied during thePrevious year for the purpose for which the trust is created and incase of anyunapplied accumulation it has to be invested or deposited in any of the modesspecified u/s 11(5).For e.g:1. Investment's in Gov. Saving Certificate.2. Investments in deposits in post office saving bank.3. Deposit is scheduled bank or co-or porative bank.4. Investment in UTI 1963.5. Investment in Central or State Gov. Securities etc.6. Immovable property


2007 - June [3] (b) Briefly answer the following:(iii) What is the maximum amount of exemption allowed under section 10 (10B) on

account of retrenchment compensation? (1 mark)

Answer:

The maximum amount of exemption for retrenchment compensation under the Act is

` 5,00,000.

2007 - June [4] Comment on the following statements:(ii) There are certain types of income which are included in the total income, but on

which no income-tax is payable. (3 marks)

Answer:

Section 66 lays down that in computing the total income of any assessee, there shallbe included certain items of income on which no income tax is payable under ChapterVII. Accordingly, the following provisions shall also apply:(a) Share of member of an association of persons or body of individuals in the income

of the association or body of individuals shall not be included in his total income.(b) Income from an association of persons or a body of individuals shall also not be

included.

PRACTICAL QUESTIONS

2005 - June [1] {C} (d) For the assessment year 2014-15, Ms. Puja (date of birth: 19thSeptember, 1946) furnishes the following information:

`

Gross agricultural income 2,21,000Expenditure on earning agricultural income 1,000Non-agricultural income 1,50,000Determine the tax liability of Ms. Puja for the assessment year 2014-15 on the

assumption that she contributes ` 60,000 towards public provident fund and pays

insurance premium of ` 20,000 on her life insurance policy (sum assured: `1,50,000).(3 marks)

Answer:

Since Non-agricultural income is less than basic exemption limit, As per the basicexemption limit available to senior citizen hence no clubbing will be there of agriculturalincome.Tax liability will be Nil.

2006 - June [4] (b) During the previous year 2013-14, a charitable trust earned an

income of ̀ 10 lakh out of which ̀ 8 lakh was received during the previous year 2013-

14 and the balance ` 2 lakh was received during the previous year 2014-15. To claimfull exemption of 10 lakh in the previous year 2013-14, state —


(i) What is the maximum amount which can be accumulated to be utilised forcharitable or religious purposes at a later date?

(ii) How much amount should actually be spent during the previous year 2013-14?(iii) How much amount will be deemed to be utilised during the previous year 2013-

14 and within what time should it be actually utilised ? (5 marks)

Answer:

(i) ` 1,50,000 [15% of total income earned, because 85% of income shallbeexpended for charitable purpose.]

(ii) ` 6,50,000 [10,00,000 - 1,50,000 - 2,00,000]

(iii) ` 2,00,000, It should be actually utilised either during the PY 2014-15 or PY2015-16.

2006 - Dec [1] {C} (e) Bimal is one of the founder members of a charitable trust. The

trust gives a loan of ̀ 10. lakh to Mrs. Bimal @ 6% per annum. State whether exemptionis available to the trust under section 11 of the Income-tax Act, 1961. (3 marks)

Answer:

Exemption u/s 11 is not available to the trust in respect of loan of ̀ 10 lakhs given @6%p.a.

2007 - June [1] {C} Attempt the following:(ii) For the assessment year 2014-15, Ms. Madhuri (Date of Birth 9th September,

1944) furnishes the following information:

`

Gross agricultural income 2,21,000Expenditure on earning agricultural income 1,000Non-agricultural income 3,20,000

Determine the tax liability of Ms. Madhuri for the assessment year 2014-15

on the assumption that she contributes ` 70,000 towards public provident fund

and pays insurance premium of ` 20,000 on her life insurance policy (sum

assured: ` 1,50,000) (3 marks)

Answer:

Ms. Madhuri will not be liable to pay tax under the income tax act, as her non-

agricultural income does not exceed the maximum exemption limit (` 2,50,000) for theAssessment year. 2014-15

Non - Agricultural Income ` 3,20,000

Less: Contribution to P.F. ` 70,000

Insurance premium ` 20,000

Taxable Income ` 2,30,000




1 Practical Questions of 05 - June [1] {C} (d) and 07 - June[1] {C} (ii)

2 Times

2 Write short notes on the following:Taxation of agricultural income.

12 - June [5] (b) (iii), 13 - Dec [6] (c) (iii)2 Times

3.55

Star Rating

On the basis of Maximum marks from a chapter jjjjj

On the basis of Questions included every year from a chapter jjjjj

On the basis of Compulsory questions from a chapter jjjjj

5 Computation of Total

Income Under Various Heads

This Chapter Includes: Heads of Incomes; Computation; Perquisites; Valuation;Profits in lieu of or in addition to salary; Provident Funds; Incomes Exempt from Taxand not includible in Salary; Basis of Charge; Annual Value; Computation of NetAnnual Value; Deductions Allowable from Income from House Property; DeemedProfits; Special Provisions; Deduction of Head Office Expenditure in the case ofNon-resident; Computation of Income by way of Royalty; Capital Gains; Capitalassets; Transfer; Gain on transfer; Advance money received; Short-term and long-term capital gains; Cost of Improvement; Income chargeable under the Head Incomefrom Other Sources; Taxation of Dividend; Deduction allowable; Amount notDeductible; Interest on Securities.




OBJECTIVE QUESTIONS


(i) Profit and gains arising from the transfer of a capital asset are taxable as______.

(iii) If an asset is put to use for less than 180 days in the previous year, thedepreciation is charged at _____ of normal rate.

(iv) Salary received by a Member of Parliament is taxable under the head ______.(1 mark each)

Answer:

(i) Capital Gains(iii) 50%(iv) Income from other sources


(ii) Suresh receives ` 10 lakh from statutory provident fund on his retirement. Thisamount is taxable under the head income from salary.

(iii) Sarita paid ` 30,000 as interest @ 30% per annum on loan taken for theconstruction of a house. No deduction shall be allowed for payment of interest,as in the opinion of Assessing Officer, the rate of interest is very high.

(2 marks each)

Answer:

(ii) The statement is incorrect.

The amount received from SPF is exempted from Income-tax.

(iii) The statement is incorrect.

The amount paid as interest on the loan taken for construction of house can beclaimed as deduction u/s 24(b) of IT Act, 1961 irrespective of the rate of interest.

2009 - June [1] {C} (a) State, with reasons in brief, whether the following statementsare correct or incorrect.

(i) Income from vacant plot of land is taxable under the head 'income from othersources'.

(iv) No deduction is allowable from income from salary.(v) Indexation of cost of acquisition is necessary for short-term capital gain.

(vii) Gift from an unrelated person is tax-free upto ` 50,000. (1 mark each)

[Chapter #### 5] Computation of Total Income Under... OOOO 3.57

Answer:

(i) Correct: Conditions to be satisfied for property income to be taxable under thehead house property–1. The property should consist of buildings or lands appurtenant thereto.2. The assessee should be the owner of the property.3. The property should not be used by the owner for the purpose of any

business or profession carried on by him, the profits of which are chargeableto income-tax.Here these conditions are not being satisfied, hence the income will becharged under the head ‘Income from other sources’.

(iv) Incorrect: As per Section 16 of the act, the following deductions are allowablefrom ‘Income from Salary’ –(a) Entertainment Allowance – Section 16 (ii)(b) Tax on Employment – Section 16 (iii)

(v) Incorrect: Indexation of COA is only allowed in case of long term capital gain.

(vii) Correct

2009 - June [2] (a) Choose the most appropriate answer from the given options inrespect of following having regard to the provisions of the Income-tax Act.1961:

(i) The maximum penalty for failure to get accounts audited under section 44AB orfurnish audit report along with return of income is !

(a) ` 10,000

(b) ` 20,000

(c) ` 50,000

(d) ` 1,50,000.(ii) X is the owner of a house, the details of which are given below:

Municipal value ` 30,000

Actual rent ` 32,000

Fair rent ` 36,000

Standard rent ` 40,000The gross annual value would be !

(a) ` 36,000

(b) ` 35,000

(c) ` 30,000

(d) ` 40,000.(iii) Interest-free loan to an employee, where the amount of loan does not exceed

any one of the following, shall be treated as the tax-free perquisite in all casesunder section 17(2) !


(a) ` 10,000

(b) ` 15,000

(c) ` 20,000

(d) ` 25,000.(iv) The maximum exemption in respect of transport allowance granted to an

employee to meet his expenditure for the purpose of commuting between theplace of his residence and the place of his duty shall be -

(a) ` 600 per month

(b) ` 700 per month

(c) ` 800 per month

(d) ` 900 per month. (1 mark each)

Answer:

(i) (d) ` 1,50,000;

(ii) (a) ` 36,000;

(iii) (c) ` 20,000;

(iv) (c) ` 800 per month

2009 - June [6] (c) State, with reasons in brief, whether the following are capital orrevenue receipts/expenditure:

(i) ` 20,000 spent in connection with obtaining a licence for running a cinema hall.

(ii) ` 3,00,000 received as compensation for termination of contract of agency.(iii) Lump sum received as advance rent.(iv) Overhaul expenses of second hand machinery.(v) Payment to an employee to retain him in job. (1 mark each)

Answer:

(i) Capital expenditure

The benefit from the licensee will be available in future so it is a capitalexpenditure.

(ii) Capital receipt

Compensation for termination of agency is a capital receipts although it istaxable as business income by virtue of the specific provision in Section 28 ofthe Act.

(iii) Revenue receipt

Receipt of lump sum advance rent is a revenue receipts as it is an income fromrent

(iv) Revenue expenditure

overhauling expenses are recurring in nature and hence a revenue expenditure


(v) Revenue expenditure

Any payment made for retaining employees in his/her job is a revenueexpenditure


(ii) Under the Income-tax Act, 1961, depreciation on machinery is charged on –(a) Purchase price of the machinery(b) Market price of the machinery(c) Written down value of the machinery(d) All of the above.

(iv) Sandeep purchased a house for his residential purpose after taking a loan in

January, 2014. During the previous year 2013-14, he paid interest on loan `1,67,000. While computing income from house property, the deduction isallowable to the extent of –

(a) ` 30,000

(b) ` 1,00,000

(c) ` 1,67,000

(d) ` 1,50,000. (1 mark each)

Answer:

(ii) WDV of the machinery

(iv) ` 1,50,000


(i) Deduction for bad debt is allowed to an assessee carrying on business in theyear in which the debt is ______ as bad. (1 mark)

Answer:

(i) written off

2009 - Dec [2] (c) State, with reasons in brief, whether the following statements arecorrect or incorrect:

(iii) The entire amount of winning from lotteries is taxable at a special rate ofincome-tax. (1 mark each)

Answer:

Winning is taxable @ 30%



(iv) Sneha is an employee in a private company. In the previous year she received

salary ̀ 1,80,000 and entertainment allowance ` 12,000. She spent ̀ 6,000 onentertainment. Under section 16(ii), she is entitled to deduction of-

(a) ` 12,000

(b) ` 6,000

(c) ` 5,000(d) Nil (1 mark)

Answer:

(iv) (d) Nil. Deduction of entertainment allowance is not allowed to employee ofprivate company.


(ii) Rent from house property let-out by an assessee to his employees when suchletting is incidental to his main business, will be chargeable to tax under the head‘income from house property’.

(iii) Income by way of winnings from lotteries in the hands of a dealer as a regularbusiness activity is not chargeable to tax under the head ‘profits and gains ofbusiness or profession’.

(iv) Income from transfer of self-generated goodwill of a profession is not chargeableto tax under the head ‘capital gains’. (1 mark each)

Answer:

(ii) Incorrect(iii) Incorrect(iv) Correct


(v) Marriage gift from a non-relative is ________ to tax. (1 mark)

Answer:

(v) Not liable


(iii) Manav receives ` 50,000 as basic salary from the government during the

financial year 2013-14 and receives ̀ 9,000 by way of entertainment allowancewhich he spends in full for official purposes. The amount deductible undersection 16(ii) in respect of the allowance will be —

(a) ` 5,000

(b) ` 9,000

(c) ` 10,000(d) None of the above.


(iv) Prakash obtained interest-free loan of ` 20,000 from his employer company forpurchasing a two-wheeler. The market rate of interest on such loan is 20% perannum. The lending rate of State Bank of India is 15.5% and that of the privatesector banks is 16%. The taxable amount of this perquisite will be computed atthe rate of —(a) 20%(b) 16%(c) 15.5%(d) Nil rate. (1 mark each)

Answer:

(iii) (a) ` 5,000(iv) (d) Nil rate. No perquisite in respect of interest free loan from employer upto

` 20,000.

2010 - Dec [1] {C} (b) Re-write the following sentences after filling in the blank spaceswith appropriate word(s)/figure(s):

(ii) The net annual value of house let-out is ` 1,00,000 and actual amount spent by

the assessee on repairs and insurance premium is ` 20,000, the amount of

deduction allowed under section 24(a) shall be `_________.(iii) The amount of additional depreciation in respect of new building constructed in

financial year 2013-14 at a cost of ` 25 lakh for manufacturing garments will be

`_______. (1 mark each)

Answer:

(ii) ` 30,000 (Standard deduction of 30% of NAV).(iii) Nil.


(ii) Allowances payable to Central Government employees for serving outside Indiais fully taxable as salary.

(iii) Telephone provided to an employee at his residence is a tax-free perquisite.(2 marks each)

Answer:

(ii) False: Any allowance or perquisite paid or allowed outside India by theGovernment to a citizen of India, for rendering services outside India are exempt

(iii) True: Expenses on telephone, including mobile phone, actually incurred onbehalf of the employee by the employers shall be exempt



(ii) Mohan Ltd. Purchased goods on credit from Sohan Ltd. on 6th May, 2013 for`86,000 which is paid as ` 15,000 in cash on 11th May, 2013; ` 30,000 by abearer cheque on 31st May, 2013; and ̀ 41,000 by an account payee cheque on16th May, 2013. The amount of disallowance under section 40A(3) is —(a) ` 15,000

(b) ` 30,000(c) ` 41,000(d) ` 86,000. (1 mark)

Answer:(ii) (b) ` 30,0002011 - June [1] {C} (b) Re-write the following sentences after filling-in the blank spaceswith appropriate word(s)figure(s):

(ii) A person, carrying on profession, has to get his accounts audited on compulsorybasis if his gross receipts in profession for the previous year relevant to theassessment year 2014-15 exceeds_________.

(v) Under section 44AB, specified date means ________ of the assessment year.(1 mark each)

Answer:(ii) ` 25,00,000(v) 30th September


(iii) Expenses of purchasing lottery tickets are deducted out of winnings from lotteryunder the head income from other sources.

(iv) Zero-coupon bonds shall be treated as ‘short-term capital asset’ if held for morethan 12 months but not more than 36 months. (2 marks each)

Answer:(iii) False: no deduction is allowed in respect of any expenditure or allowance in

computing the income by way of lotteries crossword puzzles etc(iv) False: When zero coupon bonds are held for more than 12 months such bonds

shall be treated as long term capital assets.2011 - Dec [1] {C} (a) Write the most appropriate answer from the given options inrespect of the following having regard to the provisions of the relevant direct tax laws:

(ii) Which of the following income is taxable under the head ‘income from salary’ —(a) Salary received by a partner from firm(b) Salary received by a Member of Parliament(c) Salary of a Government Officer(d) None of the above.


(iii) Rate of depreciation chargeable on fully temporary wooden structure for theassessment year 2014-15 is —(a) 5%(b) 10%(c) 100%(d) None of the above. (1 mark each)

Answer:

(ii) (c) Salary of a Government Officer- There is no difference betweengovernment and private employees for the purpose of calculating theincome and levying of tax. However, salary received by a member ofParliament is not treated as employee of the Government but their incomeare taxable under income under the head other sources as per section 56s

(iii) (c) 100% - Fully or Pure temporary wooden structure for the assessment year2014-15 falls under the tangible assets i.e, Building


(iv) Rent received by original tenant from sub-tenant is taxable under the head_______. (1 mark each )

Answer:

(iv) Income from other sources


(i) Anand is entitled to get a pension of ` 600 per month from a private company.

He gets three-fifth of the pension commuted and received ` 36,000. He did notreceive gratuity. The taxable portion of commuted value of pension is —

(a) ` 16,000

(b) ` 6,000

(c) ` 18,000

(d) ` 12,000. (1 mark)(iv) On 30th December, 2013, Raju gets by gift a commercial flat from the elder

brother of his father-in-law (stamp duty value is ` 25,00,000). The amountchargeable to tax in the hands of Raju is —

(a) ` 25,00,000

(b) ` 24,50,000

(c) ` 20,00,000(d) Nil. (1 mark each )

(b) Re-write the following sentences after filling-in the blank spaces with appropriateword(s)/figure(s):(iv) Leave encashment received while in service is __________. (1 mark each )


Answer:

(a) (i) (b) ` 6,000

(iv) (a) ` 25,00,000/-

(b) (iv) Leave encashment received while in service is Taxable.


(iii) Family pension is taxable as income from other sources.(v) When the prize is given partly in cash and partly in kind, income-tax will be

deducted from cash only. (1 mark each)

Answer:

(iii) True, Payments received by the legal heirs of deceased employees by way offamily pensions are chargeable under the head of income from other sources.

(v) False, the provision of TDS are applicable on prizes received in cash or in kindPayer shall ensure that tax is collected from the payee where the prize is cashis not sufficient to meet the liability of TDS.


(i) On 5th February, 2014 Rajat gets a gift of motor car from a relative Madan. Fair

market value of the car is ` 3,60,000. The amount taxable in the hands of Rajatunder section 56(2)(vii) is—

(a) ` 3,60,000

(b) ` 3,10,000(c) Nil

(d) ` 50,000.(iii) Salary received in lieu of unavailed leave during service shall be—

(a) Fully taxable(b) Fully exempted(c) Partially taxable(d) None of the above.

(v) A person carrying on profession is required to get his accounts compulsorilyaudited by a Chartered Accountant if his gross receipts from profession for theprevious year exceed—

(a) ` 10,00,000

(b) ` 15,00,000

(c) ` 40,00,000

(d) ` 60,00,000 (1 mark each)


Answer:

(i) (c) Nil(iii) (a) Fully Taxable

(v) (b) ` 25,00,000


(i) Under the Income-tax Act, 1961, the rate of depreciation on intangible assetsis__________.

(v) In the case of income in the nature of family pension, the amount deductible is

of such income or ` __________, whichever is less. (1 mark each)

Answer:

(i) Under the Income-tax Act, 1961, the rate of depreciation on intangible assetsis 25%

(v) In the case of income in the nature of family pension, the amount deductible

is of such income or ` 15,000 whichever is less.


(ii) It is not possible to have negative income under the head ‘income from houseproperty’.

(v) Allowances paid by any employer outside India would be wholly exempted fromincome tax. (1 mark each)

Answer:

(ii) False: It is possible to have negative income under the head ‘income from houseproperty’. If municipal tax paid by the landlord is more than the gross annualvalue, then the net annual value itself will be negative. In the case of oneresidential property fully self occupied, the income always lies in the range of (-)

` 1,50,000 to zero. If a property is let out, it can have positive or negativeincome.

(v) False: According to section 10(7) of the Income Tax Act, allowances orperquisites paid or allowed as such outside India by the Central Government toa citizen of India for his services rendered outside India would be wholly exemptfrom tax.


(ii) The maximum amount of compensation received at the time of voluntaryretirement exempt from tax is —


(a) ` 2,00,000

(b) ` 5,00,000

(c) ` 10,00,000(d) The actual amount received as compensation.

(v) Which of the following taxes are allowed as deduction while computing thebusiness income —(a) Wealth-tax(b) Income-tax(c) Sales tax(d) None of the above. (1 mark each)

Answer :

(ii) (b) ` 5,00,000/-(v) (c) Sales Tax.


(iv) The maximum amount of standard deduction in case of family pension is____________. (1 mark)

Answer :

(iv) ` 15,000/-


(i) Money/property received on the occasion of the marriage of the individual istaxable under the head income from other sources.

(iii) Allowances payable to Central Government employees for serving outside Indiaare fully taxable as salary.

(iv) Assets of personal use are also considered as capital assets. (1 mark each)

Answer :

(i) False, money/property received on the occasion of marriage of the individualshall not be taxable under the head income from other sources.

(iii) False, allowances or perquisites paid or allowed as such outside India by theCentral Government to a citizen of India for his services rendered outside Indiawould be wholly exempt from tax.

(iv) False, capital assets does not include personal effects i.e. assets of personaluse are not considered as capital asset. However, certain personal effects likejewellery, drawings, and paintings, archaeological collections, sculptures or anywork of art are considered as capital asset.



(iv) Exemption under section 54EC regarding capital gains on transfer of any long-term capital asset on the basis of investment in certain bonds can be claimedby —(a) Any assessee(b) An individual only(c) An individual and HUF only(d) A corporate assessee only. (1 mark)

2013 - Dec [1] {C} (b) Re- write the following sentences after filling-in the blank spaceswith appropriate word(s)/figure(s):

(ii) The rate of depreciation in the case of intangible assets is ______________ %.(iv) The rate of income tax on _________ capital gains covered under section 111A

is 15%. (1 mark each)


(ii) The maximum amount of deduction from family pension received by a widow is

` 18,000.(iii) Any sum paid on account of income tax is fully deductible while computing

income from business and profession.(v) The unabsorbed depreciation can be carried forward for 8 subsequent

assessment years. (1 mark each)

SHORT NOTES

2009 - Dec [2] (b) Write short notes on the following:(i) Taxation of zero coupon bonds(ii) Share of profit from partnership firm (3 marks each)

Answer:

(i) Zero coupon bonds means –1. Bond issued by an infrastructure capital company or infrastructure capital

fund or public sector company on or after 1st June, 2005.2. Bond in respect of which no payment and benefit is received or receivable

before maturity or redemption from infrastructure capital company orinfrastructure capital fund or public sector company.

3. Bonds which Central Government may, by notification in the Official Gazettespecify in this behalf.


Maturity and redemption of Zero coupon bonds to be treated as transfer. Theprofits arising on the transfer of zero coupon bonds shall be subject to capitalgains tax. In case of short term capital asset, the same will be taxable as perassessee specific income tax slab rates.

In case of long term capital asset, the assessee will have either of the twooptions to pay minimum tax u/s 112(1):

Option I: 20% of long term capital gain after indexation of the cost of such

bonds; or Option II: 10% of long term capital gains before indexation of the costof such bonds;

(ii) Share of Profits from partnership firm

Share of profits which a partner receives from the firm (after deduction ofremuneration and interest allowable) shall be fully exempt in the hands of thepartners. However, only that part of the interest and remuneration which wasallowed as a deduction to the firm shall be taxable in the hands of the partnersin their individual assessment under the head ‘profits and gains of business orprofession’.

2010 - June [2] (b)Write short notes on the following:(ii) Taxation of zero coupon bonds (3 marks)(iii) Profit in lieu of salary. (3 marks)

Answer:

(ii) Please refer 2009 Dec [2] (b) (i) on page no. 67

(iii) Profit in lieu of salary

Following Items are Included in this Category

Compensation: By virtue of Sec. 17(3) (i), any compensation due to or receivedby an employee from his employer or former employer at or in connection withthe termination of his employment or modification in terms of his employment istaxable as profit in lieu of salary.Other PaymentsAny payment in the form of:• Gratuity• Commuted value of pension• Retrenchment compensation• House rent allowance

Received or due to be received to the extent which is not exempt, and whichit does not consist of contribution made by the employee, or interest thereon, istaxable as profits in lieu of salary.

Keyman Insurance Policy: Surrender value of the policy endorsed in favour ofthe employee, or the sum received by him at the time of retirement, will betaxable as profit in lieu of salary.


Lump-sum Incentives:

Any amount due or received- before joining employment or after leavingemployment, it is Taxable as profit in lieu of salary.

2010 - Dec [6] (a) Write short notes on the following:(ii) Capital gains in case of damage or destruction of capital asset (3 marks)(v) Tax on income of foreign institutional investors from capital gains arising from

transfer of their securities. (3 marks)Answer:

(ii) Where any person receives at any time during any previous year any money orother assets under insurance from an insurer on account of damages to, ordestruction of any capital asset, as a result of:(a) Flood, typhoon, hurricane, cyclone, earthquake or other convulsion of

nature; or(b) Riot or civil disturbance; or(c) Accidental fire or explosion; or(d) Action by an enemy or action taken in combating an enemy (whether with

or without a declaration of war)Then, any profits or gains arising from receipts of such money or other assetsshall be chargeable to income-tax under the head “capital gains” and shall bedeemed to be the income of such person of the previous year in which suchmoney or other asset was received and for the purposes of section 48, value ofany money or the fair market value of other assets on the date of such receiptsshall be deemed to be the full value of the consideration received or accruing asa result of the transfer of such capital asset.

(v) Tax on foreign institutional investors from capital gains arising from transfer oftheir securities [Section 115AD]Where the total income of the above assessee includes:(a) Income received in respect of securities other than units of mutual funds

covered under section 10(23D) or of Unit Trust of India; or(b) Income by way of short term or long term capital gains arising from the

transfer of such securitiesThe income-tax on the total income shall be chargeable as under:(a) On the income in respect of securities referred to in clause (a) above @

20%(b) On the income by way of short term capital gains covered under section

111A @ 15%(c) On the income by way of long term capital gains referred to in clause (b)

above @10%(d) On the balance income included in total income special/normal rate as the

case may be.


2011 - June [5] (a) Write short notes on the following:(i) Amortisation of telecom licence fee (3 marks)

Answer:

Where any capital expenditure is incurred by the assessee for acquiring any right tooperate telecommunication services and for which payment has actually been made towhich the license a deduction will be allowed in equal instalments over the period forwhich the license remains in force subject to the following:1. If such amount is paid before the commencement of such business the deduction

shall be allowed for the previous year beginning with the previous year in whichsuch business is commenced.

2. If the fee is paid after the commencement of such business the deduction shall beallowed for the previous years beginning with the previous year in which thelicense fee is actually paid.

2012 - June [4] (c) Write short notes on the following:(ii) Methods of accounting (2 marks)

Answer:

Income under the head profits and gains of business or profession and income underthe head income from other sources are to be computed in accordance with the methodof accounting regularly employed by the assessee. However, the method of accountingis irrelevant for computing the income under head salaries, income from house propertyor capital gain. In these cases, the Income Tax Act has specifically provided the basisfor taxability of such income for example salary is taxable on due basis or receipt basiswhichever is earlier. Similarly, capital gains are taxable in the year in which capital assetis transferred subject to certain exception.

2012 - June [5] (b) Write short notes on the following:(i) Scientific research expenditure (3 marks)(ii) Capital assets (3 marks)

Answer:

(i) Scientific Research Expenditure

Section 35 of the Act provides tax incentives for scientific research expenditure. Wherethe assessee himself carries on scientific research and incurs revenue & capitalexpenditure, deduction is allowed for such expenditure only if the research relates to hisbusiness. Further, Expenditure incurred during 3 years prior to commencement ofbusiness shall be deemed to be the expenditure of the year in which businesscommenced.Where the assessee does not himself carry on scientific research but makescontribution to an approved scientific research association, university, college or


approved institutions to be used for scientific research, related or unrelated to thebusiness of assessee, deduction shall be allowed to the extent of 175% of the sum paid.(Where any sum is paid to a National Laboratory, approved for this purpose by the ICARor ICMR or CSIR etc. or to any university, or to I.I.T. (Indian Institute of Technology), aweighted deduction of 175% or 200% of the sum paid shall be allowed as deduction.)

(ii) Capital Assets

Section 2 (14) of the Income-tax Act defines the term "Capital Assets: to means:Property of any kind held by an assessee whether or not connected with his businessor profession, but does not include:

(i) Any stock-in-trade, consumable stores, or raw materials, held for the purposesof business or profession

(ii) Personal effects (excluding jewellery, archaeological collections, drawings,painting. Sculptures or any work art.)

(iii) Rural Agricultural land in India. In other words, it must not be an Urbanagricultural land. Rural agricultural land means an agricultural land in Indiaprovided it is not situated in !(a) Any area which is comprised within th jurisdiction of a municipality having

a population of 10,000 or more.(b) Any area within the distance, measured aerially :

C More than 2 kms from the local limits of any Municipality or CantonmentBoard having a population of more than 10,000 but not exceeding1,00,000; or

C More than 6 kms from the local limits of any Municipality or CantonmentBoard having a population of more than 1,00,000 but not exceeding10,00,000 ; or

C More than 8 kms from the local limits of any Municipality or CantonmentBoard having a population of more than 10,00,000.

(iv) 6½% Gold Bond, 1977 or 7% Gold Bonds, 1980 or National Defence GoldBonds, 1980 issued by the Central Government.

(v) Special Bearer Bonds, 1991 issued by Central Government.(iv) Gold Deposit Bonds issued under Gold Deposit Scheme, 1999.

2013 - June [6] (c) Write short notes on the following:(i) Amortisation of telecom licence fee (2 mark)

Answer :

(i) Amortization of telecom license fee (Section 35ABB)

Where any capital expenditure is incurred by the assessee for acquiring any rightto operate telecommunication services and for which payment has actually beenmade to obtain a licence, a deduction will be allowed in equal instalments overthe period for which the license remain in force, subject to the following:


(1) If such amount is paid before the commencement of such business, thededuction shall be allowed for the previous years beginning with theprevious year in which such business is commenced.

(2) If the fee is paid after the commencement of such business the deductionshall be allowed for the previous years beginning with the previous year inwhich the license fee is actually paid.

DISTINGUISH BETWEEN

2008 - Dec [3] (b) Distinguish between of the following:(i) ‘House rent allowance’ and ‘rent free house’.(ii) ‘Cost of acquisition’ and ‘cost of improvement’.(iii) ‘Fair rent’ and ‘annual rent’. (3 marks each)

Answer:

(i) ‘House rent allowance’ and ‘rent free house’

S. No. House Rent Allowance Rent free house

1 It is dealt under section 10(13A) andRule 2A

It is a kind of perquisite. It is dealtunder section 17(2)(i) of the Act.

2 While calculating salary and basic pay,dearness allowance and commission (ifterms of employment provide) isincluded.

Under calculation of salary, apartfrom basic pay, DA andCommission, Bonus, fees and othertaxable allowance are also included

3 Only taxable portion (after deduction) isadded to the Gross Salary of theassessee

In this case, it is included in theGross Salary of the assessee asperquisite.

(ii) ‘Cost of acquisition’ and ‘cost of improvement’:

The distinction between ‘Cost of acquisition’ and ‘cost of improvement’ can beexplained in the following lines. The above two terms are associated with thecapital assets.

Cost of Acquisition:

Cost of acquisition of an asset is the value for which it was acquired by theassessee. Expenses of capital nature for completing or acquiring the title to theproperty are includible in the cost of acquisition. Cost of acquisition alwaysprecedes cost of improvement.

Cost of Improvement:

It is the capital expenditure incurred by the assessee in making anyadditions/improvement to the capital asset. It also includes any expenditureincurred to protect or complete the title to the capital assets or cure such title.


Any expenditure incurred to increase the value of the capital asset is treated ascost of improvement. Any cost of improvement incurred before 1.4.1981 is nottaken into consideration for calculating capital gains chargeable to tax.

(iii) ‘Fair rent’ and ‘annual rent’:

Fair rent means the sum of for which the property might reasonably be expectedto let from year to year. This rent is also known as notional rent. It will be equalto the rent which a similar property fetches in the neighborhood.Where as annual rent means the actual rent. This happens only where the houseproperty has been actually let. Again annual rent means (i) if property is let outthroughout the previous year the annual rent received or receivable for that yearand (ii) if the property is let out for a part of the year the amount which bears thesame proportion to actual rent received or receivable for the period of letting asthe period of twelve month bears to the period of letting.

2009 - June [3] (a) Distinguish between the following:(ii) 'Long-term capital gain' and 'short-term capital gain'. (2 marks)

Answer:

Distinguish between Short - term capital gain and long - term capital gain:

Short term capital gain:

S.T.C. gains means any gains arising from transfer of a Capital Asset for which theholding period is less than 36 months from date of purchase except for shares &securities of such companies listed on recognised stock exchanges & traded throughsuch exchanges & on which securities transaction tax is paid where the holding periodless than 12 months shall be termed as short term. If Capital Asset as defined u/s2(42A). Short Term Capital gains also includes S.T.C. Loss termed as negative gains

Long term capital gain:

L.T.C. Gains means any gains arising from transfer of any Capital Asset, for which theholding period is 36 months or more, except for shares & securities of such companieslisted on recognised Stock Exchanges & traded through such exchanges on whichsecurities transaction tax is paid, the holding period shall be 12 months or more fromthe date of purchase. Such Assets Shall be termed as Long Term Capital Assets.

2009 - Dec [3] (a) Distinguish between the following:(ii) ‘Recognised provident fund’ and ‘statutory provident fund’. (4 marks)

Answer:

Recognized Provident Fund is set-up under the provisions of Employee's ProvidentFund Act, 1952. This fund is maintained by the private sector organizations andfactories.

Apart from this where provident fund maintained by other organization isrecognized by the income-tax authorities, such fund is also deemed as recognizedprovident fund. On the other hand statutory provident fund is set-up under the provisions


of Provident Fund Act, 1925. This fund is applicable to the employees of CentralGovernment, State Government and Semi-Government. Under this fund only theemployee's contribution is deposited. The Government does not contribute any amountwhile in case of RPF both employer and employee can deposit the contribution.Employer's contribution to RPF up to 12% of salary is exempted and any amount inexcess of 12% is included in gross sal ary of the employee. Interest up to 9.5% p.a. isexempted and any amount of interest in excess of 9.5% p.a. included in the gross salaryof the employee.

2010 - June [3] (b) Distinguish between the following:(i) ‘Mercantile system of accounting’ and ‘cash system of accounting’. (2 marks)

(iii) ‘Exemption to capital gains under section 54G’ and ‘exemption to capital gainsunder section 54GA’. (2 marks)

Answer:

(i) The difference between the accrual and cash system is when a transaction isrecognized: the cash system recognizes (records) the transaction when themoney is paid or received, while the accrual system recognizes the transactionwhen it occurs, regardless of whether or not the money is received. Mercantilesystem is also known as accrual system of accounting.

(iii) Exemption under section 54G is available for capital gains on transfer of assetsin cases of shifting of industrial undertakings from urban areas whereasexemption under section 54GA is available for capital gains on transfer ofshifting of industrial undertaking from urban area to any special economic zone.Under section 54G the transfer is affected in the course of or in consequence ofshifting the undertaking from an urban area to any area whereas under section54GA the transfer is effected in the course of or in consequence of shifting theundertaking from an urban area to any special economic zone.

2010 - Dec [5] (a) Distinguish between the following:(i) ‘Long-term capital gains’ and ‘short-term capital gains’. (4 marks)

(iii) ‘Normal depreciation’ and ‘additional depreciation’. (4 marks)

Answer:

(i) Please Refer 2009 - June [3] (a) (ii) on page no. 73

(iii) Normal depreciation & additional depreciation

(a) Normal depreciation is available in respect of all tangible assets andintangible asset such as building, machinery, plant, furniture, patent, etc.while additional depreciation is available only in the case of Plant &Machinery.


(b) Normal depreciation is available in respect of both types of new and oldwhile additional depreciation is available only in respect of new plant &machinery which is acquired and installed after 31st March, 2005

(c) Normal depreciation is computed by applying different rates of depreciationprescribed for a particular asset while additional depreciation is computedby applying a uniform rate of depreciation viz. 20% of the actual cost of newplant & machinery

(d) The system of “block of assets” is quite relevant for computing normaldepreciation while it is not relevant for computing additional depreciation

(e) Any plant & machinery which is used in business of the assessee is eligiblefor normal depreciation while certain plant & machinery, even if new, are noteligible for additional depreciation like ships and aircrafts, plant & machinerywhich was already used by a person either in India or abroad, plant &machinery which is used in any office premises or any residentialaccommodation or in a guest house, any office appliances or road transportvehicle or plant & machinery the entire cost of which has already beenallowed as deduction either by way of depreciation or otherwise.

2011 - June [4] (b) Distinguish between the following:(i) 'Cost of acquisition' and 'cost of improvement'.

(iii) 'Short-term capital gains' and 'long-term capital gains'. (3 marks each)

Answer:

(i) Please refer 2008 - Dec [3] (b) (ii) on page no. 72(iii) Please refer 2009 - June [3] (a) (ii) on page no. 73

2011 - Dec [4] (a) Distinguish between the following:(ii) ‘Allowances’ and ‘perquisites’. (3 marks)(iii) ‘Active user of asset’ and ‘passive user of asset’. (3 marks)(iv) ‘Exemption under section 54G’ and ‘exemption under section 54GA’.(3 marks)(v) ‘Statutory provident fund’ and ‘public provident fund’. (3 marks)

Answer:

(ii) ‘Allowances’ and ‘perquisites’

S.No. Allowance Perquisites

1. An allowance is a cash payment toemployees on regular basis inaddition to salary to meet certainexpenses incurred by him inconnection with duties of his officeor to compensate him for any

Perquisites means any casual emolument,fee or profit attached to an office orposition in addition to salary or wages.


expenditure relating to performanceof his duty in particular circums-tances or at particular place orunder a contract

2. An allowance may be whollytaxable, partially taxable or whollyexempt

It is a personal advantage & benefit of therecipient. It may also be given voluntary orunder a contract, in cash or in kind by wayof goods, service benefit or amenities

(iii) ‘Active user of asset’ and ‘passive user of asset’

S.No. Active user of assets Passive user of asset

1. Active user includes the actual useof the asset during the previousyear. The expression “used” shouldhave a wider meaning so as toinclude not only actual but alsopassive user

Passive user means as asset is kept foruse for the purpose of the businessalthough it was not worked during theyear.

Passive user entitles an assessee for the grant of depreciation in the cases of forcedidleness of machinery, spare engines kept in store by a transport undertaking in caseof need, etc. depreciation is admissible on the basis of passive user in respect ofbusiness; depreciation is also allowable on assets like fans, air conditioners,refrigerators, furniture etc. provided by employer at the quarters of his employees. Theassessee is eligible for the grant of depreciation, when an asset becomes defective andnon-functional after its bona fide installation.

(iv) ‘Exemption under section 54G’ and ‘exemption under section 54GA’

S.No. Exemption under section 54G Exemption under section 54GA

1. This exemption is available onCapital Gain on Transfer of Capitalassets in Case of Shifting ofIndustrial Undertaking from UrbanArea

This exemption is available on CapitalGain on Transfer of Capital assets inCase of Shifting of IndustrialUndertaking from Urban Area to anySEZ

2. This exemption is available anindividual, HUF, company or anyother person who transfers thecapital assets (being plant,machinery, land or building or anyright in the land or building) being

This exemption is available anindividual, HUF, company or any otherperson who transfers the capital assets(being plant, machinery, land or buildingor any right in the land or building) beingused for the purpose of industrial


used for the purpose of industrialundertaking situated in an urbanarea to any area other than urbanarea

undertaking situated in an urban area toa special economic zone (SEZ).

(v) ‘Statutory provident fund’ and ‘public provident fund’

S.No. Statutory Provident Fund Public Provident Fund

1. Statutory Provident fund is set upunder the Provident Fund Act, 1925and is maintained by Governmentor Semi-Government offices orbodies, local authorities, railways,universities, colleges, corporations,banks and recognized educationalinstitutions, etc.

While provident fund is governed byPublic Provident Fund Act, 1968 tomobilize public savings

Only salaried person can becomemembers of Statutory ProvidentFund

Any person can become the member ofPublic Provident Fund

The contribution of members isdeducted by the employers fromthe salary of their employees

Members of PPF have to open providentfund account at any branch of the SBI orits subsidiaries and specified branchesof nationalized banks

Amount of contribution to SPF iscomputed at a specified rate onaccount of salary of an employees

Member can deposit any amount subject

to a minimum of ` 500 and a maximum

of ` 1,00,000 per year

2012 - Dec [6] (c) Distinguish between any two of the following:(i) ‘Recognised provident fund’ and ‘unrecognised provident fund’.(ii) ‘Normal depreciation’ and ‘additional depreciation’.(iii) ‘Taxation of unrealised rent received’ and ‘taxation of arrears of rent received’.

(3 marks each)

Answer:

(i) Please refer 2007 - Dec [4] (a)(i) on page no.114

(ii) Please refer 2010 - Dec [5] (a) (iii) on page no.74

(iii) Taxation of unrealized rent received and taxation of arrears of rent received

Provisions regarding taxation of unrealized rent are given under section 25AA,where the assesses cannot realize rent from a property let to a tenant andsubsequently the assesses has realized any amount in respect of such rent theamount so realized shall be deemed to be the income chargeable under the


head income from house property and accordingly charged to income tax as theincome of that previous year in which such rent is realized whether or not theassessees is the owner of that property in the previous year. While in case of taxation of arrears of rent, section 25B provides that if anyarrears of rent are received in subsequent year the same will be taxed in theyear of receipt whether the property is owned by the assesses in the year ofreceipt or not, deduction of sum equal to 30% of such amount of rent shall beallowed towards receipts and collection of rent.

2013 - June [6] (a) Distinguish between the following.(ii) ‘Short-term capital gains’ and ‘long-term capital gains’.(iii) ‘Statutory provident fund’ and ‘recognised provident fund’. (3 marks each)

Answer :

(ii) Please refer 2009 - June [3] (a) (ii) on page no.73

(iii) ‘Statutory provident fund’ and ‘recognised provident fund’

‘Statutory provident fund’ is set-up under the Provident Fund Act, 1925 and ismaintained by government or Semi-Government Offices or bodies, localauthorities, railways, universities, colleges, corporations, banks and recognizededucational institutions, etc. Under this fund, employer’s contribution, interest onProvident fund and Repayment of lump sum amount onretirement/resignation/termination is fully exempt from tax.Recognised Provident Fund scheme includes the Government scheme set upby Provident Fund Commissioner under Provident Fund and MiscellaneousProvisions Act, 1952 and a scheme made by the organisation which is approvedby the PF Commissioner. In the case of RPF, the employers’ contribution inexcess of 12% of salary is taxable as salary and such contribution are deductiblefor the employers as expenses. Interest on Recognised provident fund is exemptupto 9.5% p.a. Further, employee’s contribution to RPF qualifies for deductionunder section 80C. Amount received on retirement etc. of RPF is fully exemptsubject to certain conditions.

2013 - Dec [3] (c) Distinguish between ‘long-term capital gains’ and ‘short-term capitalgains’. (4 marks)



2008 - Dec [3] (a) Attempt the following:(ii) “Expenditure on scientific research is allowed as deduction even if contribution

is made to other institutions for scientific research.” Explain the statement.(iii) A Person receives money from an insurer on account of damage to a capital

asset resulting from accidental fire. Whether such money shall be taxable ascapital gains? Explain. (3 marks each)

Answer:

(ii) • Contribution made to an approved Scientific Research Association/University/ College/ Institution, a weighted deduction of 175% of thecontribution paid is available [Section 35(1) (ii)]. Such association has, as itsobject, undertaking of scientific research related or unrelated to the businessof the assessee

• The payment is made to an approved university, college or institution for thepurpose of scientific research that is related or unrelated to the business ofthe assessee, a weighted deduction of 125% is allowed.

• The payment is made to an approved university, college or institution for thepurpose of research for social sciences that is related or unrelated to thebusiness of the assessee

Contribution made to an approved Scientific Research Company, a weighteddeduction of the contribution paid is available subject to following conditions[Section 35(1)(iia)]• The Taxpayer may be any Person as defined under the Income Tax Act,

1961• The Payee Company is registered in India;• The scientific research may/ may not be related to the business of the

company;• The Payee Company has as its main object Scientific research and

development;• The Payee Company is, for the purposes of this clause, for the time being

approved by the prescribed authority in the prescribed manner;• The Payee Company fulfils such other conditions as may be prescribed.However deduction under Section 35(1)/ (2) would continue to be allowed beingRevenue/ Capital expenditure incurred.

Contribution made to Notified Institutions, wherein weighted deduction isavailable to the extent of 200% of such payment made [Section 35(2AA)]


The Notified institutions are:(i) National Laboratory.(ii) University.(iii) Indian Institute of Technology.(iv) Specified persons as approved by the prescribed authority.

• The above payment is made under a specific direction that it should beused by aforesaid persons for undertaking scientific researchprograms approved by the prescribed authority.

(iii) Yes, such money shall be taxable as capital gains.Where any capital asset is destroyed as a result of fire, earthquake or for anyother reasons, e.g. sinking of a ship, etc, such destruction of asset will beincluded in the extended meaning of the word ̀ transfer'. Section 2(47) of the Actwhich defines `transfer' does not include destruction of an asset.

2009 - June [4] (c) Discuss the items which are disallowed as deduction under section40 (b) while computing firm's income from business and profession. (3 ‘marks)

Answer:

Section 40 (b) deals with the amount which are not deductible in case of a firm.Therefore deductions on accounts of interest and remunerations to the partners can beclaimed u/s 36 or 37, as the case may be, but it will be subject to conditions prescribedby section 40(b) which are as follows:1. Payment of salary, bonus, commission or remuneration, by whatever name called

to non – working partner shall not be allowed as deduction.2. Remuneration to working partners and interest to any partner will be allowed as

deduction only when it is authorized by partnership deed.3. Payment of remuneration/interest although authorized by partnership deed but

which relates to a period prior to the date of such partnership deed shall not beallowed.

4. Interest payable to a partner shall be allowed as deduction subject to a maximumof 12% simple interest p.a.

If the partnership deed provides for an interest @ less than 12% p.a. thendeduction of interest shall be allowed to that extent.

5. Payment of remuneration to a working partner although relates to period after thedate of partnership deed and authorized by the partnership deed shall be allowedas deduction to the extent provided in the partnership deed but subject to themaximum limits provided in the act.

2009 - Dec [4] (a) What are the special provisions for computing profits and gains ofretail business? (5 marks)


Answer:

Provisions under section 44 AD shall become Applicable in case of an assesseeengaged in any business except the business of plying, hiring or leasing goods carriage,8% of the total turnover or such higher income as may be returned by the assesseeshall be deemed to be the profits of such business. This provision applies only if the

total turnover of sales of such retail business does not exceed ` 1 crore. In calculatingsuch presumptive profits @ 8% of sales the said provisions shall have to be considered

(i) All deductions u/s 30 to 38 including deprecation shall be deemed to have beenallowed [i.e no expenditure shall be allowed as deduction from such income @8% of T/o]

(ii) Provisions of Sec. 44AA & 44AB pertaining to maintaining of books of Accounts& disallowance with reference to monetary limits of transactions shall not apply.However all such data which [i.e. maintenance of books of accounts is notrequired] shall show the calculation of sales, stock, debtors, creditors shall bemaintained by the assessee.

(iii) In case of an assessee which is a firm to which prov. of 44AD are applied, thesalary/remuneration & interest paid to its partners shall be deducted from theincome computed under this provisions & the allowance of salary/Remuneration& interest shall be subject to the conditions & limits specified in sec 40(b)

(iv) WDV of assets used for the purpose of such business shall be calculated as ifdepreciation has been actually provided.

2009 - Dec [6] (b) What are ‘capital assets’ ? What items are not included in capitalassets? (5 marks)

Answer:

As per the definition of capital asset under section 2(14), Capital asset means propertyof any kind, whether fixed, circulating, movable, immovable, tangible or intangible. Thefollowing are however excluded:

(i) Any stock in trade, consumable stores or raw materials held for the purposes ofbusiness or profession.

(ii) Personal Assets of the assessee, i.e., movable property (including wearingapparels of the assessee and furniture) held for personal use, but excludes:• Jewellery;• Archaeological collections;• Drawings;• Paintings;• Sculptures;• Any work of art.

(iii) Rural agricultural land in India.(iv) Gold Deposit Bonds issued under Gold Deposit scheme 1999.


(v) Special Bearer bonds 1991 issued by the Central Government.(vi) 6.5% Gold Bonds 1977; 7% Gold Bonds 1980 or National Defense Gold bonds

1980 issued by the Central Government.

2010 - June [4] (c) Discuss the cases in which payment by way of loan/advance to theextent of accumulated profits by a closely held company is treated as dividend undersection 2(22)(e). (4 marks)

Answer:

As per section 2(22)(e) of Income Tax Act 1961:“any payment by a company, not beinga company in which the public are substantially interested, of any sum (whether asrepresenting a part of the assets of the company or otherwise) [made after the 31st dayof May, 1987, by way of advance or loan to a shareholder, being a person who is thebeneficial owner of shares (not being shares entitled to a fixed rate of dividend whetherwith or without a right to participate in profits) holding not less than ten per cent of thevoting power, or to any concern, in which such shareholder is a member or a partnerand in which he has a substantial interest (hereafter in this clause referred to as the saidconcern)] or any payment by any such company on behalf, or for- the individual benefit,of any such shareholder, to the extent to which the company in either case possessesaccumulated profits”Private Limited Companies generally give Loan or Advance to their director and familymembers who are again shareholders holding 10% or more voting power or to aconcern in which such shareholder has substantial interest. Such loan or advance istreated as deemed dividend covered under section 2(22)(e) and taxable in the handsof shareholders or concern as the case may be.Following points are to be understood with reference to the above:

(i) Sub-clause (e) applies when distribution or payment referred to therein areconnected with accumulated profits. The undistributed income, whenaccumulated from year to year, generates what is known as "accumulated profit".Accumulated profits shall include all profits of the company till the date ofdistribution or payment

(ii) Current profits are included in "accumulated profits" in section 2(22)(e) of I.T. Act1961. The expression "accumulated profits" was defined in the 1961 Act so asto include current profit up to date of distribution or payment.

(iii) The phrase "accumulated profits" does not mean aggregate of assessed profitsbut commercial profits. If certain disbursements have been disallowed in theassessment proceedings but the expenditure had in fact been incurred, theyshould be excluded from accumulated profits. In computing commercial profits,all the disbursements made and expenditure incurred for the purpose ofbusiness should be taken into account.


2010 - June [5] (b) Explain with the help of suitable illustration how capital gains arecomputed under section 45(2) in case of conversion of capital asset into stock-in-trade.

(4 marks)

Answer:

From the assessment year 1985-86 conversion of capital asset into stock in trade istreated as transfer. It is chargeable to tax in the year when the stock in trade is sold. Fairmarket value on the date of conversion shall be treated as sale consideration. Theprofits or gains arising from the transfer by way of conversion by the owner of a capitalasset into, or its treatment by him as, stock-in-trade of a business carried on by himshall be chargeable to income-tax as his income of the previous year in which suchstock-in-trade is sold or otherwise transferred by him and, for the purposes of section48, the fair market value of the asset on the date of such conversion or treatment shallbe deemed to be the full value of the consideration received or accruing as a result ofthe transfer of the capital asset.

Example

X converts his capital assets (acquired on 10th June, 1967 for ` 70,000, fair market

value on 1st April, 1981:` 1,80,000) in to stock-in-trade on 10th March, 2005 (fair market

value: ` 4,80,000) and, subsequently, sells the stock-in-trade so converted for `7,30,000 on 10th June, 2008. (Note: Cost inflation index number: 1981-82: 100; 2004-05:480; 2005-06: 497; 2008-09: 582)Full value of the consideration 4,80,000(Fair market value on 10-3-2005)Less: Cost of acquisition

(Fair market value on 1-4-1981 i.e., ` 1,80,000)1,80,000*480/100 8,64,000Long term capital Loss (3,84,000)

2011 - June [6] (a) Describe the provisions relating to chargeability of unexplainedinvestment not recorded in the books of account. (4 marks)

Answer:

Where in the financial year immediately preceding the assessment year the assesseehas made investments which are not recorded in the books of account, if any,maintained by him for any source of income, and the assessee offers no explanationabout the nature and source of the investments or the explanation offered by him is not,in the opinion of the Assessing Officer, satisfactory, the value of the investments maybe deemed to be the income of the assessee of such financial year.

2011 - Dec [3] (c) Describe the provisions relating to chargeability of cash credits inrespect of which the assessee has no satisfactory explanation. (5 marks)


Answer:

Under section 68 of the Act where any sum is found credited in the books of anassessee maintained for any accounting year and the assessee is not in a position tooffer explanation about the nature and sources thereof or the explanation offered by himis not satisfactory in the opinion of the assessing officers, the sum so credited may betreated as the assessee in respect of the accounting year in which the cash credit arefound to have made in the books. This section comes into operation only when thefollowing conditions are satisfied:1. The assessee maintains books of account2. The assessee fails to explain the source and nature of the sum credited; and3. The explanation offered by the assessee is not satisfactory and the assessing

officer comes to the conclusion that it is the undisclosed income of the assessee.

2012 - June [3] (c) What is meant by ‘block of assets’? Explain. (3 marks)

Answer:

Block of Assests

As per section 2(11), Block of assets means a group of assets falling within a class ofassets comprising,(a) Tangible assets being buildings, machinery, plant or furniture.(b) Intangible assets, being Know-how, patents, copyrights, trademarks, lincenses, in

respect of which the same percentage of depreciation is prescribed.Each class of assets other than intangible assets may have different blocks or

groups on which separate rates of depreciation are prescribed and for each such rate,separate block will be formed.

2012 - Dec [1] {C} Or (c) What are the provisions of section 54F in relation to capitalgains on transfer of asset other than a residential house? (5 marks)

Answer:

Any long term capital gain, arising to an individual or HUF from the transfer of any longterm capital asset, not being residential house property shall be exempt in full, if theentire net sales consideration is invested in purchase of one residential house withinone year before or 2 years after the date of transfer of such an asset or in theconstruction of one residential house within 3 years after the date of such transfer.Where part of the net sales consideration is invested, then Long term capital gain shallbe exempted proportionately.

The proportionate exemption shall be that amount of capital gains which bears thesame proportion which the amount invested in the new house bears to the netconsideration price of the asset transferred i.e.


The above exemption shall be available only when the assessee does not own morethan one residential house property on the date of transfer of such asset exclusive ofthe one which he has bought for claming exemption u/s 54F.

2012 - Dec [4] (b) (ii) Explain the provisions relating to taxation of winnings fromlotteries. (3 marks)

Answer:

Taxation of winnings from lotteries

Any winnings from lotteries, crossword puzzles, races including horse races, cardgames and other games of any sort or from gambling or betting of any form or naturewhatsoever are chargeable to tax as “Income from other sources”. Although winningfrom lotteries is part of total income of the assessee, such income is taxable at a specialrate 30%. Deduction of any expenses, allowances or loss are not allowed from suchwinnings.

2012 - Dec [4] (c) “Capital gains arise in the previous year in which the transfer tookplace.” Are there any exceptions to this rule? Explain. (5 marks)

Answer:

Capital gain arises in the previous year in which the transfer of the asset takes placeeven if the consideration for the transfer is received or released in later years. However,there are 3 exceptional cases where capital gain is taxable not in the year of transfer ofthe asset but in some other year. These exceptions are:

(i) Damage or destruction of any capital asset by fire or other calamities(ii) Conversion of capital asset into stock-in-trade(iii) Compulsory acquisition of an asset.

PRACTICAL QUESTIONS

2008 - Dec [4] (a) Ram, who is 28 years of age, is a businessman in Delhi. On the basisof the following profit and loss account for the financial year 2013-14, compute histaxable income:

` `

Opening stock 20,700 Sales 15,00,000Purchases 10,00,000 Closing stock 25,200Household expenses 10,000Income-tax for the financial year 2012-13 30,000Interest on capital 8,400Depreciation on furniture 12,000Reserve for bad debts 1,200


Salaries and wages 60,000Rent and rates 25,000Net profit 3,57,900

15,25,200 15,25,200

Other relevant particulars are as follows:

(i) Opening stock and closing stock have consistently been valued at 10% belowcost price.

(ii) Household expenses include a contribution of ` 1,500 towards public providentfund.

(iii) Amount of depreciation on furniture as per income-tax provisions is ` 10,000.(6 marks)

Answer:

Computation of Taxable income of Mr. Ram for the A.Y. 2014-15.

` `

Income from businessNet profit as per P&L A/c 3,57,900Add: Inadmissible Expenses:

House hold Expenses 10,000Income tax 30,000Interest on capital 8,400Excess depreciation (12,000-10,000) 2,000Reserve for bad debts 1,200 51,600

4,09,500Add: Under valuation of closing stock (1/9*25,200) 2,800

4,12,300Less: Under valuation of opening stock (1/9*20,700) 2,300

Income from business 4,10,000Income from other sources NilGross total income 4,10,000

Less: Deduction u/s 80C 1,500Taxable income 4,08,500

2009 - June [5] (b) Discuss the taxability or otherwise of the following gifts received byMadhuri, a lady, during the financial year 2013-14:

(i) ` 30,000 from her elder sister.

(ii) ` 50,000 from the daughter of her elder sister.

(iii) Wrist watch valued at ` 6,000 from her friend. (3 marks)


Answer:

Applicable section: - 56(2)(vi)

(i) Gift received form elder sister will not be taxable as per the IT Act, 1961 as sheis a relative of Madhuri and any sum received from a relative is not taxed as perthe provisions of the Act.

(ii) Amount received from the daughter of her sister would have been taxable, had

it exceeded ` 50, 000. Up to ` 50, 000 it is not chargeable to tax.

(iii) Wrist watch is not a cash gift, hence will not be taxable.

2009 - Dec [5] (a) Anurag sells a plot of land on 8th July, 2013 for ` 40 lakh and paidbrokerage on its sale @ 1%. He purchased this plot on 19th December, 1986 for

` 4,20,000. On 1st February, 2014, he purchased a residential house for ` 15 lakh. Heowns one residential house on 8th July, 2013. The cost inflation index for 1986-87 was140 and for 2013-14 is 939. Find out the amount of capital gains chargeable to tax forthe assessment year 2014-15. Suppose Anurag sells the new residential house before1st February, 2017, what will be the taxable amount of capital gains and in which yearit will be charged to tax ? If Anurag purchases any other residential house before 1stFebruary, 2016, what will be the taxable amount of capital gains and in which year it willbe charged to tax ? (5 marks)

(b) Danny has the following investments in the previous year ended 31st March, 2014:

(i) ` 7,160 received as interest on securities of Karnataka government.

(ii) ` 9,000 received as interest on securities of a listed paper manufacturingcompany.

(iii) ` 7,200 received as interest on the unlisted securities of a sugar company.

(iv) ` 30,000, 11% securities (unlisted) of a textile company.

(v) ` 20,000, 10% Tamil Nadu government loan.

(vi) ` 50,000, 13.5% listed debentures of Dolly Ltd.Interest on all securities is payable on 30th June, and 31st December. The bankcharges 1.5% commission on net realisation of interest as collection charges.

Danny also received ̀ 15,000 as director’s fee from a company. His other incomes are

— winnings from horse race: ̀ 25,000 (gross); and interest on post office savings bank

account: ` 6,000.Find out taxable income of Danny from other sources for the assessment year 2014-15.

(5 marks)


Answer:

(a) Computation of income from Capital Gains of Mr. Anurag for the Assessment

Year 2014-15

Particulars Amount ( ` ` ` `)

Sales considerationLess: Brokerage on Sales @ 1%

Net sales consideration

40,00,000 40,00039,60,000

Less: Indexed Cost of Acquisition 4,20,000 × 28,17,000

LTCG 11,43,000

Less: Exemption under section 54F 11,43,000 × 4,32,955

Taxable Income from Capital Gains 7,10,045

If Mr. Anurag sells the new house before February, 2017 then ̀ 4,32,955 being theamount of capital gains exempted during the Assessment Year 2014-15 undersection 54F will be chargeable to tax for the year in which the house is sold aslong-term capital gains.

If Mr. Anurag purchases any other residential house before February 1, 2016but after July 8, 2016 then he will not have any tax liability on account of CapitalGain. If Mr. Anurag purchases any other residential house before July 8, 2016

(i.e., within two years from the date of transfer of the original asset) then `4,32,955 will be taxable as long-term capital gains for the year in which anotherhouse is purchased.

(b) Computation of Income from other sources of Mr. Danny for the Assessment

Year 2014-15

Particulars Amount ( ` ` ` `)

Karnataka Government Securities (No TDS)Paper Company Securities (9,000 × 100/90)Sugar Mill Company Securities (7,200 × 100/90)Textile Company SecuritiesTamilnadu Government Loan (No TDS)DCM Ltd. Debentures (listed)Director’s FeeWinnings from Horse races

7,16010,000

8,0003,3002,0006,750

15,000 25,000


Interest on Post Office Saving Bank A/c (Exempt upto ` 3,500)Gross Receipts

Less: Deduction under Section 57 for collection chargesTaxable income from other sources

2,50079,710

516 79,194

Computation of Collection Charges

Particulars Amount ( `)

Amount of Collection charges for securities:Karnataka Government Securities (No TDS)Paper Company SecuritiesSugar Mill Company SecuritiesTaxtile Company Securities [3,300 ×90/100]Tamilnadu Government LoanDCM Ltd. Debentures [6,750 × 90/100]

Total Net Collection:Collection Charges @ 1.5%

34,405 × 1.5/100 = ` 516

7,1609,0007,2002,9702,000

6,075 34,405

2009 - Dec [6] (a) Rohit is the owner of a house property, its municipal valuation is

` 80,000. It has been let-out for ` 1,20,000 per annum. The local taxes payable by the

owner amount to ̀ 16,000, but as per agreement between the tenant and the landlord,the tenant has paid the amount direct to the municipality. The landlord, however, bearsthe following expenses on tenant’s amenities:

`

Extension of water connection 3,000Water charges 1,500Lift maintenance 1,500Salary of gardener 1,800Lighting of stairs 1,200Maintenance of swimming pool 750The landlord claims the following deductions:Repairs and collection charges 7,500Land revenue paid 1,500

Compute the taxable income of Rohit from the house property for the assessment year2014-15. (10 marks)


Answer:

Computation of Income from House Property for A.Y. 14-15Gross Annual value to be higher of the following:(a) Municipal value 80,000

or(b) Actual Rent 1,20,000

G.A.V 1,20,000Less: Local tax (No deduction ) 1,20,000

as tax is not paid by the owner.

NAV 1,20,000Less: Std deduction @ 30% of (36,000)

NAV Total Taxable Income 84,000

2010 - June [1] {C} (c) Particulars of income received by Mrs. Sarita for the year ended31st March, 2014 are as follows:

(i) Family pension received from the Government of Madhya Pradesh ` 15,000.

(ii) Royalty received from a publisher `42,700. She spent ` 2,700 on books,stationery, typing etc.

(iii) Winnings from lotteries (gross) ` 90,000.

(iv) Winnings from horse race (net) ` 35,000.

(v) Interest from tax-free debentures of a public company (listed) ` 18,000.

(vi) Interest on tax free notified government bonds ` 10,000.

(vii) Dividend received from a foreign company (net) ̀ 8,000. Nothing has been paidto the Government of India out of tax deducted at source.

From the above information, compute income from other sources of Mrs. Sarita for theassessment year 2014-15. (5 marks)

Answer:

Calculation of Income from other Sources of Mrs. Sarita

(for the Assessment Year 2014-15)

Family Pension(1/3rd is exempt) ` 10,000

Royalty Income ` 42,700

Less: Expenses ` 2,700 ` 40,000

Wining from lotteries ` 90,000

Wining from Horse Races (gross) ` 50,000

Interest from tax free debentures ` 20,000Interest on tax free government bonds Nil

Dividend received form foreign company ` 8,000

Income from other sources ` 2,18,000


2010 - June [5] (a) Amit is a cloth merchant in Ghaziabad. From the following profit andloss account for the year ended 31th March, 2014, compute his taxable income and taxpayable for the assessment year 2014-15:

` `

Opening stock 1,00,000 Sales 40,00,000Purchases 25,00,000 Closing stock 3,00,000Reserve for bad debts 10,000 Gift from friend 70,000Household expenses 20,000 Gift from brother 80,000Advertisement 40,000Depreciation 20,000Salaries and wages 1,20,000Reserve for future losses 20,000Travelling expenses 15,000Expenditure on scientific research 50,000Net profit 15,55,000

44,50,000 44,50,000Additional information:

(i) Household expenses include an amount of ` 5,000 paid for premium on lifeinsurance policy of Amit.

(ii) Depreciation admissible as per the income-tax rules is ` 30,000.

(iii) Advertisement costing ` 10,000 appeared in a newspaper owned by a politicalparty is included in the total amount spent on advertisement.

(iv) Expenditure on air fare from Delhi to Bangalore and from Bangalore to Delhi of

a sales manager costing ` 10,000 is included in travelling expenses. The salesmanager is otherwise entitled for a second class AC train where the expenditure

would be ` 4,000.(v) Expenditure on scientific research relates to the money spent by Amit on

conducting research relating to the business of cement which he proposes toundertake in future. (7 marks)

Answer: Computation of total Income of Mr. Amit

for the Assessment Year 2014-15

Particulars Amount (`)Income from business:Net Profit as per Profit & Loss A/c 15,55,000Add: Inadmissible expenses

Household expenses 20,000

* Advertisement 10,000Expenditure on scientific research 50,000Reserve for bad debts 10,000Reserve for future losses 20,000 1,10,000


Less: Non-business incomes credited to Profit & Loss A/cGift from friend 70,000Gift from brother 80,000 1,50,000

15,15,000Less: Depreciation undercharged 10,000

Income from business 15,05,000Income from other sources:

Gift from friend 70,000Gross Total Income 15,75,000

Less: Deduction under section 80-CLife Insurance premium 5,000Total Income 15,70,000

*Note: Advertisement is the Newspaper owned by the political party may be allowableexpenditure as per Sec 37(2B)

According to the Sec: No deduction shall be allowed in respect of expenses incurredby an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the likepublished by the political party.

Interpretation of the Sec: Newspaper is no were disallowed or specified is the sectionand it will not fit in "or the like" words is the section . Hence Advertisement is Newspaperowned by Political Party should be treated as allowable business expenditure.

2010 - June [6] (a) Naveen owns a house at Indore. Its municipal valuation is ̀ 24,000.He incurred the following expenses in respect of the house property:

Municipal tax @ 20%, fire insurance premium ` 2,000 and land revenue ` 2,400. He

took a loan of ` 25,000 @ 16% per annum on 1st April, 2011. The whole amount is stillunpaid. The house was completed on 1st April, 2013. Find out the income from houseproperty for the assessment year 2014-15 in respect of the following options:

(i) If the house is used by the assessee throughout the previous year for hisresidential purpose; and

(ii) If the house is let-out for residential purposes on monthly rent of ` 2,000 from1st April, 2013 to 31st January, 2014 and self-occupied for the remaining period.

(6 marks)

Answer:

(i) Gross Annual Value of the house shall be NilGross Annual Value NIL

Less: Deduction ` 6,400

Income from House Property ` (6,400)

(ii) Gross Annual Value ` 24,000

Less: Municipal tax paid ` 4,800

Net Annual Value ` 19,200


Less: 30% Statutory deduction ` 5,760

Interest on loan (4,000+2,400) ` 6,400

Income from House Property ` 7,040

2010 - Dec [1] {C} (c) Atul is working as Accounts Officer with Badri Steels Ltd.,

Ghaziabad drawing a salary of ̀ 40,000 per month. He gets D. A. @ 12% of salary and

entertainment allowance @ `800 per month. He spends 40% of entertainmentallowance on entertaining the customers of the company. The company has providedhim the facility of rent-free unfurnished house for which the company pays rent @

` 3,000 per month. The company has provided the services of a cook at the house of

Atul for which the company pays `1,000 per month as salary. The facility of free

refreshment and free meal for 300 days is provided to Atul costing `25 per day and

` 120 per day respectively during working hours in the office.Atul and the company both contribute 15% of basic pay and D.A. towards

recognised provident fund; ` 10,000 is credited to provident fund account by way ofinterest @ 9% per annum.Compute taxable income from salary of Atul for the assessment year 2014-15.

(5 marks)

Answer:

Computation of Income From Salary of Mr. Atul


Salary 40,000 × 12 4,80,000D.A. 12% 57,600Entertainment Allowance 800 × 12 9,600Salary of Cook 1,000 × 12 12,000Free refreshment ExemptFree meal ExemptEmployers contribution to RPF in excess of 12% 5,37,600*3/100 16,128Interest Credited to PF A/c Exempt up to 9.5% ExemptValue of Rent Free unfurnished house 36,000

Gross Salary 6,11,328

Less: Deduction u/s16 Nil

Taxable Salary 6,11,328

Working Notes: Basic Salary 4,80,000 D.A. 57,600 Entertainment Allowance 9,600

5,47,200


(i) 15% of Salary 82,080 (ii) Rent paid by the company 36,000

Which ever is less

Therefore, value of rent free unfurnished house will be ` 36,000

2010 - Dec [3] (a) Sanjay furnishes following particulars of income from his businessfor the previous year 2013-14:

(i) Net profit as per profit and loss account ` 72,000 after charging the following:

(a) Depreciation on building ` 31,000

(b) Provision for discount on debtors ` 40,000

(c) Private household expenses ` 50,000

(d) Charity (unapproved) ` 7,000

(e) Computer for scientific research ` 60,000

(f) Payment of expenses made through bearer cheque ` 25,000

(g) Security deposit ` 16,000

(h) Audit fee paid in cash ` 25,000

(i) Patent purchased during the year ` 75,000

(j) Market survey feasibility report expenses ` 50,000 on new project costing

` 6,00,000.

(ii) Opening stock ` 66,000 valued at 10% above cost and closing stock ` 72,000valued at 10% below cost.

(iii) Income credited to profit and loss account include—

(a) Bank interest on fixed deposits ` 9,000

(b) Refund of excise duty ` 18,000 earlier allowed as deduction

(c) Bad debts recovered ` 5,000.Compute total income of Sanjay and his tax liability if he is a senior citizen assuming

depreciation on building as per the Income-tax Act, 1961 is ` 50,000. (7 marks)

Answer:

Computation of tax Liability of Mr. Sanjay


Profits and Gains of Business and Profession

Net Profit 72,000

Add: Expenses Inadmissible

Depreciation on Building 31,000Provision for discount on debtors 40,000Household Expenses 50,000Charity 7,000Expenses paid through bearer cheque 25,000Security deposit 16,000


Audit Fees 25,000Patent (Depreciation considered separately) 75,000Market Survey Expenses 44,000opening stock over valued 6,000closing stock under valued 8,000 3,27,000

Less: Expenses Allowed

Depreciation on Building 50,000 Depreciation on Patent 18,750 68,750

Less: Income from other head Bank Interest on Fixed Deposits 9,000

Profits and Gains of Business and Profession 3,21,250

Income from other source-Bank Interest 9,000

Gross Total Income 3,30,250

Less: Deductions Nil

Total Income 3,30,250

Tax Liability

Tax on ` 3,30,250 8,025 Less: Rebate u/s 87A 2,000

6,025 Add: Edu. Cess & SHEC @ 3% 181 Tax Payable 6206

Rounded off 6,210

Working Notes:

1. Least of the following shall be eligible as Market Survey Expenses

(a) Actual Expenditure incurred ` 50,000

(b) 5% of project cost ` 30,000

Hence, ̀ 30,000 shall be allowed for deduction in 5 equal installments i.e. ̀ 6,000 (1/5

of ` 30000)

2010 - Dec [4] (c) Rupesh acquired a residential house on 1st September, 1979 for

` 1,00,000. He spent ̀ 25,000 on 1st July, 1981 for improvement of this house property.

A further amount of ` 50,000 was spent by him on 15th November, 1986 onimprovement of the house. Rupesh gifted the said property to his son Bhupesh on 12th

October, 1995. Bhupesh also spent the following amounts on improvement of thehouse:

Date of Expenditure Amount (`)15th July, 1996 60,00015th June, 2013 40,000


Bhupesh sold the above house on 30th November, 2013 for a sum of ` 15,00,000.Expenses on transfer were 2% of the sale consideration. Compute the capital gains forthe assessment year 2014-15, assuming the fair market value of the house as on 1st

April, 1981 to be ` 3,00,000.Cost inflation index for various years is as under:

1985-86 — 1331994-95 — 2591995-96 — 2812011-12 — 782014-15 — 939 (5 marks)

Answer:

Computation of Capital Gains

for the assessment year 2014-15

Sale Consideration 15,00,000Less:1. Expenses on transfer (30,000) 2. Indexed cost of acquisition (300000 × 939/259) (10,87,645)

3. Indexed cost of improvement(i) By the previous owner (50,000 × 939/133) (3,53,008)(ii) By the assessee [(60,000 × 939/281) + (40,000 × 939/939)] (2,40,498)

Long term capital loss 2,11,151

2011 - June [1] {C} (c) Goldie Ltd. has advanced an interest free loan of ` 5,00,000 toits employee Ramesh for purchase of car on 1st May, 2013. Ramesh has been regularly

repaying the loan in installments of ` 20,000 per month at the end of each month.Compute the value of perquisite on account of interest assuming that SBI rate of interestfor such loan as on 1st April, 2013 is 10% per annum. (5 marks)

Answer:

Computation of Value of Perquisite

Month Ending Maximum

amount of loan

outstandings

May 2013June 2013July 2013August 2013September 2013October 2013November 2013

4,80,0004,60,0004,40,0004,20,0004,00,0003,80,0003,60,000


December 2013January 2014February 2014March 2014Total

3,40,0003,20,0003,00,000

2,80,00041,80,000

Interest on ` 41,80,000 @ 10% p.a.

(41,80,000 x 10 x 1)/1200 =` 34,833

2011 - June [3] (a) After serving for 29 years and 7 months in Mansha Steels Ltd.,Narayan retired on 30th September 2013. He is covered by the Payment of Gratuity Act,

1972. The company has paid him a gratuity of ` 4,19,800. At the time of retirement, he

was getting basic salary ` 11,800, dearness allowance ` 2,260 and house rent

allowance ` 1,400 per month. Determine the amount of gratuity exempt under section10(10). (5 marks)

(c) Rakshit whose house property was compulsorily acquired in the year 2008 received

enhanced compensation of ` 9,00,000 on 15th November, 2013 which includes

` 2,40,000 as interest on such enhanced compensation. Discuss the taxability of suchcompensation. (4 marks)

Answer:

(a)

Exemption shall be allowed to the extent of the minimum of thefollowing amounts(a) Amount of gratuity received

(b) 15 days salary for every year of services (14,060 x x 30)

(c) ` 10,00,000

Therefore ` 2,43,346 is exempt from tax

` 4,19,800

` 2,43,346

(c) Enhanced compensation of ` 9,00,000 !` 2,40,000= ` 6,60,000 shall be taxableunder the head capital gain. Whereas interest on enhanced compensation shall betaxable under the head income from other sources as under:

Interest on enhanced compensation received ` 2,40,000

Less: deduction @50% ` 1,20,000

Balance Taxable ` 1,20,000

2011 - June [6] (c) On 31st December, 1980, Goverdhan purchased a plot for ̀ 40,000.

The fair market value of the plot on 1st April, 1981 was ̀ 97,800. On 15th October, 2013,

Goverdhan sells the plot for ` 14,30,000 and paid brokerage, etc., @ 2% on sales


consideration. He invested ̀ 6,87,000 in the construction of residential house which wascompleted before 31st May, 2014.

Compute the taxable amount of capital gains for the assessment year 2014-15 ofGoverdhan assuming that he already owns one residential house on the date of transferof plot. Cost inflation index for the financial year 2013-14 is 939. (7 marks)

Answer:

Computation of Taxable Capital Gains of Goverdhan

for the assessment Year 2014-15

Sale proceeds of PlotLess: Brokerage @ 2%Net Sales ProceedsLess: Indexed cost of acquisition 97,800 x 939/100

14,30,000 28,60014,01,400

9,18,342

4,83,058

Less: Deduction under section 54FCapital Gain x Cost of new house/net sales proceed

4,83,058 × 2,36,807

Taxable Capital Gain 2,46,251

2011 - Dec [2] (b) Vinod sells the following assets on 10th January, 2014:

Goodwill’ of a

Equity Shares Jewellery Plot of Business

in R Ltd. Land (Self-generated)

(`) (`) (`) (`)

Sales consideration 6,00,000 7,50,000 25,00,000 25,00,000Cost of acquisition 40,000 80,000 2,50,000 NilTransfer expenses 4,000 — 25,000 —Date of acquisition 04.05.1988 04.03.1996 04.02.1991 —Based on the following indices, compute income from capital gains of Vinod for theassessment year 2014-15 taking into consideration the facts that the business was set-

up in November, 1997 and that he purchased a plot of land for ̀ 8,00,000 and jewellery

for ` 2,00,000 on 10th March, 2014.Cost inflation index for various years are — 1988-89: 161; 1990-91: 182; 1995-96: 281;2011-12: 785 and 2013-14: 939. (5 marks)


Answer:

Computation of Income from Capital Gains of

Mr. Vinod for The Assessment Year 2013-14

Particulars Equity Shares Jewellery Plot of Land Goodwill

of the

Business

Sales ConsiderationLess: Indexed Cost

Less: TransferExpense

6,00,0002,33,292

40,000×939/161

4,000

7,50,0002,67,331

80,000×939/281

Nil

25,00,00012,89,835

2,50,000×939/182

25,000

25,00,000NilNil

Nil

Long Term CapitalGain 3,62,708 4,82,669 11,85,165 25,00,000

Income from long term capital Gain = 3,62,708+4,82,669+11,85,165+25,00,000= 45,30,542

Note: No exemption is available in respect of purchase of a plot of land and jewelleryOn March 10, 2014

2011 - Dec [3] (a) Adarsh, a Member of Parliament (MP) from Uttar Pradesh, submitsthe particulars of his income for the assessment year 2014-15. Compute his incomefrom other sources:

`̀̀̀

(i) Salary as MP 4,60,000(ii) Daily allowances as MP 1,80,000(iii) Dividend received from a domestic company 60,000(iv) Winnings from horse race (Gross) 40,000(v) Winnings from Sikkim State lotteries received (Net) 70,000(vi) Agricultural income in Sri Lanka 4,00,000

He received a royalty of ` 1,00,000 from a book of stories written by him. He claimed

` 12,000 as expenditure on stationery and typing.

He let-out one of his buildings alongwith plant, machinery and furniture for ̀ 50,000 permonth. He claimed the following expenses as deduction for this building —

insurance: ` 10,000; repairs: ` 15,000; depreciation: ` 40,000.Interest credited to his recurring deposit account and cumulative time deposit account

in post office were ` 32,000 and ` 48,000 respectively. (5 marks)


Answer:

Computation of Income from other sources of Mr.Adarsh


Salary as MPDaily AllowanceDividend from a domestic companyWinning from Horse RaceWInning from Sikkim state lotteries [70,000*100/70]Agricultural Income from Sri LankaRoyalty from a book 1,00,000Less: Expenses under section 57 12,000Rent of Building alongwith PM&F 6,00,000Less: Expenses under section 57[ insurance,10,000 +repairs15,000 + depreciation 40,000] 65,000Interest on Post office Recurring DepositsInterest credited to P.O.CTD Accounts

4,60,000ExemptExempt40,000

1,00,0004,00,000

88,000

5,35,000

32,00048,000

Income from other sources 17,03,000

Note: Under section 194B rate of TDS on state lotteries is 30%

2011 - Dec [5] (b) Anurag owns three houses, the particulars of which are given below:

House-A House-B House-C

(`) (`) (`)

Municipal value 80,000 1,20,000 1,00,000Fair rent 90,000 1,00,000 1,10,000Monthly rent 8,000 9,000 12,000Rent collection charges 8,000 10,000 6,000Repair expenses 5,000 6,000 4,000Interest on loan:— For construction 40,000 — —— For marriage of son — 30,000 —— For repairs — — 8,000Commencement of construction 04.04.2005 04.01.2007 04.07.2008Completion of construction 31.03.2009 30.06.2009 31.12.2010Use by tenant Residential Office ResidentialMunicipal tax is charged @ 10%. Anurag paid municipal tax of House-A but did not paymunicipal tax of House-B. The tenant paid the municipal tax of House-C whichremained vacant for 3 months.Compute income from house property of Anurag for the assessment year 2014-15.

(6 marks)


Answer:

Computation of Income from House Property of Mr.Anurag for the

Assessment Year 2014-15

Particulars Amount (`̀̀̀)

House A

Amount (`̀̀̀)

House B

Amount (`̀̀̀)

House C

Gross Annual ValueLess: Municipal TaxesNet annual valueLess: Standard Deduction @30% ofNAVLess: Interest on Loan

96,0008,000

88,000

26,40040,000

1,20,000—

1,20,00036,000

—

1,08,000—

1,08,00032,400

—8,000

Income from House Property 21,600 84,000 75,600

Total income from House property (21,600 + 84,000 + 75,600)

Notes:

1. No deduction is available in respect of rent collection charges and repairsexpenses

2. Interest on loan obtained for the marriage of son is not deductible3. It is assumed that the interest is for the current year.

2012 - June [1] {C} (c) Sanjeev owns a house property. Following are the details aboutthe property:

Municipal value of house : ` 72,000 per annum.

Fair rent of house : ` 66,000 per annum.

Standard rent of house : ` 60,000 per annum.

The house was let out at ` 6,000 per month but was sold on 1st January, 2014.Find out income from house property for the assessment year 2014 - 15. (5 marks)

Answer:

Computation of Income from House Property For the Assessment Year 2014-15

Gross Annual Value Shall Be higher of Expected Rent or Actual Rent Received(i) Expected rent shall be higher of Municipal Value or Fair Rent whichever is

higher but limited to standard rentMunicipal Value (72,000 × 9/12) = 54,000Fair Rent for 9 Months(66,000 × 9/12) = 49,500Standard Rent for 9 months (60,000) × 9/12) = 45,000

Therefore Expected Rent shall be ` 45,000 45,000(ii) Actual Rent Received (6,000 × 9) 54,000

Gross Annual Value 54,000Less: Standard Deduction @ 30% 16,200

Income from House Property 37,800


2012 - June [2] (b) Savita submits the following information regarding her salaryincome:

Basic salary ...` 11,000 per month

City compensatory allowance ...` 150 per month

Children education allowance ...` 400 per month (for 3 children)

Reimbursement of medical expenses ...` 25,000

She was entitled to house rent allowance of ` 6,000 per month from 1st April,

2013 to 31st August, 2013. However, she was paying a rent of ` 7,000 per monthfor a house in New Delhi. With effect from 1st September, 2013, she was providedwith an accommodation by the company for which the company was paying a rent

of ` 5,000 per month.Compute her gross salary for the assessment year 2014-15. (5 marks)

(c) For the previous year 2013-14, gross total income of Gopal is ` 12,50,700. Duringthe previous year he has made the following payments:

`

(i) Contribution to recognised provident fund 18,000(ii) Donation to Rajiv Gandhi Foundation 50,000(iii) Donation to Prime Minister Drought Relief Fund 30,000(iv) Donation to Prime Minister National Relief Fund 20,000(v) Donation to a government hospital for family planning 1,00,000(vi) Financial assistance to poor students 50,000(vii) Medical insurance premium 20,000

Compute total income of Gopal for the assessment year 2014-15. (5 marks)

Answer:

(b) Computation of Gross Salary of Savita for Assessment Year 2014-15

Basic Salary (11,000 × 12) 1,32,000

City Compensatory allowance (150 ×12) 1,800

Children Education Allowance (400 ×12) 4,800Less: Exempt 100 p.m. upto 2,400 2,400

2 children (200 × 12)2,400

Reimbursement of Medical Expenses 25,000Less: Exempt 15,000 10,000

House Rent Allowance (6000 × 5) 30,000Less: Exempt (see Note 1) 27,500 2,500

Rent Free Accommodation (See Note 2) 11,918

GROSS SALARY 1,60,618


Note:

(i) HRA shall be exempted to the minimum of the following:(a) HRA received 30,000(b) Actual rent - 10% of salary [7,000 ×5-(10% of 55,000)] 29,500

(c) 50% of ` 55,000(as she resides in Delhi) 27,500

Therefore, House rent allowance of `̀̀̀ 27,500 shall be exempted.

(ii) Value of Rent free accommodation:Least of following shall be taxable(a) Actual amount of Rent paid by employer (5,000×7) 35,000(b) 15% of Salary [(1,32,000+1,800+2,400)×15%] 11,918

Therefore, value for rent free accommodation shall be `̀̀̀ 11,918.

(c) Computation of Total Income of Gopal for the Assessment Year 2014-15


Less: Deduction under chapter VI-ADeduction under section 80-C (RPF) 18,000Deduction under Section 80-D(Medical Insurance Premium) 15,000Deduction under section 80-G (Donation) 1,60,000 1,93,000


Working Note:

(i) Calculation of Deduction under section 80-G

(A) Donations to which qualify limit does not apply(a) Allowed 100%

PMNRF (20,000 × 100%) 20,000(b) Allowed 50%

PMDRF (30,000 × 50%) 15,000 RGF (50,000 × 50%) 25,000 40,000

(B) Donations which are subject to qualifying limit (a) Donation to Government for family planning

(100% of ` 1,00,000) 1,00,000Within 10% of adjusted total income

(10% of 12,17,700) i.e.` 1,21,770_______

Total Donation Allowed 1,60,000

Adjusted total income: (Gross Income - Deductions under Chapter VI-A except underSection 80G) i.e. 12,50,700-18,000,-15,000 = 12,17,700.


2012 - June [3] (a) Kundan sold his properties during the year 2013-14 as under:

(i) Household TV and refrigerator, costing ` 56,000 purchased in January, 2005,

sold in February, 2014 for ` 70,000.

(ii) A car sold on 1st December, 2013 for ` 2,00,000 which was purchased by him

in January, 2010 for ̀ 3,00,000 and its written down value on 1st April, 2013 was

` 1,72,000. The car is used for business purposes.

(iii) Agricultural land was sold for ̀ 9,50,000 on 1st February, 2014 and its purchase

price in 1981-82 was ̀ 1,00,000. He purchased new land for his own cultivation

for ` 2,50,000 in May, 2014.

(iv) Gold ornaments acquired in July, 2010 for ` 2,00,000 were sold for ` 2,40,000in June, 2013.

(v) Let out residential house at Indore was inherited by him in 1975. Sale price on

30th November, 2013: ` 16,00,000; fair market value on 1st April, 1981:

` 2,00,000; cost of improvement during 1990-91: ` 40,000; and expenses on

transfer: ` 60,000.Compute his total capital gains for the assessment year 2014-15.

Cost inflation indices:1981-82 ... 1001982-83 ... 1091989-90 ... 1722003-04 ... 4632008-09 ... 5822010-11 ... 7112011-12 ... 7852014-15 ... 939 (7 marks)

Answer:

Computation of Capital Gains

(i) Household TV and refrigerator are personal effects and hence not capital assets.(ii) Car

Sale Consideration 2,00,000Less: Written down value 1,72,000

Short-term capital gain 28,000 28,000

(iii) Agricultural LandSales Consideration 9,50,000Less: Indexed cost of acquisition 9,39,000

11,000

×

100

1,00,000 852

Less: Exempt under section 54B 11,000 NIL


Agriculture land purchased for

` 2,50,000 but limited toCapital gain.

(iv) Gold OrnamentSales consideration 2,40,000Less: Cost of acquisition 2,00,000 40,000Short - Term Capital gain

(v) Residential HouseSales Consideration 16,00,000Less: Expenses on transfer 60,000Less: Indexed Cost of Acquisition

18,78,000

Less: Indexed Cost of Improvment

2,18,372

Long Term Capital loss (5,56,372)Short Term Capital Gain 68,000

2012 - June [5] (a) Ashok, a resident and ordinarily resident in India, furnishes thefollowing particulars of his income for the previous year 2013-14. Compute his grosstotal income for the assessment year 2014-15:

(i) He took a house on the rent of ̀ 2,500 per month and let it out again for ` 3,200per month.

(ii) He received from his own house, rent of ` 600 per month.

(iii) Dividend from an Indian company ` 5,000.

(iv) Income from cloth business ` 18,500.

(v) Income from gambling ` 12,800.

(vi) Agricultural income in Pakistan which was not brought in India ` 24,500.

(vii) Income from agricultural land situated in Mandsaur (Madhya Pradesh) ̀ 47,500.

(viii) Share in profit of a firm ` 6,500.

(ix) Dividend from a co-operative society ` 3,000.

(x) Income from unexplained sources ` 10,000. (9 marks)


Answer:

Computation of Gross Total Income for the assessment Year 2014-15

` `

Income from House Property

Rent Received 7,200

Less: Standard Deduction @ 30% - 2,160 5,040

Income from Business & Profession

Income from cloth Business 18,500

Share in profit of a firm (Exempted) -

Income from other Sources

Income from subletting 38,400

Less:Rent Paid

30,000 8,400

Dividend from an Indian Company -

Income from Gambling 12,800

Agricultural income in Pakistan 24,500

Agricultural income in Mandsaur (MP)-Exempted -

Dividend from a co-operative society 3,000

Income from Unexplained Sources 10,000 58,700

Gross Total Income 82,240

2012 - Dec [2] (b) Following is the trading and profit and loss account of Narendra forthe year ended 31st March, 2014:

` `

Opening stock 20,250 Sales 3,83,600

Purchases 1,80,500 Closing stock 23,200

Wages 10,200 Gift from father 10,000

Donation to Prime Minister Income-tax refund 2,500

National Relief Fund 20,000

Building rent 60,000

Repairs of car 5,300

Medical expenses (personal) 8,000


General expenses 4,200

Depreciation on car 12,000

Profit for the year 98,850

4,19,300 4,19,300

Additional information:(i) Opening stock has been undervalued by 10% of cost while closing stock has

been valued at its cost.(ii) One-third of the building rent is related to self-residential house.(iii) The car is used equally for business as well as for personal purposes.

(iv) Wages includes wages of household servant ` 250 per month.From the above information, you are required to determine the taxable income ofNarendra under the head income from business and profession. (10 marks)

Answer:

Computation of taxable Income of Narendra under the

head Income from business and profession

`

Net profit as per Profit & Loss Account 98,850

Add: Items disallowed

`̀̀̀

Donation to PMRF 20,000

Building Rent 60,000 × 1/3 20,000

Repairs of Car 5,300 × 1/2 2,650

Medical Expenses 8,000

Depreciation of Car 12,000× 1/2 6,000

Weges of servant 250 × 12 3,000 59,650

1,58,500

Less: Items not taxable:

Gift from father 10,000

Income tax refund 2,500 12,500

1,46,000

Less: Opening stock undervalued × 10 = 2,250

Income from Business and Profession 1,43,750


2012 - Dec [3] (b) State, with reasons, in brief, whether the following expenses areadmissible as deduction while computing the ‘income from other sources’:

(i) Interest of ` 10,000 paid on money borrowed for purchasing shares to be heldas investment.

(ii) Expenditure of ` 20,000 incurred for purchase of lottery tickets.

(iii) An expenditure of ` 40,000 incurred for the activity of owning and maintainingrace horses. (2 marks each)

Answer:

Admissibility of expenses

(i) Interest of ̀ 10,000 paid on money borrowed for purchasing shares: Interest onmoney borrowed for purchasing the shares can be claimed as a deduction. Theinterest can be claimed even if no income is earned by way of dividend on suchshares. However, since dividends referred to in section 115-O or dividendcovered under section 2(22)(a), 2(22)(b), 2(22)(c) and 2(22)(d) are exempt in thehands of shareholders, no deduction of any expenses referred to section 57 shallbe allowed.

(ii) Expenditure of ` 20,000 incurred for purchase of lottery tickets: No deductionshall be allowed under any provision of the Act in computing the income by wayof winnings from lotteries, crossword puzzles, etc. Thus, no deduction ispermissible u/s 58(4).

(iii) An expenditure of ` 40,000 Incurred for the activity of owing and maintainingrace horses: No deduction is allowed in respect of any expenditure or allowancein computing the income by way of winnings from lotteries, crossword puzzles,races ( including horse races), card games, etc The prohibition, however, will notapply in respect of income of an assessee who is owner of horses maintainedby him for running in horse races [section 58(4)].

2012 - Dec [4] (a) Anand owns a house at Delhi. From the following particulars,compute the income from house property for the assessment year 2014-15:

`

Municipal valuation 2,50,000Fair rent 2,80,000

Actual rent (` 25,000 per month) 3,00,000Standard rent 2,60,000Municipal taxes paid (half of it was borne by the tenant) 25,000Expenses on repairs 5,000Fire insurance premium paid 5,000Ground rent 6,000Unrealised rent 1 monthVacancy period 1 month


He had borrowed a sum of ` 20,00,000 @ 10% p.a. from LIC Housing Ltd. on 1st

August, 2009 and the construction of the house was completed on 1st January, 2013.Total loan is still unpaid. (5 marks)

Answer:

Calculation of Income from House Property


`

Gross Annual Value

(i) Expected Rent ( Higher of fair value of ` 2,80,000 and

municipal value of ` 2,50,000 but subject to standard

rent of ` 2,60,000) 2,60,000

(ii) Rent actually received/ receivable (` 25, 000 × 11) 2,75,000

Higher of (i) and (ii) 2,75,000

Less : Loss due to vacancy 25,000

Gross annual value 2,50,000

Less : Municipal taxes (borne by the owner 12,500

Net annual value 2,37,500

Less : Standard deduction @ 30% under section 24 71,250

Interest on loan*

Pre-Construction Period 1,06,667

Previous year 2,00,000 3,06,667

Income from house property 1,40,417

* Interest on borrowed amount:

1. Pre-construction period 1.8.2009 to (1.1.2013) i.e. 31.3.2012

Previous year 2009-10 1,33,333 i.e. ` 2,00,000 × 8/12

2010-11 2,00,000

2011-12 2,00,000

5,33,333

1/5th ` 5,33,333 = ` 1,06,667

2. Interest for Previous year 2013-14 2,00,000

2013 - June [1] {C} (c) Ram purchases a house property for ̀ 7,600 on 30th June, 1967.The following expenses were incurred by him for making addition/alteration to the houseproperty:

`

Cost of construction of first floor in 1975-76 11,000Cost of construction of second floor in 1983-84 34,000Alteration/reconstruction of the property in 1992-93 29,000


Fair market value of the property on 1st April, 1981 45,000

The house property is sold by him on 15th June, 2012 for ̀ 6,95,000 (expenses incurred

on transfer ` 5,000).Compute the amount of capital gains chargeable to tax for the assessment year 2013-14.Cost inflation indices: 1981-82:100; 1983-84:116; 1992-93:223 and 2012-13:852.

(5 marks)

Answer :

Computation of Capital Gains For the Assessment Year 2013-14

Sales ConsiderationLess: Expenses on transferLess: Indexed cost of acquisition45,000 × 852/100Less: Indexed cost of improvement1983-84 [34,000 × 852/116 = 2,49,724]1992-93 [ 29,000 × 852/223 = 1,10,798]

5,000

3,83,400

3,60,522

6,95,000

7,48,922

Long term capital loss 53,922

2013 - June [4] (c) Mohit purchased an asset for scientific research in the previous year2005-06 for ̀ 30,00,000. During the previous year 2012-13 the said asset ceased to beused for scientific research. The following information is also submitted to you:

`

Profit from business before depreciation 10,00,000Written down value of block of assets 15% as

on 1st April, 2012 20,00,000The scientific research asset if used for business shall be eligible for depreciation@15%. The cost inflation index for 2005-06 is 497 and for 2012-13 is 852.Compute the total income if the scientific research asset is sold for ` 60,00,000 during2012-13, assuming that:

(i) It is sold without using for business; and(ii) It is sold after using for business. (6 marks)

Answer :Computation of Total Income of Mohit

for the AY 2013-14(i) It is sold without using for Business

Business Income

Less: Depreciation @ 15% on ` 20,00,000

10,00,0003,00,000

10,00,000

Profit on sale of Scientific research asset7,00,000

30,00,000 37,00,000


Long term capital gainSale considerationLess: Indexed cost of acquisition

60,00,00051,42,857 8,57,143

[3,00,000 × 852/497]


(ii) It is sold after using for Business

Business Income 10,00,000 10,00,000

Less: Depreciation (W.N.1) Nil

Business Income 10,00,000

Short term capital gain (W.N.2) 40,00,000


Working Notes

(1) Written down value of the block as on 1.4.2012 20,00,000Add: Scientific research assets put to use NilLess: Sale price limited to WDV 20,00,000WDV for the purpose of charging depreciation Nil

(2) Short term capital gain (` 60,00,000 - ` 20,00,000) = ` 40,00,000

2013 - June [5] (b) In each of the following cases what amount will be allowed asexpenditure for a business for the assessment year 2013-14. Explain with reasons:

(i) Purchase of raw materials ` 2,00,000. It includes a payment of ` 24,000 whichhas been made in cash.

(ii) ` 1,42,000 were paid to national laboratory to undertake a scientific research foran approved programme. (2 marks each)

Answer :

(i) Where the assessee incurs an expenditure in respect of which a payment oraggregate of payments made to a person in a day otherwise by an account

payee cheque exceeds ` 20,000, no deduction shall be allowed in respect ofsuch expenditure.

As out of purchase of raw materials of ` 2,00,000 a payment of ` 24,000 have

been made in cash therefore whole of the expenditure of ` 24,000 shall not be

allowed as deduction. The balance of ` 1,76,000 will be allowed.(ii) A weighted deduction of 200% of the sum paid to the National Laboratory to

undertake scientific research for an approved programme shall be allowed asdeduction.

Hence, ` 2,84,000 [1,42,000 × 200%] shall be allowed as business expenditure forassessment year 2013-14


2013 - Dec [1] {C} (c) Following particulars are related to the income of Mrs. Bimla forthe previous year 2012-13:

— Salary (after deducting ` 48,000 for income tax at source) ` 3,60,000 per annum.

— Dearness allowance (under the terms of employment) ` 42,000 per annum.

— Education allowance (for 3 children) ` 15,700 per annum.

— Medical allowance (actual medical expenditure ` 14,000) ` 37,200 per annum.

— Rent-free house (in Mumbai). The Company paid ` 40,000 per month as rent.

The house is furnished and the rent of the furniture is ` 35,000 per annum.

— The company spent ` 18,000 on her refresher course.

— She paid professional tax @ ` 7,000 for three years.Find out taxable income of Mrs. Bimla from salary for the assessment year 2013-14.

(5 marks)

2013 - Dec [2] (b) Smt. Sweta furnishes the following particulars of her income for thefinancial year ended 31st March, 2013:

(i) Dividend received in September, 2012 from UTI ` 4,400 (gross).

(ii) Dividend received in July, 2012 from Darjeeling Tea Co. Ltd. ` 14,320 (60% ofincome of the company is agricultural income).

(iii) Long-term capital gains from sale of shares through recognised stock exchange

` 8,000.(iv) Amount received on 1st December, 2012 in connection with winnings from lottery

` 1,09,200 (net). Cost of lottery tickets purchased ` 4,000.

(v) She has hired a residential house consisting of 3 rooms for ` 7,200 per month

on 1st October, 2012. One room of this house was sub-let on rent of ` 3,000 permonth from 1st January, 2013.

Compute taxable income of Smt. Sweta under the head ‘income from othersources’ for the assessment year 2013-14. Give working notes wherevernecessary. (5 marks)

2013 - Dec [3] (a) Mrs. Chanda owns two houses. The details of these houses are asfollows:

House-I House-II

Municipal valuation (`) 3,00,000 2,00,000

Fair rent (`) 3,20,000 2,20,000

Standard rent (`) 2,80,000 2,30,000

Annual rent (`) self-occupied 2,07,600

Vacancy period — 2 months

Municipal taxes paid during 2012-13 (`) 20,000 20,000


She raised a loan of ̀ 12,00,000 from Punjab National Bank @ 12% per annum intereston 1st June, 2009 for the construction of House-I. Construction of the house wascompleted on 1st June, 2012. Date of repayment of loan is 1st October, 2012.Half of the municipal taxes in respect of the House-II have been paid by the tenant.During the previous year 2012-13, she was employed in a company at a monthly salary

of ` 25,000. Company paid ` 2,000 as professional tax on her behalf.Compute her total income and tax liability for the assessment year 2013-14 assumingthat she does not have any other income. (7 marks)

2013 - Dec [4] (a) Deepak acquired 200 listed debentures of ` 100 each on 15th May,2006. 50% value of each debenture was converted into 4 listed equity shares of the

face value of ` 10 each on 20th August, 2011. Deepak, therefore, received 800 shares

of face value of ` 10 each and was left with 200 debentures of ` 50 each. The shares

were sold on 15th June, 2012 @ ` 100 per share through recognised stock exchange

and Deepak paid ` 800 as securities transaction tax.Compute the income from capital gains to be included in the income of Deepak for theassessment year 2013-14. (5 marks)

(c) Ramesh has business income of ` 8,00,000 after debiting depreciation of ̀ 80,000on buildings in his profit and loss account for the year 2012-13. He bought the followingassets during the year:

(i) Building-I bought on 1st March, 2012 for ̀ 3,00,000 and put to use on 31st March,2013 (rate of depreciation: 10%).

(ii) Building-II bought on 1st August, 2012 for ` 4,00,000 and put to use on 10th

March, 2013 (rate of depreciation: 10%).

(iii) Building-III bought on 10th September, 2012 for ` 5,00,000 and put to use on 1st

June, 2013 (rate of depreciation: 10%).Compute business income of Ramesh for the assessment year 2013-14 assuming thatRamesh has no other building. (5 marks)

CS Inter Gr. I

SHORT NOTES


(i) ‘Transfer’ for purposes of capital gains. (4 marks)


Answer:

As per section 2(47) of the Income-tax Act, 1961, ‘Transfer’ in relation to capital

asset, includes:

(a) The sale, exchange or relinquishment of the asset; or(b) The extinguishment of any rights therein; or(c) The compulsory acquisition thereof under any law; or(d) In a case where the asset is converted by the owner thereof into, or treated by

him, as stock-in-trade of a business carried on by him, such conversion ortreatment; or

(e) Any transaction involving or allowing the possession of any immovableproperty to be taken or retained in part performance of a contract of the naturereferred to in section 53A of the Transfer of Property Act, 1882; or

(f) The maturity or redemption of Zero Coupon Bonds; or(g) Any transaction (whether by way of becoming a member of, or acquiring

shares in a co-operative society, company or other association of persons orby way of any agreement or in any other manner whatsoever) which has theeffect of transferring, or enabling the enjoyment of any immovable property.

(h) Insurance claim due to damage or destruction of property.

DISTINGUISH BETWEEN

2007 - Dec [4] (a) Distinguish between the following:(i) ‘Recognised provident fund’ and ‘unrecognised provident fund’. (4 marks)

(iii) ‘Tax audit under section 44AB’ and ‘special audit under section 142(2A)’.(4 marks)

Answer:

(i) ‘Recognised provident fund (RPF)’ and ‘unrecognised provident fund

(URPF)’

RPF scheme includes the Government scheme set up by Provident FundCommissioner under Provident Fund Act, 1952 and a scheme made by theorganisation which is approved by the PF Commissioner. In case of RPF, theemployers’ contribution in excess of 12% of salary is taxable as salary. Further,employee’s contribution to RPF qualities for deduction under section 80C.Amount received on retirement etc. of RPF is fully exempt under section 10(12).The scheme started by the employer and the employees in an establishment,whether approved by Commissioner of provident fund or not, but not approvedby the Commissioner of Income tax is called an Unrecognised Provident Fund.Employer’s contribution and interest on provident fund in the case of


Unrecognised Provident Fund are not taxable in the year of contribution or creditof interest. However, when lump sum amount is received by the employee thenit becomes taxable. Employee’s contribution shall not be allowed for deductionunder section 80C.

(iii) Tax Audit or Audit of Accounts u/s 44AB of Income Tax Act 1961 is that auditwhich is applicable to every such Assessee whether company or non Company,except for persons/ assessees who derive income of nature referred to u/s 44 B& 44BBA [non residents & foreign companies]Audit of Accounts [Tax Audit] u/s 44 AB shall be compulsory carried out in caseof a person(a) Carrying on any business where the sales, turnover or gross receipts

exceeds ` 1 crore in the said financial year

(b) Carrying on profession where gross receipts exceed ` 25 lakhs(c) Carrying on the business referred to in section 44 AD or 44AE or 44BB or

44BBA & claiming his income from any such businesses to be lower than theincome prescribed under the relevant section.

The Books of Accounts for the relevant previous year are required to be auditedby a Chartered Accountant before the "specified date" & the audit report obtainedunder this provision is required to be furnished by that date alongwith the return of

income failing which penalty @ 0.50% of turnover or ` 1,00,000/- whichever islower shall be levied on the Assessee & such return filed shall be treated asincomplete or defective u/s 139(9).

The "specified date" prescribed for this purpose is 30th September of the relevantassessment year or any such extended due date as extended by CBDT by way ofa notification. According to CBDT Circular No 452 dated 17.03.1986, in the caseof agent who earns only commission income, the audit of accounts is required only

if the commission exceeds ` 1 crore. The Tax audit report means report in Form3CA/3CB alongwith annexure of details in Form 3 CD.

2008 - June [4] (b) Distinguish between the following(i) Provisions of tax audit as contained in ‘section 44AB’ and ‘section 142(2A)’.

(5 marks)

Answer:

Please refer 2007 Dec (4)(iii) on page no. 115



2004 - June [2] (c) How do you treat unrealised rent allowed as a deduction in the pastand realised in a subsequent year when the assessee is no more the owner of theproperty ? (3 marks)

Answer:

When unrealized rent or part thereof is realized subsequently, then the same would bechargeable to tax under the head “Income from House Property” to the extent suchamount together with the actual rent receivable (ARR) of the previous year to which itrelates, exceeds GAV of that year.Arithmetically, taxable amount shall be positive value of [Recovery of Unrealized rent + (Actual rent received or receivable – Unrealized rent) #- Gross annual value]# For the previous year to which such unrealized rent relates

2004 - Dec [1] {C} (a) Prudent Ltd. intends to take a 'keyman insurance policy' in thename of its CEO and mentor. The company seeks your advice as to tax implications ofsuch policy in the hands of company and the CEO. Explain. (3 marks)

Answer:

Keyman Insurance policy is a policy taken on the life of one person by anotherperson in whose organisation the first mentioned person plays a key role. Therelationship between these two persons could be that of employer-employee or that ofa principal and agent or a contractor and contractee. Where a premium is paid on sucha policy, it can qualify for deduction as business expenditure. It can be established thatthe policy has been taken on the life of such person in the interest of the business.

A keyman insurance policy which has been assigned to any person during its term,with or without consideration, shall continue to be treated as a keyman insurance policy.

As regards the treatment of maturity proceeds of Keyman Insurance Policy, Section2(24) treats it as income for the purpose of income Tax Act. The exemption availableunder Section 10(10D) in respect of maturity proceeds of Life Insurance Policy is notextended to proceeds of Keyman Insurance Policy. However if maturity received ondeath it is exempt. A keyman insurance policy which has been assigned to any personduring its term, with or without consideration, shall continue to be treated as a keymaninsurance policy. Thus, it is taxable as follows.


When Employer-Employeerelationship subsists

When Employer- Employeerelationship subsists

When no Employer -Employee relationshipsubsistsWhen no Employer -Employee relation subsists.

Policy matures in the handsof person who has takenthe policyPolicy matures in the handsof person to whose name itis assigned and in whosename it was taken.Policy matures in the handsof person who has takenthe policyPolicy matures in the handsof person to whom it isassigned and in whosename it was taken.

Taxable under Section 28as “Profits and gains ofbusiness or profession”.Taxable under Section 17as “Profits in lieu of Salary”

Taxable under Section 56as “Income from othersources”Taxable under Section 56as “Income from Othersources”

2004 - Dec [2] (a) Discuss the provisions regarding tax on income from bonds or globaldepository receipts purchased in foreign currency or capital gains arising from theirtransfer under section 115AC of the Income-tax Act, 1961. (5 marks)

Answer:

1. Where the total income of an assessee, being a non-resident, includes –(a) Income by way of interest or [Dividends other than dividends referred to in

section 115-O], on bonds or shares of an Indian company issued inaccordance with such scheme as the Central Government may, by notificationin the Official Gazette, specify in this behalf [Bonds or shares of a publicsector company, sold by the Government] and purchased by him in foreigncurrency; or

(b) Income by way of long-term capital gains arising from the transfer of bonds or,as the case may be, shares referred to in clause (a), the income-tax payableshall be the aggregate of –

(i) The amount of income-tax calculated on the income by way of interestor [Dividends other than dividends referred to in section 115-O], as thecase may be, in respect of bonds or shares referred to in clause (a), ifany, included in the total income, at the rate of ten per cent;


(ii) The amount of income-tax calculated on the income by way oflong-term capital gains referred to in clause (b), if any, at the rate of tenper cent; and

(iii) The amount of income-tax with which the non-resident would have beenchargeable had his total income been reduced by the amount of incomereferred to in clause (a) and clause (b)

2. Where the gross total income of the non-resident - (a) consists only of income by way of interest or [ Dividends other than dividends

referred to in section 115-O] in respect of bonds or, as the case may be,shares referred to in clause (a) of sub-section (1), no deduction shall beallowed to him under sections 28 to 44C or clause (i) or clause (iii) of section57 or under Chapter VI-A;

(b) Includes any income referred to in clause (a) or clause (b) of sub-section (1)the gross total income shall be reduced by the amount of such income and thededuction under Chapter VI-A shall be allowed as if the gross total income asso reduced, were the gross total income of the assessee.

3. Nothing contained in the first and second provisos to section 48 shall apply for thecomputation of long-term capital gains arising out of the transfer of long-termcapital asset, being bonds or shares referred to in clause (b) of sub-section (1).

4. It shall not be necessary for a non-resident to furnish under sub-section (1) ofsection 139 a return of his income if - (a) His total income in respect of which he is assessable under this Act during the

previous year consisted only of income referred to in clause (a) of sub-section(1); and

(b) The tax deductible at source under the provisions of Chapter XVII-B has beendeducted from such income.

5. Where the assessee acquired shares or bonds in an amalgamated or resultingcompany by virtue of his holding shares or bonds in the amalgamating ordemerged company, as the case may be, in accordance with the provisions ofsub-section (1), the provisions of the said sub-section shall apply to such sharesor bonds.


2004 - Dec [5] (b) Explain the taxation aspects when a capital asset is converted intostock-in-trade. (5 marks)

Answer:

As per the section of income tax Act, 1961 Income Tax Act, conversion of a capitalasset into stock-in-trade is treated as a transfer in the previous year in which suchconversion is made. The capital gains tax is chargeable on such transfer only in theprevious year in which such stock – in - trade is either sold or transferred. The taxation of such transaction has two parts, which are as follows: Chargeability as Capital gains • Full Value of Consideration shall be taken as the fair market value on the date of

conversion.• Cost of Acquisition will be taken as the cost incurred by the assessee at first

instance on purchase of such asset along with indexation applicable on the asset,being recognized as long term.

• Cost of Improvement (if any) made before conversion shall be considered alongwith indexation applicable if the asset was a long term capital asset on the date ofconversion.

• Expenses on transfer shall be allowable to the extent specifically related to suchconversion.

Chargeability as Business Income:

• The Sale Price less market price at which converted value as on the date of suchconversion shall be taxed under the head ‘Profits and Gains from Business andProfession'.

Note:-Indexation of cost in the above case shall be done till the year of conversion ofthe capital asset into stock in trade although the capital gains will be computed in theyear of sale or transfer of such converted capital asset.

2005 - June [1] {C} (c) Discuss the tax liability of the following:(i) Any sum received under a Keyman insurance policy. (1 mark)

(iii) Conveyance facility provided to an employee to cover the journey between officeand residence. (1 mark)

Answer:

(i) As per section 10(10D) of IT Act, 1961, any sum received under a Key manInsurance Policy is chargeable to tax. Except if it is received due to death ofinsured such amount received is exempt.

(ii) Conveyance facility provided to an employee to cover the journey between officeand residence is not taxable in the hands of employee. However, if Conveyanceallowance is provided by the employer, the same is exempted to the extent of

` 800 p.m. and in case of blind and orthopedically handicapped with disability of

lower extremities, is exempt to the extent of ` 1,600 p.m. instead of ` 800.


2005 - June [4] (b) Advise an assessee on the admissibility or otherwise on thefollowing aspects giving reasons in respect of its business income:

(i) Brokerage paid for raising loan for the business.(ii) Cost of erecting medical unit annexe to the factory for emergency treatment of

the employees.(iii) Compensation paid to an employee for the premature termination of his services.(iv) Travelling expenses of a director, who went to Japan for negotiating the

purchase of a new heavy machinery which was to be installed during next year.

(v) Lump sum consideration of `5 lakh paid for acquiring know-how. (5 marks)

Answer:

(i) The brokerage paid for raising a loan for the business is an admissibleexpenditure, since the funds are procured for the business operations.

(ii) The cost of erecting a medical unit is a capital expenditure and hence notadmissible as business expenditure. However, depreciation can be claimedunder section 32(1)

(iii) Assuming that the termination of services of employees is in the interest ofbusiness, the compensation paid to him will be an admissible expenditure.

(iv) Since the travelling expenses are incurred in connection with purchase ofmachinery, this will be in the nature of capital expenditure. Hence, it is notadmissible.

(v) Lump sum consideration paid for acquiring know-how will be in the nature ofcapital expenditure and hence not admissible as business expenditure. However,depreciation can be claimed as per section 32(1).

2005 - Dec [1] {C} (d) Explain briefly the scope of the term 'capital asset', as definedunder Section 2(14) of the Income-tax Act, 1961. (3 marks)

Answer:

According to Section 2(14) of the income tax Act, 1961 the expression “capital asset”means property of any kind held by an assessee, whether or not connected with hisbusiness or profession but does not include-(a) any stock-in-trade, consumable stores or raw materials held for the purposes of

business or profession; (b) personal effects of the assessee;(c) rural agricultural land in India(d) 6.5% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defence Bonds, 1980

issued by the Central Government, (e) Special Bearer Bonds, 1991; and (f) Gold deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the

Central Government.


2005 - Dec [3] (c) Discuss the mode of taxation of arrears of rent under Section 25B ofthe Income-tax Act, 1961. (5 marks)

Answer:

ARREARS OF RENT RECEIVED SUBSEQUENTLY (Sec. 25B)

(i) Where any arrears of rent is received which was not taxed earlier, such rent shallbe assessed under the head "Income from house property" in the year ofReceipt.

(ii) The arrears would be taxable under this head irrespective of the fact whether theassessee is the owner of the buildings in the year in which such arrears arereceived

(iii) A deduction of 30% on account of repairs on the arrears of rent received wouldbe allowed in the year in which such arrears are taxable.

2006 - June [3] Attempt the following:(ii) The Finance (No. 2) Act, 2004 has extended the disallowance under Section

40(a)(ia) to residents in respect of certain payments. Elucidate this statement bystating the payments in respect of which such disallowance is attracted in thehands of residents. (5 marks)

Answer:

(ii) The Finance Act, 2004 has extended the disallowance under section 40(a)(ia)to: (i) Payment of interest, commission or brokerage, fees for professional services

or fees for technical services to residents; and(ii) Payment to a resident contractor or sub-contractor for carrying out any work

(including supply of labour for carrying out any work), on which tax isdeductible at source and-(a) Such as tax has not been deducted; or(b) After deduction, has not been paid during the previous year or in the

subsequent year before the expiry of the time prescribed under section200(1)

However, where in respect of such sum, if the tax:(a) has been deducted in any subsequent year; or(b) has been deducted in the previous year but paid in any subsequent year

after the expiry of the time prescribed under section 200(1)Then such sum shall be allowed as a deduction in computing the income ofthe previous year in which such tax has been paid.

2006 - Dec [1] {C} (d) Discuss in brief the special provisions for computing profits andgains of business under section 44AD of the Income-tax Act, 1961. (3 marks)


Answer:

The scheme is applicable to an assessee engaged in any business except the businessof plying, hiring or leasing goods carriage and the total turnover from such business

does not exceed `1 crore in the previous year.A sum equal to 8% of the total turnover in the previous year is deemed to be the

profit of such business chargeable under the head profit and gains from business andprofession. The assessee can, however declare a higher income in his return.

All deductions under section 30 to 38, including depreciation are deemed to havebeen allowed and no further deduction is allowed under this section. However, in thecase of the firm, the normal deduction in respect of salary and interest to partners undersection 40(b) shall be allowed.C provision for maintenance of books of account u/s 44AA /compulsory audit u/s

44AB not applicableC It is possible to declare lower income, provided the tax payer maintains books of

account under section 44AB and gets his books of account audited and furnishesreport of audit by the specified date as required under section 44AB irrespectiveof turnover.

2007 - June [3] (b) Briefly answer the following:(vi) What deductions are allowed under Section 24 while computing ‘income from

house property’? (1 mark)(v) What are the special provisions for computing income on presumptive basis in

the case of tax payers engaged in the business of civil constructions?(1 mark)

Answer:

(vi) Deductions allowable u/s 24 while computing income from H/P are(i) Standard deduction @ 30% of NAV in case where NAV is negative

deduction shall be NIL.(ii) Deduction for interest on Housing Loan subject to the following conditions

(a) Income of self occupied property ̀ 30,000/- or ̀ 1,50,000/- as applicableor Actual Amount paid/accrued /payable whichever is less

(b) In case of Let out/Deemed Let out property the actual amount of interestpaid/payable during the year when the maximum limit of 30,000/-/1,50,000/- does not apply

(c) 1/5th of accumulated interest pertaining to the pre- construction periodshall be suitably adjusted alongwith the actual interest for the relevantyear for calculating the allowable interest limits.

(v) For an assessee engaged in the business of civil construction or supply for civilconstruction, a sum equal to 8% of the gross receipts paid or payable to theassessee in the previous year on account of such business shall be deemed tobe the profits and gains of such business chargeable to tax under the head


profits and gains of business or profession’. The assessee can howevervoluntarily declare higher income in his return. This scheme is applicable onlyto those assessees whose gross receipts from the above mentioned business

do not exceed ` 1 crore.

2008 - June [1] {C} (a) Attempt the following:(iv) What are ‘intangible assets’ ? Give examples. (3 marks)

Answer:

(iv) Assets which are not corporeal, not capable of being touched, smelt and arerepresented by right of the persons through such as knowhow, patents,copyrights, trademarks, licences, franchises or any other business or commercialright acquired on or after April 1, 1998.

2008 - June [2] (b) How would you deal with ‘arrears of rent received’ under theIncome-tax Act, 1961 ? (5 marks)

(c) Comment on special provision for computation of capital gains in real estatetransactions. (5 marks)

Answer:

(b) When the owner of a building receives arrears of rent from such a property, thesame shall be deemed to be the income from house property of the year of receiptirrespective of whether or not the assessee is the owner of the property in thatyear. 30% of the receipt shall be allowed as deduction towards repairs, collectioncharges etc.

(c) Section 50C has been introduced with effect from 01-04-2003 and is a veryimportant section while calculating capital gain on land & building. Section 50Cprovides that Where the consideration received or accruing as a result of thetransfer by an assessee of a capital asset, being land or building or both, is lessthan the value adopted or assessed or assessable by stamp valuation authority forthe purpose of payment of stamp duty in respect of such transfer, the value soadopted or assessed or assessable shall, for the purposes of section 48, bedeemed to be the full value of the consideration received or accruing as a result ofsuch transfer.

It means that the capital gain will be calculated by considering the sale value ofthe capital asset as equal to the value adopted or assessed by the stamp valuationauthority for that capital asset if the actual sale value is less than the valueassessed by stamp valuation authority.

If the assessee claims that the value adopted by the stamp valuation authorityexceeds the fair market value then the assessing officer may refer to the valuationofficer for valuation of the fair market value of the asset. If the fair market valuedeclared by the valuation officer is more than the value adopted or assessed or


assessable by the stamp valuation authority, the value so adopted assessed orassessable by the stamp valuation authority will be taken as full value ofconsideration of the capital asset.

CBDT vide its circular No 8/2002 dt 27-08-2002 has declared that if the valuationofficer has declared the fair market value of the capital asset less than the valueadopted, assessed or assessable by the stamp valuation authority then the capitalgain shall be calculated on the value so declared by the valuer.

After the adding of word assessable u/s 50C in 2009 now it has become clearthat even those immovable properties in which no sale deed is entered into andwhich have been sold on a full and final agreement will be within the ambit ofsection 50C.

PRACTICAL QUESTIONS

2004 - June [1] {C} (b) Rani is entitled to get a pension of ̀ 1,500 per month from Raja

Ltd. She gets three-fifths of the pension commuted and receives ̀ 90,000. Compute thetaxable portion of commuted value of pension when (i) she does not receive gratuity;

(ii) receives ` 50,000 as gratuity. (3 marks)

Answer:

Commuted value of 3/5th of pension 90,000Commuted value of full portion (90,000*5/3) 1,50,000 (i) Where Mrs. Rani does not receive gratuity:Amount exempt shall be ½ of commuted value of full pension(1,50,000*1/2) 75,000

Hence, taxable amount (90,000-75,000) 15,000(ii) Where Mrs. Rani receives gratuity:Amount exempt shall be 1/3rd of commuted value of full pension(1,50,000*1/3) 50,000

Hence, taxable amount (90,000 - 50,000) 40,000

2004 - June [2] (a) Naresh, who is neither a director nor he has substantial interest inany company, is offered an employment by Freewheel Ltd., Mumbai with the followingtwo alternatives:

ALTERNATIVEI II

(`) (`)Basic pay 1,36,000 1,36,000Bonus 9,000 9,000Education allowance for 2 children 22,000 —


Education facility for 2 children in aschool maintained by employer — 22,000

Sweeper allowance 10,000 —Sweeper facility — 10,000Entertainment allowance 6,000 —Club facility — 6,000Transport allowance for personal use 12,000 —Free car (1200 cc) facility for personal use

(car owned by the employer) — 12,000Medical allowance 18,000 —Medical facility for Naresh and his family

members in a hospital maintained by employer — 18,000Allowance for gas, electricity and water supply 4,500 —Free gas, electricity and water supply (bills

will be in the name of the employer) — 4,500Holiday home allowance 8,000 —Holiday home facility — 8,000Lunch allowance 18,000 —Free lunch

(` 70 × 200 days +` 80 × 50 days) — 18,000Diwali gift allowance 7,500 —Gift on Diwali — 7,500A rent-free unfurnished home - lease rent 14,000 14,000

Which of the two alternatives Naresh should opt for on the assumption that bothemployer and employee will contribute 10% of salary towards unrecognised provident

fund ? Interest-free loan of ̀ 20,000 will be given to him for purchasing household items.(7 marks)

Answer:

Alternative I II

(`) (`)Basic pay 1,36,000 1,36,000Bonus 9,000 9,000Education allowance for 2 children 19,600 Tax free Sweeper allowance 10,000 — Sweeper facility — 10,000Entertainment allowance 6,000 — Club facility — NilTransport allowance for personal use 2,400 —


Medical allowance 18,000 NilAllowance for gas, electricity andwater supply 4,500 — Free gas, electricity, and water supply(bills will be in the name of employer) — 4,500Holiday home allowance 8,000 — Holiday home facility — NilLunch allowance 18,000 — Free lunch

(` 20 x 200 days + ` 30 x 50 days) — 5,500Diwali gift allowance 7,500 — Gift on Diwali — 2,500A rent-free unfurnished home – lease rent 14,000 14,000Gross Salary 2,53,000 1,81,500Tax on total income 5,300 NilLess: Rebate 2,000

2,300Add: Ec & SHEC 69Tax rounded off 2,369 Therefore he should opt for option 2 as the same will be beneficial for both, theemployee and the employer.

2004 - Dec [1] {C} (d) Telefast Ltd., a company providing telecommunication services,obtains a telecom licence on 20th April, 2013 for a period of 10 years which ends on

31st March, 2012, (licence fee being ` 18,00,000). Find out the amount of deductionunder section 35ABB of the Income-tax Act, 1961, if —

(i) the entire amount is paid on 6th May, 2013;(ii) the entire amount is paid on 1st April, 2014; and(iii) the entire amount is paid in equal instalments on 30th April, 2013; 30th April,

2014; and 30th April, 2015. (3 marks)

Answer:

Case (i) since the entire payment of ` 18,00,000 has been paid during the previousyear, the same is deductible in 10 equal installments over a period of 10 years of the lifeof the license.

Case (ii) as the payment is made during year 2014-15, the same is deductible in 9

years commencing from previous year 2014-15. Hence, ` 2,00,000 shall be allowedevery year.

Case (iii) Amount to be allowed as deduction in assessment year 2014-15 will be

6,00,000/10 = ` 60,000.


Amount to be allowed as deduction for A.Y 2015-16 ` 60,000(1/10th the amount paid in 2013-14)

6,00,000/9 i.e, amount paid in 2014-15 for unexpired period ` 66,667

Total ` 1,26,667

Amount to be allowed as deduction for A.Y 2015-16 ` 60,000(1/10th the amount paid in 2013-14)

(1/9th the amount paid in 2014-15) ` 66,667

6,00,000/8 i.e, amount paid in 2015-16 for unexpired period ` 75,000

Total ` 2,01,667

2004 - Dec [2] (b) Hitesh was holding 3,000 shares in Jay Ltd., purchased by him on

8th August, 1997 @ ` 60 per share. He gifted these shares to his girlfriend Mona on10th February, 1998. Hitesh married Mona on 1st March, 1998. Mona was allottedbonus shares by the company at the rate of one share for every three shares held on10th September, 2013. Mona sold all the shares including the bonus shares on 31st

March, 2014 @ ` 150 per share.State in whose hands capital gains on sale of shares is taxable, Also compute the

capital gains.Cost Inflation Index for the year 1997-98: 331Cost Inflation Index for the year 2013-14: 939 (5 marks)

Answer:

Long term capital gain on the original shares shall be exempt under section 10(38) asthe shares have been sold through the recognized stock exchange after 1-10-2004

Short term capital gain on sale of Bonus Share `

Consideration price of Bonus share @ 150 each 1,50,000Less: Cost of acquisition NilShort term capital gain 1,50,000The capital gains are taxable in the hands of Mona as the relationship of husband andwife did not exist at the time the shares were gifted. Short-term capital gains shall betaxable at a concessional rate of 15% as per section 111A.

2004 - Dec [3] (b) Bhaskar owns two houses and both are used by him for his ownresidence. He intends to treat one such house as self-occupied and the other asdeemed to be let-out. Your advice is sought as to the beneficial option based on thefollowing information for the assessment year 2014-15:

Particulars House–I House–II

(`) (`)Fair rent (rent which similar property

would fetch) 72,000 68,000Municipal valuation 84,000 52,000


Standard rent 90,000 60,000Municipal taxes levied 20,000 14,000Municipal taxes paid 10,000 7,000Repairs 14,000 12,000Insurance premium 3,000 2,200Interest on loans (borrowed during August, 2006) 62,000 18,000

(10 marks)

Answer:

Let house 1 be treated as self occupiedAnnual Value of self occupied house NilLess: Deduction u/s24 30,000Loss from house property 30,000House 2Expected rent 60,000(Municipal value or fair rental value whichever is higher, but restricted up to standardrent)GAV 60,000Less: Municipal taxes paid 7,000NAV 53,000Less: Deduction u/s 241. Statutory Deduction 15,9002. Interest on borrowed capital 18,000

Income from house 2 19,100Income chargeable under the head income from house property

House 1 (30,000)House 2 19,100Total loss from house property (10,900)

If house 2 is treated as self occupied then

Annual value of house 2 NILLoss from House 2 18,000Income from House 1Expected rent 84,000(Municipal value or fair rental value whichever is higher, but restricted up to standardrent)GAV 84,000Less: Municipal taxes paid 10,000NAV 74,000Less: Deduction u/s241. Statutory Deduction 22,200


2. Interest on borrowed capital 62,000Income from house 1 (10,200)Income chargeable under the head income from house property House 1 (18,000)House 2 (10,200)Total loss from house property (28,200)

Under option 1, the net result of computation from house property is a loss of ` 10,900

as against the loss of ` 28,200 under Option 2 as evident from the above calculations.Hence, even through the annual value of House 1 is higher than that of House 2, it isbeneficial to treat house 1 as deemed let out and house 2 as self occupied in view ofhigher interest claim deductible under section 24. Therefore, Mr. Bhasker should opt forOption 2 as it is more beneficial for him.

2004 - Dec [4] (a) An analysis of the profit and loss account and the balance sheet ofKapil as at 31st March, 2014 reveals that the following expenses which were due, werethough debited to the profit and loss account, but have been paid after 31st March,2014:

(i) Sales tax: ̀ 50,000 (` 20,000 paid on 14th September, 2014; and ̀ 30,000 paidon 15th December, 2014).

(ii) Excise duty: ̀ 1,20,000 (` 40,000 paid on 14th September, 2014; ̀ 40,000 paidon 15th December, 2014; and ` 40,000 paid on 24th December, 2014).

(iii) Bonus to staff: ` 60,000 (` 58,000 paid on 10th September, 2014; and ` 2,000paid on 15th December 2014).

(iv) Employer's contribution to provident fund: ̀ 55,000 (` 25,000 paid on 15th July,2014; ` 10,000 paid on 30th September, 2014; and ` 20,000 paid on 15thDecember, 2014).

The due date for filing of return is 30th September, 2014. In which previous yearscan the above payments be claimed as a deduction? (5 marks)Answer:

Expenses Date of payment Amount Previous year in which it is deductible

Sales-tax 14-09-2014 20,000 2013-14Sales-tax 15-12-2014 30,000 2014-15Excise-duty 14-09-2014 40,000 2013-14Excise duty 15-12-2014 40,000 2014-15Excise duty 24-12-2014 40,000 2014-15Bonus 10-09-2014 58,000 2013-14Bonus 15-12-2014 2,000 2014-15Contribution to PF 15-07-2014 25,000 2013-14Contribution to PF 30-09-2014 10,000 2013-14Contribution to PF 15-12-2014 20,000 2014-15


2005 - June [1] {C} (e) Bahadur, a defence personnel, was killed in a war. His wife was

paid an ex-gratia payment of ̀ 1,00,000 in February, 2014. She also received the family

pension of ` 7,500 per month during the year 2013-14. Advise her on the taxability ofreceipts. (3 marks)

Answer:

As per CBDT Circular No.776 dated 8-6-1999, any lump sum ex-gratia payment madeby Government to widow or legal heirs of an employee who dies while in active service

will not be taxable as income. Hence, the receipt of ` 1,00,000 is not taxable.As per section 10(19) of the Income tax Act family pension received by the widow orchildren or nominated heirs, as the case may be, of a member of the armed forces(including paramilitary forces) of the Union, where the death of such member hasoccurred in the course of operational duties shall be exempt.

2005 - June [3] (b) Abhay purchased 1,000 listed equity shares of ` 10 each at ` 100

per share from a broker on 4th May, 1996. He paid `3,000 as brokerage. On 15thMarch, 2012, he was given bonus shares by the company on the basis of one share forevery two shares held. On the same date, he was also given a right to acquire 1,000

rights shares @ ` 90 per share. He acquired 50% of the rights shares offered and sold

the balance 50% of the rights for a sum of ̀ 67,500 on 7th April, 2013. The rights shareswere allotted to him on 30th April, 2012.

All the shares held by him were sold on 24th September, 2013 @ ` 280 per sharethrough a recognised stock exchange.

(i) Compute capital gain and tax for the assessment year 2014-15 assuming his

income from other sources is ` 40,000.(ii) What shall be your answer if in the above case rights shares were sold on 5th

November, 2013 but other shares were sold on 24th September, 2013.

Note: The cost inflation index for the year 1996-97—305; and 2011-12 — 785; 2013-14—939. (9 marks)

Answer:

Long term capital gain ` `

Long term capital gain on sale of original shares Exempt(Sold through recognized stock exchange)Sale of bonus shares (500*280) 1,40,000Less: Cost of Acquisition NilShort term capital gain 1,40,000Sale of right shares (500*280) 1,40,000Less: Cost of acquisition (500*90) 45,000Short term capital gain 95,000


Sale of rights 67,500Less: Cost of acquisition NilShort term capital gain 67,500

Computation of total income

Short term capital gain on listed shares (1,40,000 + 95,000) 2,35,000Short term capital gain on sale of rights 67,500 3,02,500Income from other sources 80,000

3,82,500Tax on STCG @ 15% 1,82,500 27,375Tax on other income 2,00,000 NilLess: Rebate 2000

25,375Add: EC & SHEC@3% 761

26,136

2005 - June [4] (a) Himalaya Ltd. reimburses the following expenditure on medicaltreatment of the son of an employee Karan. The treatment was done at UK:

(i) Travelling expenses ` 1,15,000.

(ii) Stay expenses at UK permitted by RBI ` 45,000 (Actual expenses ` 70,000).

(iii) Medical expenses permitted by RBI ` 50,000 (Actual expenses ` 70,000).Compute the taxable perquisites for the assessment year 2014-15 in the hands of

Karan, if his annual income from salary was (i) ` 1,70,000; (ii) `2,00,000. (5 marks)

Answer:

Stay expenses taxable (70,000 - 45,000) 25,000Medical expenses taxable (70,000 – 50,000) 20,000

45,000Case 1 Case 2

Salary Income 1,70,000 2,00,000Taxable portion of perks 45,000 45,000Travelling Exp. Reimbursement Nil 1,15,000

2,15,000 3,60,000

Notes:

Case 1: Since the gross total income does not exceed ` 2,00,000 the reimbursement

of travel expenses of ` 1,15,000 is not taxable. The taxable income will be ` 2,15,000

Case 2: Since the gross total income exceeds ` 2,00,000 the reimbursement of travel

expenses of ̀ 1,15,000 is taxable. The taxable perquisites will be ̀ 45,000 + ̀ 1,15,000

= ` 1,60,000. The taxable income will be ` 2,00,000 + ` 1,60,000 = ` 3,60,000.


2005 - Dec [1] {C} (b) Kajol, working in a software company at Bangalore, is drawing

a remuneration of ` 23,000 per month. She is paid D.A. of ` 7,000 per month as

provided in the terms of employment. In addition, she is also paid HRA of ` 5,000 per

month and is entitled to 3% commission on turnover of ` 18,00,000 achieved by her

during 2013-14. She pays a rent of ` 7,200 per month. Further, she received advance

salary of ̀ 46,000 in March, 2014 relating to the period April-May, 2014. Determine thetaxable income under the head 'salaries'. for A.Y.-2014-15 (3 marks)

Answer:

Basic Salary (23,000*12) 2,76,000Dearness allowance (7,000*12) 84,000Commission (3% on 18,00,000) 54,000Advance salary 46,000

4,60,000HRA Received 60,000Less: Exempt 45,000 15,000Total Salary 4,75,000Less: Deduction Nil

Taxable salary 4,75,000

2005 - Dec [2] (c) Pritish, who owns 9 acres of land near Chennai since July, 1985

purchased for ` 12 lakh, commenced real estate business from April, 2005 andintroduced this land as his capital. Fair market value of the land on the date of

commencement of the business was ` 65 lakh. However, the value of such land has

been recorded at ̀ 80 lakh in the books of business. The entire land after development

and conversion into housing plots was sold for ` 135 lakh between September, 2013

and February, 2014. Expenses incurred for project development were ̀ 37 lakh. Advisehim as to the taxability of income and under what heads and in which assessmentyears.

Note: Cost Inflation Index for year —1985-1986 : 1332005-2006 : 4972013-2014 : 939 (5 marks)

Answer:

(a) Long-term capital gains: `

Fair market value of land 65,00,000Less: Indexed cost of acquisition (1,200,000*497/133) 44,84,211Long term capital gain 20,15,789


(b) Business Income

Turnover on sale of plots 1,35,00,000

Less: Cost of Land (FMV) ` 65,00,000

Expenses for project development ` 37,00,000 1,02,00,000Business income 33,00,000

2005 - Dec [4] (a) An industrial undertaking which commenced the manufacturingactivity with effect from lst September, 2013 has acquired the following assets duringthe previous year 2013-14:

Assets Date of Date when Cost ofAcquisition put to use Acquisition

(`) Factory buildings 4.4.2013 1.9.2013 50,00,000Plant and machinery:Air pollution control equipment 4.5.2013 1.9.2013 4,00,000Machinery-A 5.5.2013 1.9.2013 2,00,000Machinery-B 7.6.2013 1.9.2013 5,00,000Machinery-C 30.8.2013 1.9.2013 10,00,000Machinery-D 1.9.2013 31.10.2013 4,00,000Machinery-E 1.1.2014 28.2.2014 3,00,000Machinery-F (second hand) 11.1.2014 13.1.2014 2,00,000Motor car 1.2.2014 1.2.2014 5,00,000Air-conditioner

(installed in the Office) 1.2.2014 2.2.2014 1,00,000Compute the depreciation allowable for the assessment year 2014-15 and the writtendown value as on 1st April, 2014. (8 marks)Answer:Particulars Factory Plant & Plant & Building Machinery Machinery

10% 100% 15%Normal Depreciation 5,00,000 4,00,000 3,97,500Addition Nil Nil 4,50,000Total 5,00,000 4,00,000 8,47,500WDV 45,00,000 NIL 33,52,500

2006 - June [1] {C} (b) On 23rd December, 2013, Rajat sold 500 grams of gold, the sale

consideration of which was ̀ 3,50,000. He had acquired this gold on 20th August, 1980

for ` 40,000. Fair market value of 500 grams of gold on 1st April, 1981 was ` 36,000.Find out the amount of capital gain chargeable to tax for the assessment year 2014-15.Also calculate the tax liability.

Note: Cost Inflation Index for the year 2013-14: 939; (3 marks)


(d) Sunder died on 23rd July, 2010 while being in Central Government service. In termsof rules governing his service, his widow Mrs. Sunder is paid a family pension of

` 10,000 per month and dearness allowance of 40% thereof. State whether the amountof family pension is assessable in her hands, and if so, under what head of income. Canshe claim any relief/deduction on such receipt? Compute taxable income for theassessment year 2014-15 and tax thereon. (3 marks)

Answer:

(b) `

Sale proceeds of gold 3,50,000Less: Indexed cost of acquisition (40000*939/100) 3,75,600Long term capital Loss 25,600 Tax Liability Nil

(d) In the given case the widow of sunder is chargeable to tax in respect of the familypension under the head “income from other sources”. The taxable amount of familypension is computed as under:

`

Pension (`10,000*12) 1,20,000Dearness allowance (40% of 1,20,000) 48,000

1,68,000

Less: Deduction of 1/3rd or `15,000 whichever is less u/s 57 15,000Taxable income 1,53,000Tax liability – Nil

2006 - June [2] (a) Kartik owns a commercial complex in Hyderabad which is let-outwith effect from 1st April, 2012 along with air-conditioners, furniture and fixtures andlights. Besides, he is providing certain amenities like, electricity, lift facility, ward staff

etc. The monthly rent inclusive of all charges is fixed at ` 60,000 and he would like toshow 60% of such income under the head ‘income from house property’ attributable torent of commercial property and 40% towards provision of amenities to be shown underthe head ‘business income/income from other sources’. State, with reasons, whetherhe can do so. (5 marks)

Answer:

In certain cases, the owner charges rent from the tenant not only on account of rent forthe house property but also on account of service charges for various facilities providedwith the house. Such rent is known as composite rent. The said composite rent can fallunder two categories:(a) Composite rent on account of rent for the property and service charges for various

facilities provided along with the house like lift, gas, water, electricity, watch andward air conditioning etc. In this case, such composite rent should be split up and


the portion of rent attributable to the letting of the premises shall be assessable as“Income from House Property”. The other portion of the composite rent receivedfor rendering services shall be assessable as “Income from Other Sources”

(b) Composite rent on account of rent for the property and the hire charges ofmachinery, plant or furniture belonging to the owner.

In this case, if the letting of the property is separable from the letting of theother assets, then the portion of the rent attributable to the letting of the premisesshall be assessable as “Income from House Property” and the other portion of thecomposite rent for letting other assets shall be assessable either as “Profits andGains of Business or Profession” or “Income from Other Sources”. On the otherhand, if the letting of the property is inseparable from letting of other assets like,machinery, furniture, the entire income would be taxable as “Profits and Gains ofBusiness or Profession” or Income from Other Sources”.

Rent received by Kartik is inseparable and hence the entire amount shall bechargeable as income from business / income from other sources.

2006 - June [4] (a) Manish is the general manager of a transport company drawing a

salary of ` 15,000 per month. The company has provided him with accommodation inMeerut for which 10% of his basic salary is deducted. Actual rent paid by the company

for accommodation is ` 1,20,000 per annum. He is also receiving entertainment

allowance of ̀ 500 per month. He is provided by the company with a car having enginecubic capacity of 1.8 litres for his personal and official use, but running andmaintenance expenses for the same are borne by the assessee himself. He is in receiptof bonus equivalent to 2 months’ salary. Compute his taxable income under the head‘salary’ for the assessment year 2014-15. (7 marks)

Answer:

Computation of Salary income of Mr. Manish for the A.Y. 2014-15

`

Salary (15,000*12) 1,80,000Bonus 30,000Entertainment allowance 6,000

Car facility (` 900*12 months) 10,800Value of accommodation at concessional rate

10% of salary i.e. `2,16,000

(`1,80,000 + 30,000 + 6,000) 21,600Less: Received from the employee 18,000 3,600Gross Salary 2,30,400Less: Deduction Nil

Income from salary 2,30,400


2006 - Dec [1] {C} (b) Compute the value of perquisites in respect of rent free furnishedhouse, if Ashok stays in a city with a population of (i) more than 25 lakh; (ii) less than25 lakh. Ashok is in receipt of the following amounts from his employer during the

previous year ended 31st March, 2013: Basic pay: ` 1,80,000; Dearness allowance :

25% of basic pay; Commission; 5% of basic pay; and Bonus; ̀ 8,000; His employer has

paid income-tax of ` 5,000 and professional tax of ` 1,500 on his behalf. Besides, his

employer provided refrigerator and television costing ̀ 24,000 and paid ̀ 500 per monthtowards rent of other furniture provided. (3 marks)

Answer:

Salary for the purpose of rent free accommodation `

Basic salary 1,80,000Dearness allowance (25% of basic pay) 45,000Commission (5% of basic pay) 9,000Bonus 8,000Professional tax 1,500Income tax (paid by the employer) 5,000Total 2,48,500

Where the population more than 25 lakhs

Value of rent free unfurnished accommodation shall be 15% of salary = ` 37,275

Value of furnished accommodation = 37,275 + 2,400 + 6,000 = ` 45,675

Where population is less then 25 lakhs

Value of rent free unfurnished accommodation shall be 10% of salary =

Value of furnished accommodation = 24,850 + 2,400 + 6,000 = ` 33,250

2006 - Dec [3] (a) The written down value of the block of assets of Rosy Ltd. as on 1st

April, 2013 was ` 5 lakh. An asset of the same block was acquired on 11th May, 2013

for ` 3 lakh. There was a fire on 18th September, 2013 and the assets were destroyed

by fire and the assessee received a sum of ` 11 lakh from the insurance company.Compute the capital gain assuming—1. (i) All the assets were destroyed by fire; and 2.(ii) Part of the block of assets was destroyed by fire.

What will be the answer if assessee received ` 6 lakh from insurance company

instead of ` 11 lakh ? (8 marks)

Answer:

`

1. (i) W.D.V at the beginning of the year 5,00,000Additions during the year 3,00,000

8,00,000

Less: Money received from insurance to the extent of ` 8,00,000 8,00,000


W.D.V at the end of the year Nil

Capital Gain

Consideration price 11,00,000Less: Cost of acquisition 8,00,000Short term Capital gain 3,00,000

(ii) Same as above but the block will continue next year at nil value

2. (i) All assets were destroyed by fire:W.D.V at the beginning of year 5,00,000Additions during the year 3,00,000

8,00,000Less: Money received from insurance company 6,00,000W.D.V (no assets exists in the block) Nil

Capital Gain

Consideration price 6,00,000Less: Cost of Acquisition (5,00,000+3,00,000) 8,00,000Short term capital loss 2,00,000

(ii) Part of the block was destroyedW.D.V at the beginning of year 5,00,000Additions during the year 3,00,000

8,00,000Less: Money received from insurance company 6,00,000W.D.V for the purpose of charging depreciation 2,00,000Less: Depreciation @15% 30,000W.D.V 1,70,000

2007 - June [1] {C} Attempt the following:

(iv) Arun, a resident of Meerut, receives ` 38,000 per annum as basic salary. In

addition, he gets ` 12,000 per annum as dearness allowance, which does notform part of basic salary, 5% commission on turnover achieved by him (turnover

achieved by him during the relevant previous year 2013-14 is ` 6,00,000) and

` 7,000 per annum as house rent allowance. He, however, pays ` 8,000 perannum as house rent. Determine the quantum of house rent allowance exemptfrom tax. (3 marks)

Answer:

(iv) Minimum of the following three shall be exempt from tax: `

Actual amount received 7,00040% of salary (38,000 + 30,000) 27,200Rent paid in excess of 10% salary (8,000 ! 6,800) 1,200

Therefore, ` 1,200 will be exempt


2007 - June [5] (b) The house property of Abhinav is compulsorily acquired by the

Government for ̀ 10,00,000 vide Notification issued on 12th March, 2005. Abhinav had

purchased the house in 1988-89 for ` 2,00,000. The compensation is received on 15th

April, 2013. The compensation is further enhanced by an order of the court on 5th April,

2014 and a sum of ` 2,00,000 is received as enhanced compensation on25th May, 2014. Abhinav wants to claim full exemption of the capital gains. AdviseAbhinav in this regard. Compute the capital gains and determine the year in which it istaxable.

Note: Cost inflation index for various years is – 1988-89: 161; 2004-05: 480 and 2013-14: 939. (8 marks)

Answer:

Although the house property is compulsory acquired on 12.3.2005, the capital gain willarise in the previous year in which full or part of the compensation is first received i.e,previous year 2013-14. However, indexation will be done till the year of compulsoryacquisition. Therefore, capital gains will be calculated as under:

Assessment Year 2014-15 `

Full Value of consideration 10,00,000Less: Indexed cost of acquisition (2,00,000*480/161) 5,96,273Long term capital gain 4,03,727

The assessee should either invest at least ̀ 4,03,727 for the purchase / construction ofa residential house property on or before 31.07.2014 (relevant due date) and /or depositthe amount under the capital gain scheme on or before 31.07-2014.

Assessment Year 2015-16 `

Enhanced Compensation 2,00,000Less: Indexes cost of acquisition NilLong term capital gain 2,00,000

2007 - Dec [2] (a) Satish is a State Government employee and the salary and otheremoluments received by him during the previous year 2013-14 are as under:

— Basic salary: ` 10,000 per month.— Dearness allowance: 40% of basic salary.

— Entertainment allowance: ` 8,000.

— Medical expenses reimbursed: ` 25,000.

— Professional tax paid: ` 5,000 of which ` 4,000 paid by employer.— Free car facility provided by the employer for which expenditure incurred by

employer is ` 42,000.

— Contribution to provident fund: ` 12,000.He has no other income.

Compute the taxable income of Satish for the assessment year 2014-15. (5 marks)


Answer:

Computation of taxable income of Mr. Satish for the A.Y. 2014-15

`

Basic salary (10,000*12) 1,20,000DA (40% of 1,20,000) 48,000Entertainment allowanceReceived 8,000Less: exempt 5,000 3,000Medical expenses reimbursed 25,000Less: exempt 15,000 10,000Professional tax paid by employer 4,000Free car facility(Used for Official purpose) -Gross salary 1,85,000Professional tax 5,000

1,80,000Less: Deduction u/s 80C (Provident fund) 12,000

Taxable income 1,68,000


(i) An assessee can have a loss from a house property. (5 marks)(ii) In case of depreciable assets forming part of block of assets, there can be a

short term capital gain but no short term capital loss. (5 marks)

Answer:

(i) Correct Statement: There can be loss from house in the followingcases:(a) In respect of a self occupied house property, the net annual value is taken

as nil. No deductions are allowed except for interest on borrowed funds up

to a maximum of ` 30,000/1,50,000 as the case may be(b) In respect of any other type of house property, namely of interest & municipal

tax actually paid a house property which is fully let out, etc. There are norestrictions on deductions and therefore, there can be loss under this headin respect of such properties due to municipal taxes as well as deductions.Similarly, deductions under section 24 in case of property deemed to be letout, can be more than net annual value.

(ii) Incorrect Statement: In case of depreciable assets forming part of block ofassets, there can be a short term capital loss if all the assets of the block aresold/ transferred during the year and net sale consideration is less than value ofthe block. In this case the deficit will be treaded as a short term capital; loss.


2007 - Dec [5] (b) Rakshit, a non-resident Indian, remits US $80,000 to India on 16th

September, 1989. The amount is partly utilized on 3rd October,1989 for purchasing

10,000 shares in Amrit Ltd., an Indian company, at the rate of ` 12 per share. These

shares are sold for ` 38.40 per share on 28th February, 2014. Rakshit deposited

` 1,92,000 with an Indian public company on 1st August, 2014 (due date of filing ofreturn of income 31st July, 2014).

You are required to compute capital gains chargeable to tax for the assessmentyear 2014-15 on the assumption that telegraphic transfer buying and selling rate of USdollors adopted by the State Bank of India is as follows:

Telegraphic Transfer RateBuy a US$ Sell a US$

(`) (`)16th September, 1989 18 203rd October, 1989 19 2128th February, 2014 44 46 (7 marks)

Answer:

For calculating capital gains, one has to find out the average of TT buying and TTselling rate, on the date of purchase and sale of shares. Date of making expenditure inconnection with the transfer is not relevant.

Average Rate on `(US$)16-9-1989 193-10-1989 2028-2-2014 45

Computation of capital gain for the Assessment Year 2014-15

US$

Sale consideration (` 38.40 × 10,000/45) 8,533.33Less: Cost of acquisition (1,20,000/20) 6,000.00Long term capital gain 2,533.33Capital gain converted in to Rupees (2533.33 × 44) 1,11,467Less: Exemption u/s 115F (1,11,467 × 1,92,000/3,84,000) 55,733Long term capital gains 55,734

2008 - June [3] (b) Mrs. Padma (age: 25 years) is offered an employment by Pritam Ltd.

at a basic salary of ` 24,000 per month; other allowances according to rules of thecompany are ! Dearness allowance: 18% of basic pay (not forming part of salary forcalculating retirement benefits); Bonus: 1 month basic pay; and Project allowance: 6%of basic pay.The company gives Mrs. Padma an option either to take a rent-free unfurnishedaccommodation at Mumbai for which the company would directly bear the rent of


` 15,000 per month or to accept a house rent allowance of ̀ 15,000 per month and findout her own accommodation. If Mrs. Padma opts for house rent allowance, she will have

to pay ` 15,000 per month for an unfurnished house.Which one of the two options should be opted by Mrs. Padma in order to minimise

her tax liability? (5 marks)

Answer:

For determining which one is better option, the following taxable income is calculatedof Mrs. Padma

Option 1 [Rent

free

accommodation]

Option 2

[House Rent

allowance]

Basic Salary (24,000 × 12)

Dearness Allowance (18% of ` 2,88,000)

Bonus

Project Allowance (6% of ` 2,88,000)

Rent free accommodation

House rent allowance

2,88,000

51,840

24,000

17,280

49,392

—

2,88,000

51,840

24,000

17,280

—-

36,000

Income from salary 4,30,512 4,17,120

Mrs. Padma should therefore, opt for House Rent Allowance (Option 2)

Note-1 Calculation of taxable perquisite of rent free accommodation:

`

Basic Salary 2,88,000Bonus 24,000Project Allowance 17,280

3,29,280(a) 15% of salary 49,392(b) Rent of the house 1,80,000

Whichever is less

Note -2

Amount of house rent allowance exempt from tax is the minimum of the following:

(a) ` 1,80,000 (being house rent allowance)

(b) ` 1,51,200 (Rent paid in excess of 10% of the salary)

(c) `1,44,000 (being 50% of salary)

Therefore, amount exempt is ` 1,44,000

Amount taxable is ` 1,80,000-1,44,000= ` 36,000




1 Distinguish between the ‘Recognised provident fund’ and‘statutory provident fund’

07 - Dec [4] (a), 09 - Dec [3] (a) (ii), 10 - Dec [5] (a) (i),12 - Dec [6] (c) (i), 13 - June [6] (a) (iii)

5 Times

2 Write short notes on Taxation of zero coupon bonds09 - Dec [2] (b), 10 - June [2] (b) (ii) 2 Times

3 Distinguish between the ‘Long-term capital gains’ and‘short-term capital gains’.

09 - June [3] (a) (ii), 10 - Dec [5] (a) (i), 13 - June [6] (a) (ii)

3 Times

4 Distinguish Between the ‘Normal depreciation’ and‘additional depreciation’.

10 - Dec [5] (a) (ii), 12 Dec - [6] (c) (ii)

2 Times

5 Write short notes on Amortisation of telecom licence fee11 - June [5] (a) (i), 13 - June [6] (c) (i) 2 Times

6 Distinguish between ‘long-term capital gains’ and ‘short-term capital gains’.

09 - June [3] (a) (ii), 10 - Dec [5] (a) (i), 11- June [4] (iii),13 - June [6] (a) (ii), 13 - Dec [3] (c) 5 Times

Table Showing Marks of Compulsory Questions

Year 09J

09D

10J

10D

11J

11D

12J

12D

13J

13D

Descriptive 5

Practical 5 5 5 5 5 5

Total 5 5 5 5 5 5 5

3.143

Star Rating



On the basis of Compulsory questions from a chapter j

6 Aggregation of Income, Set-off or

Carry Forward of Losses and

Deductions from Total Income

This Chapter Includes: Income of other persons included in the assessee's. Totalincome-section 60 to 65. Set-off of losses from one source against income fromanother source under the same head of income; Carry-forward and set off of losses;Treatment of carry forward of losses of certain assessee; Rebate of Income-tax inrespect of certain payments; Deductions in respect of certain payments u/s 80C to80U; Relief and rebate in respect of Income-tax and rates of Income-tax.




OBJECTIVE QUESTIONS


(ii) Maximum qualifying limit for deduction under section 80C is !

(a) ` 50,000

(b) ` 1,00,000

(c) ` 1,10,000

(d) ` 1,50,000(iii) In certain cases, income of other person is included in the income of assessee.

It is called!(a) Clubbing of income(b) Increase in income(c) Addition to income(d) Set-off of income.

(vii) Which of the following is covered under section 80D of the Income-tax Act,1961!(a) Repayment of loan taken for higher education(b) Medical treatment of handicapped dependent(c) Medical insurance premium(d) Reimbursement of medical expenses. (1 mark each)

Answer:

(ii) (b)(iii) (a)(vii) (c)


(v) Unabsorbed part of the loss from house property can be carried forward and set-off within the subsequent _____ years. (1 mark)

Answer:

(v) Eight

2009 - June [1] {C} (a) State, with reasons in brief, whether the following statementsare correct or incorrect.

(ii) The maximum income of ` 2,50,000 is not chargeable to income-tax in case ofa citizen woman of 60 years age. (1 mark)

[Chapter #### 6] Aggregation of Income, Set-off or Carry... OOOO 3.145

Answer:

(ii) Correct: Maximum exemption limit for senior citizens is ` 2,50,000 for the AY2014-15.


(ii) The amount of education cess and secondary and higher education cessto be collected along with income-tax for assessment year 2013-14shall be!.(a) 1%(b) 2%(c) 3%(d) 4%

(iii) Deduction under section 80C can be claimed for fixed deposit made

in any scheduled bank, if the minimum period of deposit is -(a) 5 years(b) 8 years (c) 10 years (d) 12 years (1 mark each)

Answer:

(ii) (c) 3%; (iii) (a) 5 years;


(ii) Deduction available under section 80GG towards rent paid shall not exceed `______ per month. (1 mark)

Answer:

(ii) 2,000


(i) Unabsorbed depreciation of any year can be carried forward for set-off for anunlimited period of time.

(iv) Income of minor child is included in the income of his parents under the Income-tax Act, 1961 in all cases. (1 mark each)

Answer:

(i) True(iv) False



(v) In whose total income, the income of a minor child is included—(a) Father(b) Mother(c) Father and mother both(d) Parent whose total income is greater (1 mark)

Answer:

(v) (d) Parent whose total income is greater


(iv) Business loss relating to illegal business is ________ as deduction. (1 mark)

Answer:

(iv) Available


(v) The amount of deduction under section 80DD in respect of maintenanceincluding medical treatment of a dependent with 60% disability will be

`_________ when no amount is actually spent on treatment by the residentassessee and the handicapped person does not claim any deduction undersection 80U. (1 mark)

Answer:

(v) ` 50,000.


(i) The maximum amount of deduction under section 80GG in respect of rent paidis —

(a) ` 2,000

(b) ` 3,000

(c) ` 5,000

(d) ` 10,000. (1 mark)

Answer:

(i) (a) ` 2,000


2011 - June [1] {C} (b) Re-write the following sentences after filling-in the blank spaceswith appropriate word(s)figure(s):

(iv) The balance of income after deductions admissible under section 80C to 80U iscalled ________. (1 mark)

Answer:

(iv) Total income


(i) Unabsorbed depreciation can be carried forward for a maximum period of eightassessment years.

(ii) Speculation losses may be set-off against non speculative profits.(v) The income of minor child will always be included in the income of his/her

parents. (2 marks each)

Answer:

(i) False: Unabsorbed depreciation can be carried towards indefinitely

(ii) False: Speculation losses cannot be set off against non-speculative gains.However, the loss of non-speculation business can be set-off against the incomefrom speculative business

(v) False: Clubbing provisions are not applicable on the income of minor child onaccount of manual work or suffering from any disability of nature specified insection 80U


(iv) When the income of an individual includes ` 20,000 as the income of his minorchild in terms of section 64(1A), taxable income in this respect will be —(a) Nil

(b) ` 20,000

(c) ` 18,500(d) None of the above.

(v) Deduction available to an individual in respect of maintenance including medicaltreatment of a dependent being a person with 80% disability, when amount

incurred in this respect is ` 40,000 will be —

(a) ` 40,000

(b) ` 50,000

(c) ` 1,00,000(d) None of the above. (1 mark each)


Answer:

(iv) (c) ` 18,500, As per section 64(1A), the income of a minor child should beincluded in the total income of that parent whose total income before such

inclusion is higher. As per section 10(32) an exemption of ` 1500 shall be

available hence balance income of ` 18,500 (` 20,000 - ` 1,500) shall betaxable

(v) (c) ` 1,00,000, the persons who are suffering with one disability can claim thisdeduction of income tax. The deduction amount is also vary to each like theperson who is suffering from one disability can get the maximum deductionof 50,000 whereas multiple disability persons can claim a deduction of1,00,000 of his/her gross income.Before claiming the deduction of section 80U of income tax act, one needsto get the certificates from doctors about their disability. 40% disable personcan get 50,000 rupees deduction whereas 80% disable person can get thededuction of 1,00,000. The doctor issue certificates for disability and oneneed not to enclose these certificates to any income tax returns etc. but it isadvisable and must (from the income tax point of view) to get the certificatesbefore claiming any kind of deduction under the section 80U of income taxact.


(ii) For the purposes of clubbing of income of the specified person in the income ofthe individual under section 64, the word ‘income’ includes _________.

(iii) Deduction available under section 80QQB in respect of royalty income of authors

shall not exceed ` ___________ in a previous year. (1 mark each)

Answer:

(ii) Loss

(iii) ` 300000In case of lump sum consideration for (a) Assignment or grant of any interest inthe copyright of any book or (b) Amount of Royalty or Copyright fees (being alump sum consideration in lieu of all rights in the book) — Lower of 100% of such

consideration or ` 3 lakhs.In case of amount of Royalty or Copyright fees not being a lump sumconsideration in lieu of all rights in the book — Lower of (a) Royalty or CopyrightFees (before allowing expenses attributable to such income) not exceeding 15%

of gross value of books sold during the previous year or (b) ` 3 lakhs.



(v) Short-term capital loss can be set-off from —(a) Short-term capital gains(b) Long-term capital gains(c) Both short-term and long-term capital gains(d) Any income of the previous year. (1 mark)

(b) Re-write the following sentences after filling-in the blank spaces with appropriateword(s)/figure(s):(i) The maximum amount of deduction in respect of rent paid under section 80GG

is _________ . (1 mark)

Answer:

(a) (v) (c) Both short term and long-term capital gains.

(b) (i) The maximum amount of deduction in respect of rent paid under section

80GG is ` 2000/- per month.


(i) Loss on account of owning and maintaining race horses can be carried forwardupto 8 years.

(ii) All incomes that accrue to a minor child will be included in the total income ofparent whose total income is greater. (1 mark each)

Answer:

(i) False, loss on account of owning and maintaining race horse can be carriedforward upto four years under section 74A

(ii) False, as per section 64 (1A) the clubbing provision is not applicable in followingcases:(a) Disability of minor as specified under section 80U(b) Income earned on account of manual work done

(c) Income from his skill, talent or specialized knowledge.

2012 - Dec [1] {C} (b) Re-write the following sentence after filling-in the blank spaceswith appropriate word(s)/figure(s):

(iii) The aggregate amount of deduction under sections 80C, 80CCC and 80CCD

cannot exceed ` __________.(iv) In case the income of an individual includes any income of his minor child in

terms of section 64(1A), such individual shall be entitled to exemption of the

amount of such income or ` __________, whichever is less. (1 mark each)


Answer:

(iii) The aggregate amount of deduction under sections 80C, 80CCC and 80CCD

cannnot exceed ` 1,00,000.(iv) In case the income of an individual includes any income of his minor child in

terms of section 64 (1A), such individual shall be entitled to exemption of the

amount of such income or ` 1,500, whichever is less.


(iii) Loss in speculation as well as non-speculation business can be carried forwardto a maximum of four consecutive assessment years immediately succeedingthe assessment year for which loss was first computed. (1 mark)

Answer:

(iii) False: Loss in speculation business can be carried forward to a maximum of fourconsecutive assessment year immediately succeeding the assessment year forwhich the loss was first computed. But loss in non-speculation business can becarried forward to a maximum of eight consecutive assessment yearsimmediately succedding the assesment year for which the loss was firstcomputed.


(i) Speculative business losses can be carried forward for ____________assessment years, immediately succeeding the assessment year for which theloss was first computed. (1 mark)

Answer :

(i) 4


(iii) Speculation loss can be carried forward for set-off upto —(a) 4 Years(b) 8 Years(c) 2 Years(d) 10 Years. (1 mark)


(iii) Deduction in respect of interest on deposits in savings bank accounts under

section 80TTA is available upto ` ________ in aggregate to an individual orHUF.

(v) The maximum deduction under section 80GG shall be ___________ per month.(1 mark each)


SHORT NOTES

2008 - Dec [4] (b) Write short notes on the following:(i) The activities of a co-operative society which are eligible for deduction under

section 80P. (3 marks)

Answer:

The activities of a co-operative society which are eligible for deduction @ 100% underSection 80P are as follows:

(i) Income from banking business & providing credit facilities to its members(ii) Cottage Industry(iii) Marketing agricultural produce(iv) Purchase of agricultural implements (v) Processing of agricultural produce without aid of power of its member(vi) Collective disposal of Labour for its members(vii) Primary Society engaged in supply of milk, oilseeds, fruits etc

(viii) Investment in securities (ix) Letting of Godowns & warehouses.

2010 - Dec [6] (a) Write short notes on the following: (iii) Clubbing of income of a minor child (3 marks)

Answer:

(iii) Clubbing of Income of a minor child

As per this section, income of a minor child will be clubbed in the income of theparent, whose total income before such clubbing is higher.Following points are relevant to be noted in this regard – C If the child earns any income by doing manual work or due to a special skill,

such income will not be clubbed.

C A special deduction of ` 1,500 per child will be allowed to the parent, inwhose income it is clubbed.

C Child’s income will be added to the income of parent, whose income beforesuch clubbing is higher, in case of separated couple, income of the child willbe added in the income of the parent who maintains the child in theprevious year.

C Any income of a minor child, suffering from any disability of the naturespecified in section 80U will not be clubbed.

2011 - Dec [5] (a) Write short notes on the following:(i) Deduction in respect of interest on loan taken for higher education. (3 marks)


Answer:

The deduction under section 80E is available to an individual if following conditions aresatisfied:1. Deduction available only to Individual not to HUF or other type of Assessee.2. Deduction amount:– The amount of interest paid is eligible for deduction and

moreover there is no cap on the amount to be deducted. You can deduct the entireinterest amount from your taxable income. However there is no benefit availableon the repayment of principal amount of the loan.

3. Deduction available if Interest is been paid during the previous year and was paidout of income chargeable to tax which means if repayment is made from incomenot chargeable to tax than deduction will not available.

4. Interest should have been paid on loan taken by him from any financial institutionor any approved charitable institution for the purpose of pursuing his highereducation. Interest on Loan taken from relatives or friends will not be eligible fordeduction under section 80E.

5. Loan should have been taken for the purpose of pursuing higherstudies ofIndividual, Spouse, Children of Individual or of the student of whom individual islegal Guardian.

6. The whole of the amount paid during previous year towards interest is allowed asdeduction and deduction shall be allowed for 8 assessment years starting from theassessment year in which the assessee starts paying the interest on loan, or untilthe interest thereon is paid by the assessee in full, whichever is earlier.

2013 - June [3] (d) Write a brief note on deduction under section 80D. (3 marks)

Answer :

1 Eligible Assessee Individual and HUF.

2 Condition Investment or application of funds during the previousyear by any mode of payment other than cash.

3 Maximum Deduction ` 15,000. If the medical insurance premium is paid for

senior citizen, then maximum deduction is up to ̀ 20,000.

Deduction is allowed for any medical insurance premium paid by any mode of paymentother than cash out of assessee’s taxable income to GICI or any other approved insurer

during the previous year, upto a maximum amount of ` 15,000. The deduction isallowed in respect of the following:-

(a) In case of an individual – insurance on the health of the assessee or wife orhusband, dependent parents of dependent children.


(b) In case of a HUF – insurance on the health of any member of the family.However, where the assessee or his wife or her husband or dependent parents or anymember of his family of HUF is a senior citizen, the limit of deduction is raised from

` 15,000 to ` 20,000

DISTINGUISH BETWEEN

2009 - Dec [3] (a) Distinguish between the following: (iv) ‘Exemptions’ and ‘deductions’. (4 marks)

Answer:

(iv) Exemptions from tax are covered under section 10 and 11 of the income tax actand deductions are covered under chapter VIA of the Income Tax act.

Certain incomes are exempt and they are not considered during thecalculation of total income such as interest from PPF, dividends from Indiancompanies, agricultural income, income from NRE account, etc. These areknown as exempt incomes.

But deductions are done from taxable income suppose you invest in ELSS,PPF, LIC ,etc. pay medical insurance or donate to approved charitableinstitutions then you get deductions from your gross total income. There arehowever limitations to the quantum of deductions. as per provision laid down inSec. 80

2010 - June [3] (b) Distinguish between the following:(iv) ‘Intra-head adjustment’ and ‘inter-head adjustment’. (2 marks)

Answer:

(i) Provisions relating to Inter head adjustments are given under section 71 whereasprovisions relating to Intra head adjustments are given under section 70

(ii) Loss arising from one source of income under a head can be set off against incomearising from other source under the same head is known as Inter source set offwhereas in Intra head loss arising under one head of income can be set off againstincome under any other head,


2008 - Dec [6] (b) Indicate the amount of deduction available to an assessee from hisgross total income under section 80GG in respect of rent paid. Point out thecircumstances when the deduction will be denied. (7 marks)


Answer:

Deduction in respect of Rent Paid (Section 80GG)Deduction admissible under this section is:C Actual rent paid less 10% of Adjusted Total IncomeC 25% of such Adjusted Total Income

C Amount calculated at ` 2,000 p.m. Whichever is leastAdjusted Total Income is the adjusted total income under section 80G except exemptedincome less long term capital gain. However, certain conditions as given below arerequired to be fulfilled/satisfied for claiming u/s 80GG

(i) The assessee should not be receiving any house rent allowance exempt undersection 10(13A) or rent free accommodation

(ii) The accommodation should be occupied by the assessee for the purpose of hisown residence

(iii) The assessee fulfills such other conditions or limitations as may be prescribedhaving regard to the area or place in which such accommodation is situated andother relevant consideration.

(iv) The assessee or his spouse or his minor child or an HUF of which he is amember does not own any accommodation at the place where he ordinarilyresides or performs duties of his office or employment or carries on his businessor profession.

(v) If the assessee owns any accommodation at any place other than that referredto above, such accommodation should not be in occupation of the assessee andits annual value is not required to be determined.

(vi) Allowed only to an individual assessee after furnishing Form 10BA along withreturn of income.

2009 - Dec [4] (b) What are the provisions relating to clubbing of income arising tospouse from the assets transferred ? (5 marks)

Answer:

As per the provision of Sec 64(1) (iv) in computing the total income of the individual, allsuch income arising directly or indirectly to the spouse of such individual from assetstransferred to the spouse by such individual otherwise then for adequate considerationor in connection with an agreement to live apart shall be clubbed in the income oftransferor. However any further income earned on such clubbed income shall betaxable in the hands of spouse.

Income from assets transferred to any person for the benefit of the spouse of thetransferor as per the provision of sec 64(1) (vii) shall be taxable in the hands oftransferor of the asset.


Condition for clubbing:

1. The relationship of husband and wife must exist both at the time of transfer of assetand at the time of accrual of income.

2. Consideration must be NIL or inadequate.3. Where such assets or cash transfer by way of gift to the spouse is invested by the

transferee in any business (except by way of capital contribution in a partnershipfirm), the income shall be clubbed in the following manner.

No clubbing provision shall persist where both the spouse are prof. qualified and arepartners earning income by virtue of the qualifications.

2009 - Dec [5] (c) “Loss under any head of income for any assessment year can be set-off against the income from other heads of income but when it has to be carried forwardfor being set-off, it can only be set-off from income under the same head.” Explain.

(5 marks)

Answer:

Income of a person is computed under five heads. ‘Sources’ of income derived by anindividual may be many but yet they could be classified under the same head. Forinstance, an individual may have a dual employment, yet the income would be classifiedunder the head ‘Salaries’. However, given the mechanism of computing taxable salaryincome, it would be safe to say that an individual cannot incur losses under this headof income. Consider a situation where Harsh has two properties – one, occupied by him

and the other, let out. Harsh pays interest on loan of ` 1.50 lakh on the property

occupied and derives net rental income of ̀ 1.50 lakh from the let-out property. In caseof a self-occupied property, income is computed as nil and interest expenditure results

in loss. The loss of ` 1.50 lakh can be set off against rent income of ` 1.50 lakh; theincome chargeable under the head ‘House property’ will be ‘Nil’.

An exception to intra head set off is loss under the head ‘Capital gains’, which mayarise from transfer of any capital asset. Long-term capital loss arises from transfer ofshares or units where holding period is more than 12 months and in respect of otherassets holding period is more than 36 months prior to sale. Transfer of assets held forless than prescribed period results in short-term capital loss. Long-term capital losscannot be set off against short-term capital gains. but S. Term loss can be adjustedagainst S.T.C.G or LTCG.


Further, loss incurred from speculation loss (e.g. from shares or commodities)cannot be set off against any other income.

Also, it is unlikely that the benefit of set off of loss under an activity or source willbe available, where the income from an activity or source is exempt from taxation.

2010 - June [3] (a) An asset is transferred by a person to another person under a partlyrevocable transfer whereby a part of the asset will revert back to the transferor. Whoshall be liable to pay tax in respect of income from the asset transferred as per section61? (2 marks)

Answer: All income arising to any person by virtue of a revocable transfer or partly revocabletransfer of assets shall be chargeable to income-tax as the income of the transferor andshall be included in his total income. Therefore transferor shall be liable to pay tax inrespect of income from the assets transferred as per section 61.

2010 - Dec [5] (b) Discuss the provisions relating to ‘carry forward and set-off ofbusiness losses’. (3 marks)

Answer:

Carry forward and set off of losses

The provision relating to carry forward and set off of losses are given as below:If the losses of any head could not be set off in the same year such losses shall becarried forward to next years. The following losses can be carried forward:1. Losses from House Property2. Losses from general business3. Losses from speculation business4. Losses from specified business5. Capital losses-Short term and Long term6. Losses from horses maintenance7. Losses from firm

Rules for Carry Forward

1. The losses from house property can be carried forward for maximum period of 8years and be set off only from Income from house property

2. Losses from general business can be carried forward for maximum period of 8years and be set off from the profits of general business as well as profits fromspeculation business

3. Losses of speculation business can be carried forward for maximum period of 8years and be set off only from the profits from speculation business

4. Short term or long term capital losses can be carried forward for 8 years and setoff only against capital gains


5. Losses on owing and maintaining of horse races be carried forward for 4 years andbe set off only from profits under the same head.

2011 - June [6] (b) "If an individual writes a book, he shall be allowed deduction fromhis gross total income". Explain the statement. (4 marks)

Answer:

If an individual writes a book he shall be allowed a deduction for his gross total incomeunder section 80QQB of the act80QQB. (1) Where, in the case of an individual resident in India, being an author, the gross

total income includes any income, derived by him in the exercise of his profession,on account of any lump sum consideration for the assignment or grant of any of hisinterests in the copyright of any book being a work of literary, artistic or scientificnature, or of royalty or copyright fees (whether receivable in lump sum orotherwise) in respect of such book, there shall, in accordance with and subject tothe provisions of this section, be allowed, in computing the total income of theassessee, a deduction from such income, computed in the manner specified insub-section (2).

(2) The deduction under this section shall be equal to the whole of such incomereferred to in sub-section (1), or an amount of three lakh rupees, whichever is less:

Provided that where the income by way of such royalty or the copyright fee,is not a lump sum consideration in lieu of all rights of the assessee in the book, somuch of the income, before allowing expenses attributable to such income, as isin excess of fifteen per cent of the value of such books sold during the previousyear shall be ignored:

Provided further that in respect of any income earned from any source outsideIndia, so much of the income shall be taken into account for the purpose of thissection as is brought into India by, or on behalf of, the assessee in convertibleforeign exchange within a period of six months from the end of the previous yearin which such income is earned or within such further period as the competentauthority may allow in this behalf.

(3) No deduction under this section shall be allowed unless the assessee furnishes acertificate in the prescribed form and in the prescribed manner, duly verified by anyperson responsible for making such payment to the assessee as referred to insub-section (1), along with the return of income, setting forth such particulars asmay be prescribed.

(4) No deduction under this section shall be allowed in respect of any income earnedfrom any source outside India, unless the assessee furnishes a certificate, in theprescribed form from the prescribed authority, along with the return of income in theprescribed manner.


(5) Where a deduction for any previous year has been claimed and allowed in respectof any income referred to in this section, no deduction in respect of such incomeshall be allowed under any other provision of this Act in any assessment year.Explanation.—For the purposes of this section,—(a) “author” includes a joint author;(b) “books” shall not include brochures, commentaries, diaries, guides, journals,

magazines, newspapers, pamphlets, text-books for schools, tracts and otherpublications of similar nature, by whatever name called;

(c) “competent authority” means the Reserve Bank of India or such other authorityas is authorised under any law for the time being in force for regulatingpayments and dealings in foreign exchange;

(d) “lump sum”, in regard to royalties or copyright fees, includes an advancepayment on account of such royalties or copyright fees which is not returnable.

2013 - June [3] (b) Explain the deduction in respect of royalty income of authors undersection 80QQB. (4 marks)

Answer :

Allowable to : Any resident individual, being an author/joint author, in respect of anyincome by way of Lumpsum consideration or royalty or copyright fees for assignmentor grant of any of his Interests in the copyright of anybook.

Amount of Deduction: 100% of the royalty income etc. subject to a maximum of

` 3,00,000.In case of royalty or copyright fees, not in lump sum consideration, deduction shall berestricted to 15% of the value of books sold during the previous year.

Conditions:

(1) The assessee shall furnish a certificate in form 10CCD.(2) In case of income received from a source outside India, the assessee shall furnish

a certificate in form 10H.

PRACTICAL QUESTIONS

2008 - Dec [5] (a) Gulshan submits the following information relevant for the financialyear 2013-14:

Profit Loss

(`) (`)Salary income 8,00,000 $

Income from house property:House-A 25,000 $

House-B $ 30,000


Profits and gains of business or profession:Business-A 12,000 $

Business-B $ 20,000Business-C (Speculative) 22,000 $

Business-D (Speculative) $ 35,000Capital gains:

Short term capital gains 10,000 $

Short term capital loss $ 30,000Long-term capital gains on sale of building 16,000 $

Income from other sources:Loss on maintenance of race horses $ 15,000

Determine the net income of Gulshan for the assessment year 2014-15. (7 marks)

Answer:

Income from Salary 8,00,000Income from HP (House A) 25,000

(House B) (30,000) (5,000)Income from Business & Profession Business A 12,000Business B (20,000) (8,000)Income from speculative businessBusiness C 22,000Business D (35,000) (13,000)Income from Capital gainShort term capital gain 10,000Short term capital loss (30,000)Long term capital gains 16,000 (4,000)Income from other sourcesLoss on maintenance of race horses (15,000)

Net Income of Gulshan ` ` ` ` 7,95,000*

*Notes:• Loss from PGBP can not be set-off against salary income. • Loss from speculative business can be set-off against speculative income only.• Capital loss would be allowed to adjusted against capital gain only.• Loss on maintenance of race horses can not be set off against other incomes.

2009 - June [2] (c) Yash, a minor, who is a physically handicapped (suffering from

disability of the nature specified in section 80 U), earns bank interest of ` 50,000 and

` 60,000 from making bags manually by himself. State whether income of Yash shouldbe clubbed with the income of his parents as per section 64(1A). (2 marks)


Answer:

As per section 80U of the IT Act, 1961:(a) If the child earns any income by doing manual work or due to a special skill, such

income will not be clubbed.(b) Any income of a minor child, suffering from any disability of the nature specified in

section 80U will not be clubbed.Since Yash is physically handicapped and he is earning some income by his manualwork also, his income will not be clubbed with the income of his parents.

2011 - June [2] (b) From the following information, compute the total income of Anuragfor the assessment year 2014-15 and calculate his tax liability assuming he is notallowed any deduction under sections 80C to 80U:

`

Income from salary 1,80,000Income from house property 40,000Business loss (-) 1,90,000Loss from a specified business referred to

under section 35AD (-) 60,000Short-term capital loss (-) 60,000Long-term capital gains 2,40,000

(5 marks)

Answer: Computation of total Income of Anurag

for the A.Y. 2014-15

Income from salaryIncome from house propertyLess: Business loss adjustedBusiness LossLess: Set of against capital gainLess: Set off against house propertyLoss from specified business not allowed to be set offIncome from capital gainLong term capital gainLess: short term capital loss

40,00010,000

!1,90,0001,80,000

10,00016,000

2,40,00060,000

1,80,000

30,000

Nil

1,80,000

Less: Business Loss adjustedGross total Income

1,80,000 Nil2,10,000


Less: DeductionsTotal IncomeTotal tax liability

Nil2,10,000

1,030

2012 - June [3] (b) Kailash furnishes the following particulars of income and losses forthe assessment year 2014-15:

`

Short-term capital loss on sale of shares 3,25,200Income from card games (gross) 99,800Loss from betting 1,02,500Income from lotteries (gross) 3,87,500Expenses on lottery ticket purchased 7,500Long-term capital gains 97,800Long-term capital loss of assessment year 2012-13 1,12,500Short-term capital loss of assessment year 2013-14 97,800Set-off various losses from other income and compute gross total income. Find out theamount which can be carried forward. (5 marks)

Answer:

Computation of Gross Total Income of Kailash for the Assessment year 2014-15Income from Capital Gain

Short - Term Capital Loss 3,25,000Less: B/F short term capital Loss of Assessment year 2013-14 97,800 NIL

(The amount of ` 4,23,000 shall be carried Forward to next assessment year)Long-term Capital Gains 97,800Less: B/F Long- term Capital Loss 1,12,500 NIL

Income from other sourcesIncome from Lotteries 3,87,500Income from card games 99,800Loses from betting (not allowed for set-off) ---- 4,87,300


Note:

(i) Long-term capital loss can be set-off from long-term capital gain only. Hence, the

remaining unadjusted loss of Assessment year 2012-13 of ` 14,700 (1,12,500- 97,800) has to be carried forward to the next assessment year.


(ii) Loss from betting can neither be set-off against any other Income not it can becarried forward to subsequent year.

(iii) Expenses on lottery tickets are not are allowed as deduction.

2012 - Dec [5] (a) Lalit submits the following details of his income for the assessmentyear 2014-15:

`

Income from salary 3,00,000Loss from let-out house property 40,000Income from sugar business 50,000Brought forward loss of iron ore business

(discontinued in financial year 2006-07) 1,20,000Short-term capital loss 60,000Long-term capital gains 40,000Dividend 5,000Income from lottery winnings (gross) 50,000Winnings in card games (gross) 6,000Agricultural income 20,000Long-term capital gains from the shares (STT paid) 10,000Short-term capital loss from shares under section 111A 15,000Bank interest 5,000Calculate gross total income and losses to be carried forward. (5 marks)

Answer:

Computation of Income of Lalit


Salary

`

BusinessIncome

`

Long-termcapitalgain

`

Incomefrom othersources

`

Salary 3,00,000 - - -

Business Income - 50,000 - -

Long term capital gain - - 40,000 -

Winning from lottery - - - 50,000

Winnings from card games - - - 6,000

Bank interest - - - 5,000

Total 3,00,000 50,000 40,000 61,000

Less: Current year losses

Loss from house property 40,000 - - -


Short term capital loss - - 40,000 -

Balance 2,60,000 50,000 - 61,000

Less: Brought forward business loss - 50,000 - -

Net income (Total 3,21,000) 2,60,000 - - 61,000

The following losses will be carried forward:

1. Current year’s short term capital loss of ` 60,000 is adjusted against long-term

capital gain of ̀ 40,000. The unadjusted amount of ̀ 20,000 will be carried forward.

2. Short-term capital loss of ` 15,000 pertaining to transfer of securities (subject toSTT) will be carried forward.

3. Brought forward loss of iron ore business is set off against the current year’s

business to the extent of ` 50,000. The unadjusted amount of ` 70,000 will becarried forward.

Assumptions:

(i) Dividend is from an Indian company, therefore exempt. (ii) Agricultural income is generated in India, therefore exempt.

2013 - June [4] (b) Deepak, a reputed trader, furnished the following particularsregarding his business for the financial year 2013-14:

`

Loss from business 8,00,000Loss from specified business 2,80,000Depreciation allowance for the current year 1,60,000Income from house property (computed) 6,00,000Items brought forward from the earlier years:

Business loss for the assessment year 2012-13 2,40,000Depreciation allowance (unabsorbed) for the assessment

year 2013-14 1,00,000Compute gross total income of Deepak for the assessment year 2014-15.

(4 marks)

Answer : Computation of Gross Total Income of Deepak

for the Assessment year 2014-15

Income from House Property Less: Loss from Business

Income from Business and Profession

Loss from Business to be carried forwardLoss from specified businesscurrent year depreciation

6,00,0006,00,000 Nil

2,00,0002,80,0001,60,000

Gross Total Income Nil


2013 - Dec [4] (b) From the following particulars, find out the amount of unabsorbeddepreciation to be carried forward:

`

(i) Income from business (before charging depreciation) 1,08,000(ii) Depreciation 2,22,000(iii) Income under the head ‘house property’ 90,000(iv) Income from other sources 9,000

(5 marks)

CS Inter Gr. I


2004 - June [1] {C} (c) What do you mean by 'set off and carry forward of losses'?Which losses can be carried forward? (3 marks)

Answer:

Income tax is levied on the income of the previous year of an assessee. The totalincome cannot be correctly computed unless a loss from a source of income is set offagainst any other income. Hence, for the purposes of set-off of losses any carry forwardand set off losses, specific provisions have been incorporated in the income tax Act.1. Set off of loss from one source of income against another source under the same

head of income with certain exception.2. Set off of loss from one head against income from another head with certain

exceptions3. Loss from Business or profession can be set off against any other income falling

under the same head as well as under any other head of income 4. Loss from speculation business can be set off only from profit of speculation

business5. Losses from activity of owing and maintaining race horses can be set-off only from

profits of activity of owing and maintaining of race horse.6. Capital loses-Short term can be adjusted against any STCG/LTCG but L.T.C. Loss

can be adjusted against LTC gains only,7. Losses from lottery, Crossword puzzles, Gambling, card games or betting cannot

be set off against any income.

Carry forward and set off of losses

The provision relating to carry forward and set off of losses are given as below:If the losses of any head could not be set off in the same year such losses shall be

carried forward to next years. The following losses can be carried forward:


1. Losses from House Property2. Losses from general business3. Losses from speculation business4. Capital losses-Short term and Long term5. Losses from horses maintenance6. Losses from firm7. Losses of specified business

Rules for Carry Forward

1. The losses from house property can be carry forward for maximum period of 8years and be set off only from Income from house property

2. Losses from general business can be carry forward for maximum period of 8 yearsand be set off from the profits of general business as well as profits fromspeculation business

3. Losses of speculation business can be carry forward for maximum period of 8years and be set off only from the profits from speculation business

4. Short term or long term capital losses can be carry forward for 8 years and set offonly against capital gains

5. Losses on owing and maintaining of horse races be carried forward for 4 years andbe set off only from profits under the same head.

6. Losses of specified business can be carried forward for indefinite period and be setoff only from profit of specified business.

2005 - June [5] (a) What are the exceptions to well accepted principle that loss of oneperson cannot be availed for 'set off' or 'carry forward' by another person under theprovisions of the Income-tax Act, 1961? (5 marks)

Answer:

The general principal under the Income Tax Act is that the loss of one person cannotbe availed for set off or carry forward by another person unless there is a specificprovision enabling such benefit or requiring such treatment. Even where a business istransferred, the unabsorbed depreciation allowance and other losses of the predecessorcannot be assigned to the successor so as to enable carry forward and set off of suchloss and allowance against the profits of the successor. However, there are fewexceptions to this well accepted principle as under:1. In the case of succession by way of inheritance, the successor of business can

carry forward and set off the loss of his predecessor2. In case of amalgamation, demerger, reorganization of business whereby a firm or

a proprietary concern is succeeded by a company, the benefit of carry forward andset off of the past losses and unabsorbed depreciation of the amalgamatingcompany/demerged company/firm or proprietary concern is allowed in the handsof amalgamated company/resulting company/succeeded company


3. When clubbing provision applies, loss is required to be clubbed in the samemanner as income. The person in whose hands the loss is so clubbed can set offand carry forward such loss as if it is determined in his case.

2006 - June [4] (c) Explain the deduction available to an individual in respect of incomeby way of royalty from a patent. (3 marks)

Answer:

Deduction under section 80RRB is available to an individual who is resident in India andis a patentee provided the patent is registered after 1.4.2003 under the Patent Act, 1970and his gross total income of the previous year includes royalty in respect of suchpatent.

Deduction shall be provided at the rate of 100% of such royalty income or

` 3,00,000, whichever is less.However, where a compulsory license is granted in respect of any patent under the

Patent Act, 1970, the income by way of royalty for the purpose of allowing deductionunder this section shall not exceed the amount of royalty under the terms and conditionsof a license settled by the Controller under that Act.

Also, where any income earned from any source outside India, so much of theincome shall be taken into account for the purpose of this section as is brought intoIndia by, or on behalf of, the assessee in convertible foreign exchange within a periodof 6 months from the previous year in which such income is earned or within suchfurther period as the competent authority may allow in this behalf.

2007 - June [2] (b) Explain the provisions of the Income-tax Act, 1961 regarding set-offand carry forward of losses from transfer of capital assets. (5 marks)

Answer:

Where in respect of any Assessment year, the net result of the computation under thehead capital gains is a loss to the assessee; it can be carried forward to the followingassessment year. The short term and long term losses shall be separately carriedforward. In case of short term capital loss it can be set off against income, if any underthe head ‘capital gains’ assessable for that assessment year in respect of any othercapital asset. But in case of long term capital loss, it can be set off only against longterm capital gain.

While losses on transfer of capital assets, whether short term or long term cannotbe set off against any other income of the assessee under other heads of income i.e,heads other than capital gains in the previous year in which such loss was incurred, itcan be carried forward to set off against capital gains if any during the next 8assessment year.


2007 - June [3] (b) Briefly answer the following:(iv) How much deduction from gross total income is available under section 80C

regarding provident fund contribution, life insurance premium, etc.? (1 mark)

Answer:

(iv) Deduction under section 80C is available only to an individual or a HinduUndivided family, on the basis of specified qualifying investments/ contributions/deposits/payments made by the tax payer during the previous year. Deductionfrom gross total income of an amount equal to the investments made is allowed,

subject to a maximum amount of ` 1,00,000.

2008 - June [1] {C} (a) Attempt the following:(v) “Loss can be carried forward only by the person, who has incurred the loss.”

Discuss. (3 marks)

Answer:

Please refer 2005 - June [5] (a) page no. 165

PRACTICAL QUESTIONS

2005 - Dec [1] {C} (a) Discuss the allowability or otherwise of the following in the handsof Rasikbhai, who is aged about 67 years:

(i) He paid insurance of `18,000 (` 16,000 by cheque and ` 2,000 by cash) underMediclaim Policy to New India Insurance Company covering himself and hiswife.

(ii) He spent a sum of ̀ 55,000 during September, 2013 towards medical treatmentof his wife who suffered from blindness.

(iii) His younger brother who is fully dependent on him, suffered from chronic renal

failure for which he spent a sum of ` 75,000 towards medical treatment.(3 marks)

Answer:

Rasikbhai, being a Senior Citizen is eligible for the following deductions:(i) Under Section 80D, the medical insurance premium paid by cheque amounting

to ` 16,000 is fully eligible. The Medical Insurance Premium paid by cash is noteligible for deduction.

(ii) Under Section 80DD, the amount of deduction is ` 1,00,000 in the case ofsevere disability irrespective of quantum of expenditure incurred, In this case,

Rasikbhai is eligible for deduction of ̀ 1,00,000 even though he spent ̀ 55,000/-(iii) As his younger brother is fully dependent and the disease is specified in Rule

11DD for the purpose of Section 80DDB and the actual amount incurred is

` 75,000, he is eligible for deduction of lower of actual amount incurred or


` 40,000. Accordingly, he is eligible for deduction of ` 40,000 under Section80DDB. However, if the younger brother is aged 65 years or more the amount

of deduction would be ` 60,000. For claiming deduction under Section 80DDB,Rasikbhai is required to furnish a certificate in the prescribed from issued bymedical authority.



1 Explain the deduction in respect of royalty income ofauthors under section 80QQB.

11 - June [6] (b), 13 - June [3] (b) 2 Times

3.169

Star Rating

On the basis of Maximum marks from a chapter jjjj

On the basis of Questions included every year from a chapter jjj

On the basis of Compulsory questions from a chapter jjj

7 Taxation of Individuals, HUF, Firms,

Association of Persons, Cooperative

Societies and Non Residents

This Chapter Includes: Introduction; Computation of assessment of an assessee;Introduction; Computation of Income; Deductions from Gross Total Income; Ratesof Tax; Determination of Tax Liability; Partition of a HUF; Introduction; Formation;Tax Liability; Section 67A; Assessment in case of dissolution of an AOP; Meaning;Exemptions and Concessions to Non-residents; Sec. 172; Special provisions u/s44BBA; Determination of Income in certain cases; Mode of Assessment; Recoveryof Tax; Computation of Tax.




OBJECTIVE QUESTION


(vi) Remuneration earned by a member of HUF for the services rendered by him is_____ income of the member. (1 mark)

Answer:

(vi) Exempt


(ii) For the assessment year 2014-15, the basic exemption limit in case of a non-

resident individual, aged 66 years is ` __________. (1 mark)

Answer: ` 2,00,000


(ii) The rate of alternate minimum tax including education and higher education cessin case of a limited liability partnership firm is —(a) 18%(b) 18.5%(c) 19.055%(d) None of the above.

(1 mark)

SHORT NOTES

2010 - Dec [6] (a) Write short notes on the following: (iv) Tax liability of an association of persons (3 marks)

Answer:

An AOP/BOI will be assessed in the following two manners:C Where in case of AOP/BOI, the individual share of members are unknown- where

the individual share of the members of AOP/BOI in the whole or part of its incomeare unknown, tax shall be charged on the total income of the AOP/BOI at themaximum marginal rate i.e., 30% plus surcharge @ 10%(wherever applicable) pluseducation cess @ 2% plus SHEC @1%. However, if the income of AOP is

[Chapter #### 7] Taxation of Individuals, HUF.. OOOO 3.171

chargeable at a rate higher than 30%, the tax will be charged on the total incomeof the AOP also at such higher rate. But in case the foreign company is a memberof AOP/BOI, the tax rate of the AOP shall be 40% plus surcharge @ 2%/5% (asapplicable) plus education cess @ 2% plus SHEC @1%.

C Where in case of AOP/BOI, the individual share of members are known- where thetotal income of any member of AOP/BOI, without including his income fromAOP/BOI exceeds maximum exemption limit, then such AOP/BOI will be chargedto tax at maximum rate of 30% plus surcharge plus education cess plus SHEC asapplicable on its Total Income. However, in this case. If the income of one or moremember of AOP/BOI is chargeable at higher rate than such higher rate shall beapplicable.

2011 - June [5] (a) Write short notes on the following:(iii) Assessment in case of dissolution of an association of persons (3 marks)

Answer:

1. Where any business or profession carried on by an association of persons hasbeen discontinued or where an association of persons is dissolved, the AssessingOfficer shall make an assessment of the total income of the association of personsas if no such discontinuance or dissolution had taken place, and all the provisionsof this Act, including the provisions relating to the levy of a penalty or any othersum chargeable under any provisions of this Act, shall apply, so far as may be, tosuch assessment

2. Without prejudice to the generality of the foregoing sub-section, if the AssessingOfficer or the Commissioner (Appeals) in the course of any proceeding under thisAct in respect of any such association of persons as is referred to in thatsub-section is satisfied that the association of persons was guilty of any of the actsspecified in Chapter XXI, he may impose or direct the imposition of a penalty inaccordance with the provisions of that Chapter

3. Every person who was at the time of such discontinuance or dissolution a memberof the association of persons, and the legal representative of any such person whois deceased, shall be jointly and severally liable for the amount of tax, penalty orother sum payable, and all the provisions of this Act, so far as may be, shall applyto any such assessment or imposition of penalty or other sum

4. Where such discontinuance or dissolution takes place after any proceedings inrespect of an assessment year have commenced, the proceedings may becontinued against the persons referred to in sub-section (3) from the stage at whichthe proceedings stood at the time of such discontinuance or dissolution, and all theprovisions of this Act shall, so far as may be, apply accordingly.


DISTINGUISH BETWEEN

2012 - June [6] (b) Distinguish between the following:(i) ‘Firm’ and ‘association of persons’. (3 marks)

Answer:A firm refers to a partnership firm. Partnership has been defined under the PartnershipAct, 1932 as "relationship between persons who have agreed to share the profits of abusiness carried on by all or any of them acting for all.” Persons who have entered intopartnership with one another are individually called partners and collectively a firm andthe name under which their business is carried on, is call the firm’s name.

An association of persons (AOP) implies a voluntary getting together for a commondesign or particular venture to engage in an income producing activities.


2012 - Dec [4] (b) (i) What is alternate minimum tax? (2 marks)

Answer:

Alternate Minimum Tax (AMT) (Section 115 JC)

Where the regular income tax payble for a previous year by a limited liabilitypartnership is less than the AMT payable for such previous year, then the adjusted totalincome shall deemed to be the total income of the LLP for such previous year and itshall be liable to pay income tax on such adjusted total income @ 18.5% plus EC &SHEC @ 3%.

2012 - Dec [5] (b) Explain the procedure of assessment after partition of a hinduundivided family (HUF). (4 marks)

Answer:

Where a finding of total partition has been recorded by the Assessing Officer under thissection, and the partition took place during the previous year,

(a) The total income of the joint family in respect of the period up to the date ofpartition shall be assessed as if no partition had taken place; and

(b) each member or group of members shall, in addition to any tax for which heor it may be separately liable and notwithstanding anything contained inclause (2) of section 10, be jointly and severally liable for the tax on theincome so assessed.

Where the finding of total partion has been recorded by the Assessing Officer underthe section, and the partition took place after the expiry of the previous year, the totalincome of the previous year of the joint family shall be assessed as if no partition hadtaken place; and each member of group of members shall be jointly and severally liablefor the tax on the income so assessed.


PRACTICAL QUESTIONS

2008 - Dec [1] {C} (b) Mrs. Vidya received the following amounts during the financialyear 2013-14:

` Gross salary 6,00,000

Family pension @`1,500 p.m. 18,000Income of a minor child 6,000Accumulated balance in provident fund of her

husband after his death 1,00,000Gratuity received after the death of her husband 80,000

Calculate taxable income of Mrs. Vidya for the assessment year 2014-15. (4 marks)

Answer:

Calculation of Taxable Income of Mrs. Vidya for A.Y 2014-15

`

Income from SalaryGross Salary 6,00,000Income from other sourcesFamily Pension @ 1,500 p.m. 18,000(-) Exempt 1/3rd × 18,000 6,000 12,000Gratuity after death of husband ExemptIncome of minor child to be clubbed 6,000Less: Exemption for clubbing 1,500 4,500


2008 - Dec [6] (a) Nikhil, Gagan and Suman are partners in a firm with equal shares.The profit and loss account for the year ending 31st March, 2014 shows a net profit of

` 42,300 after debiting the following items:

(i) Salary of ` 24,000 each to Nikhil and Gagan.

(ii) Bonus to Suman ` 18,000.

(iii) Commission of ` 9,000, ` 10,000 and ` 15,000 to Nikhil, Gagan and Sumanrespectively.

(iv) Interest on capital @ 15% amounting to ` 4,500, ` 6,000 and ` 15,000 paid toNikhil, Gagan and Suman respectively.

Assuming that all partners are working partners and the firm fulfils the conditions ofsection 184, compute the total income of the firm and taxable income of the partners inthe firm. (8 marks)


Answer: Computation of Total Income of the Firm for A.Y 2014-15

`

Net profit as per profit and loss account 42,300Add: Disallowed itemsSalary to Partners: Nikhil- 24,000

Gagan- 24,000 48,000Bonus to Suman 18,000Commission to Partners: Nikhil- 9,000

Gagan- 10,000Suman- 15,000 34,000 1,00,000

Interest on Capital in excess of 12%Nikhil (4,500*3)/15 900Gagan (6,000*3)/15 1200Suman (15,000*3)/15 3,000 5,100Book Profits 1,47,400Less: Remuneration u/s 40(b)

Actual Remuneration ` 1,00,000or

on 1st ` 3,00,000 (` 1,50,000 or

90% of ` 1,47,400, whichever is more) ` 1,50,000 1,00,000Total Income of the firm 47,400

Computation of income of Partners from firm

Nikhil Gagan Suman

Interest on Capital in excess of 12% 3,600 4,800 12,000Salary 24,000 24,000 -Bonus - - 18,000Commission 9,000 10,000 15,000

Total Taxable Income 36,600 38,800 45,000

2009 - June [1] {C} (c) Robbert, a US national came to India for the first time on 1stNovember, 2010 for a period of six months. He declared following incomes during theprevious year ending 31st March, 2014:

(i) Salary received in India for four months at the rate of ` 75,000 per month.

(ii) Interest on fixed deposit in a bank in India: ` 50,000.

(iii) Income from agriculture in USA: ` 10,00,000.

(iv) Income from a business in Nepal being controlled from India: ` 2,00,000.

(v) Salary earned in USA brought into India in the previous year: ` 5,00,000.You are required to compute Robbert's taxable income and tax liability for theassessment year 2014-15. (5 marks)


Answer:

Calculation of Taxable Income of Mr Robbert for A.Y 2014-15.

S.No Particular `̀̀̀

1 Salary received in India for four months 3,00,000

2 Interest on Fixed Deposit 50,000

3 Income from Agriculture in USA —

4 Income from business in Nepal, being controlled from India —

5 Salary earned in USA brought in India in Previous year —

Total Income of Robbert 3,50,000

Less: Deduction Nil

Total Taxable Income 3,50,000

Calculation of Tax liability of Mr. Robbert.

Up to `2,00,000 Nil

From `2,00,001 to ` 3,50,000 (10%) 15,00015,000

Add: Education cess & SHEC @ 3% 450Tax Liability 15,450

2009 - June [2] (b) John, Jack and Jill are partners sharing profits and losses in theratio of 2: 1: 1 respectively. Their summarised profit and loss account for the yearending 31st March, 2014 is appended below:

` `

Office salaries 17,040 Gross profit 1,81,710Bad debts reserve 3,000 Interest on securities 12,000Telephone 6,000 Rent received 18,000Salary to Jack 9,000Collection charges of interest on securities 150Interest on loan from John 6,000Municipal taxes (let out property) 3,000Commission to partners:

John 12,000Jack 15,000Jill 18,000 45,000


Net profit to partners: John 61,260Jack 30,630Jill 30,630 1,22,520

2,11,710 2,11,710Compute total income of the firm for the assessment year 2014-15 and tax liabilitythereon. Interest paid to John has been calculated at the rate of 20% per annumsimple. (7 marks)

Answer:

Computation of total income of the firm


` `

(i) Income under head house Property:& Rent received 18,000

Less: Municipal taxes 3,000Net Annual Value 15,000

Less: Deduction under Section 24Standard deduction @ 30% of NAV 4,500 10,500

(ii) Income under head “Profit and Gains:& From Business or Profession

Book Profit (see working note 1) 1,55,070Less: Remuneration to working partners Subject to section 40(b) 54,000 1,01,070

(See working note 2)(iii) Income from other sources:

& Interest on Securities 12,000Less: Collection charges 150 11,850

Gross Total Income: (i) % (ii) % (iii) 1,23,420Less: Deductions under Chapter VIA Nil

Total Income: 1,23,420Working Note:

(1) Computation of Book ProfitNet Profit as per Profit & Loss A/c 1,22,520Less: Income taxable under other head& interest on Securities 12,000& Rent received 18,000 (30,000)

Add: Inadmissible Expenses:! Salary to jack 9,000! Interest on loan from John in excess of 12%(6,000 ×.08/.20) 2,400


! Bad Debt reserve 3,000! Collection charges 150! Municipal taxes 3,000! Commission 45,000 62,550Book Profit 1,55,070

(2) Computation of Remuneration allowable to working partners subject to maximum

of: `

! 90% 0f ` 1,55,070 or ` 1,50,000 1,50,000Whichever is more

Actual Remuneration! Salary 9,000! Commission 45,000 54,000

Whichever is less is allowable. Therefore ` 54,000 is allowed as deduction.

2009 - June [5] (d) Kundan submits the following information for the assessment year2014-15:Income from business ` 20,000Property income House-A House -B

(`) (`)Municipal valuation 17,500 40,000Municipal taxes paid by tenant 1,500 2,000Land revenue paid 1,000 8,000Rent received 19,000 34,000Insurance premium paid 250 1,000Repairs paid by tenant 250 9,000Interest on borrowed capital for payment of

municipal tax of house property 100 200Nature of occupation Let out for Let out for

residence businessDate of completion of construction 1.4.1995 1.4.1993Determine the taxable income of Kundan for the assessment year 2014-15.

(6 marks)Answer:

Calculation of taxable income of Kundan `

Income from Business 20,000Income from House PropertyHouse –AGross annual value of house A 19,000Less: Municipal tax paid by owner NilNet annual value 19,000Less: Statutory Deduction @ 30% 5,700 13,300


House –BGross annual value of house B 40,000Less: Municipal tax paid by owner NilNet annual value 40,000Less: Statutory Deduction @ 30% 12,000

28,000Taxable Income 61,300

2009 - Dec [1] {C} (c) Rajan is an employee of a private limited company and gets thefollowing emoluments during the previous year ended on 31st March, 2014:

Salary:` 96,000;

Salary in lieu of leave: ` 6,000;

Entertainment allowance: ` 10,000; and

Commission: ` 8,000.Rajan’s son studies in a school which is owned and maintained by the company. The

cost of education in a similar school in the locality is ̀ 22,000 per year, but the company

charges ` 4,000 from Rajan. Salary of a domestic servant provided to Rajan by the

company is ` 6,000 and the same is paid by the company. The company purchases a

computer on 1st April, 2013 for ` 50,000 which is given to Rajan for office and private

use. The company purchases a refrigerator for ` 20,000 on 30th June, 2013 for

personal use of Rajan. Rajan and the company both contribute ` 12,000 towards

recognised provident fund. Rajan deposits ` 40,000 towards public provident fund.

Rajan earns ` 1,20,000 by way of rent from a vacant plot of land. Compute the taxableincome and tax liability of Rajan for the assessment year 2014-15. (5 marks)

Answer:

Particulars Amount

(`̀̀̀)

Income from SalarySalaryLeave EncashmentEntertainment AllowanceCommissionEducation Facility to Son (Refer Working Note 1)Free use of computerFacility of refrigerator [20,000*10%*9/12]Salary of Domestic ServantEmployer’s contribution in RPF in excess of 12% [12,000 - 96,000*12%]

96,0006,000

10,0008,0006,000

—6,0001,500

480

Gross salaryLess: Deduction u/s 16

1,33,980Nil


Income from salaryIncome from other Source

1,33,9801,20,000

Gross Total Income

Less: Deduction U/s 80C (12,000 in PF +` 40,000 in PPF)

2,53,98052,000

Taxable Income 2,01,980

2009 - Dec [2] (a) From the following profit and loss account of Vinay for the year ended31st March, 2014, compute his total income and tax liability for the assessment year2014-15:

` `

Interest on capital 12,000 Gross profit 5,10,000Insurance 2,000 Brokerage 30,000Bad debts 30,000 Bad debts recovered 15,000Depreciation 34,000 (earlier allowed as deduction)Advance tax 25,000 Sundry receipts 18,000General expenses (5000+) 12,000 Interest on debentures

Advertisement 5,000 (gross) [TDS ` 4,000] 40,000Salary (including salary

to Vinay ` 20,000) 85,000Interest on loan 8,000Net profit 4,00,000 _______

6,13,000 6,13,000Additional information:

(i) The amount of depreciation allowable as per income-tax rules is ` 42,000.

(ii) General expenses include ` 5,000 given as contribution to a political party.

(iii) Vinay pays ` 5,200 as premium on his own life insurance policy of ` 50,000.(iv) Loan was obtained for payment of income-tax. (4 marks)

Answer:

Computation of total income of Mr. Vinay


` `

(i) Income from business:Net profit as per Profit & Loss A/c 4,00,000Add: Inadmissible ExpenditureInterest on Capital 12,000


Advance Tax 25,000Contribution to a political party 5,000Salary to Vinay 20,000Interest on Loan 8,000 70,000

4,70,000Less: Dep. Undercharged

(42,000 !34,000) 8,0004,62,000

Less non-business income credited to P&L A/cInterest on debentures 40,000Income from business 4,22,000Income from other sources

(Interest on debentures) 40,000

Gross Total Income 4,62,000Less: Deduction U/s 80CLife Insurance premium 5,200Contn, to political parties 80GGC 5,000 10,200

Total Income: 4,51,800

Computation of Tax:

On balance 52,365Add EC & SHEC 755

53,120Less: Advance Tax & TDS [25,000%4,000] 29,000Tax Refund 3,065Tax Refund rounded off 3,070

2010 - June [3] (c) Ram and Shyam are partners in Mozart Co., a partnership firm,which is engaged in manufacturing carpets. They share profits and losses in the ratioof 2:3. The profit and loss account of the firm for the year ended 31st March, 2014 isas follows:

Liabilities `

Cost of goods sold 10,00,000Depreciation 50,000Salary to staff 1,00,000Remuneration to partners:

Ram ` 2,50,000

Shyam ` 1,20,000 3,70,000


Interest on capital @ 15%:

Ram ` 45,000

Shyam ` 67,500 1,12,500Sundry expenses 1,00,500Net profit 7,35,200

24,68,200AssetsSales 23,00,000Dividends 28,200

Winnings from lotteries (` 2,00,000) 1,40,00024,68,200

Additional information:

(i) The firm donated ̀ 30,000 to National Defence Fund and this amount is includedin sundry expenses.

(ii) Depreciation admissible under the income-tax rules is ` 68,000.(iii) The firm is evidenced by partnership deed.

Compute the taxable income and amount of tax liability of the firm for theassessment year 2014-15. (7 marks)

Answer:

Computation of book – profit `

Net Profit as per P&L 7,35,200Add: Interest paid to partners in excess of 12% Ram 9,000 Shayam 13,500Remuneration of partners 3,70,000Donation 30,000

11,57,700Less: Dividends 28,200Winning from lotteries 1,40,000Depreciation 18,000

9,71,500Less: Remuneration of partners 3,70,000

6,01,500

Income from other sources

Winning from lotteries 2,00,000Dividends exempt

2,00,000

Gross total income 8,01,500Less: Deduction u/s 80G 30,000Total Income 7,71,500


Calculation of Tax

30% on 200000 60,000On balance 30 % (7,71,500 ! 2,00,000) 1,71,450

2,31,450Add: cess 6,944Less: TDS 60,000Tax payable 1,78,394Tax payable rounded off 1,78,390

2010 - Dec [2] (b) Alok, aged 40 years, has following incomes for the previous year2013-14. You are required to ascertain his taxable income and tax liability:

`

Income from salary 2,10,000Profit from business 1,50,000Actual rent of house property 1,80,000Municipal tax paid being 10% of municipal value 20,000Agricultural income 1,20,000Long-term capital gain on sale of plot 15,000Winning from lottery (gross) 5,00,000LIC premium paid 20,000Contribution to public provident fund 50,000Interest on fixed deposit in a bank 30,000

(5 marks)

Answer: Computation of taxable Income of Alok


Income from Salary 2,10,000Income from House Property

Gross Annual Value 2,00,000Less: Municipal Tax 20,000

1,80,000Less: Standard Deduction 54,000 1,26,000

Income from Business 1,50,000Long Term Capital Gains 15,000Income from Other Sources 36,000Winning from Lottery 5,00,000 Interest on Fixed Deposit 30,000 5,30,000


Less: Deduction U/s 80C 70,000



Tax Liability Non Agriculture Income 9,61,000 Add: Agricultural Income 1,20,000 10,81,000Tax on winning from lottery 5,00,000*30% 1,50,000Tax on Long term gain 15,000*20% 3,000Tax on Remaining Income 43,200 1,96,200Less: Tax on agricultural income + exemption limit (1,20,000 +2,00,000) 12,000 1,84,200Add: Education Cess & SHEC @3% 5,526Total Tax 1,89,726Less: TDS on Lottery @ 30% 1,50,000Net Tax Payable 39,726Rounded off 39,7302011 - June [5] (b) Ms. Rajni who draws a salary of ` 20,000 per month received thefollowing gifts on or after 1st October, 2013 during the year 2013-14:

(i) Gift of ` 5,00,000 on 16th October, 2013 from a friend. (ii) Gift of jewellery, fair market value of which is ` 3,00,000 on 17th October, 2013

from her fiancee. (iii) Gifts of ` 51,000 each received from her four friends on the occasion of her

marriage on 21st October, 2013.(iv) Gift of ` 1,00,000 on 22nd November, 2013 from her mother's sister. (v) Gift of ` 60,000 on 25th November, 2013 from her father's brother. (vi) Gift of ` 50,000 on 1st December, 2013 from her husband's friend. (vii) Gift of ` 21,000 on 15th December, 2013 from her mother's friend. (viii) Gift of ` 26,000 on 25th December, 2013 from her brother's father-in-law.(ix) Gift of ` 1,21,000 from her husband's brother.(x) Gift of ` 26,000 from her employer. (xi) Scholarship of ` 1,20,000 from a charitable institution registered under section

12AA. (xii) She has purchased an immovable property from Bhawna who is not her relative

for a sum of ` 24,50,000. The stamp duty value of the property is ` 26,00,000.(xiii) She purchased bullion for ` 4,40,000 whose fair market value is ` 4,85,000.Compute her total income for the assessment year 2014-15. (6 marks)Answer:

Computation of Total Income of Ms. Rajni


Income under the head salary (20,000 x 12)Add: Cash gift from employer

2,40,00026,000

2,66,000

Less Deduction Nil 2,66,000


Income from other sources(i) Gift from a friend is includible(ii) Gift of jewellery is taxable

(iii) Gift of ` 50000 from her husband’s Friend

(iv) Gift of ` 21000 from her mother’s friends isincluded

(v) Gift from her brothers father in law is taxableas donor is not a relative

5,00,0003,00,000

50,000

21,000

26,000 8,97,000


2011 - Dec [6] (a) Mahender is the karta of a Hindu Undivided Family (HUF). Computethe taxable income of the family and amount of tax payable by it on the basis of thefollowing particulars for the year ended 31st March, 2014:

(i) Income from house property: The family uses its ancestral house forresidence; the municipal value of the house is ` 60,000 per annum and intereston loan borrowed for the house has accrued to the tune of ` 22,000.The family owns another house which is let-out for ̀ 8,000 p.m. The family madepayment in respect of municipal taxes for the three previous years 2011-12 to2013-14 during the current previous year 2013-14 itself equal to ̀ 12,000 for thelet-out house.

(ii) Income from family business: Net income of the family business after chargingsalary amounting to ̀ 1,20,000 of karta is ̀ 4,00,000. It also incurred/earned thefollowing items of losses, expenses and incomes:

`

Loss on horse race 4,000Winnings from lotteries 20,000Profit on speculation in silver 18,000Loss on speculation in gold 6,000Life insurance premium on the life of family members 12,000Donation to National Defence Fund 10,000Donation to other approved bodies 50,000

(iii) Income form other sources:Interest on maturity of NSCs, VIII Issue 12,500Dividend received from an Indian company (Gross) 15,000Collection charges paid for dividend 400

(10 marks)


Answer:

Computation of Taxable Income & Tax Liability of Mr. Mahendra's HUF for the


Particulars Amount

Gross Annual ValueLess: Municipal TaxesAnnual ValueLess: Standard deduction @30% of NAV Loss on self-occupied house


Income from BusinessNet income from family businessProfit from speculation in SilverLoss: on Speculation in Gold

Income from Business

Income from Other SourcesLoss from Horse Race (Not allowed to be set off)winning from lotteriesinterest on NSC VIII Issuedividend received from an Indian Company

Income from Other Sources

Gross Total Income

Less: Deduction(i) U/S 80C Life Insurance Premium(ii) U/S 80G[10000 on NDF+23465(50%of 46930)]

Total Income

Total Income(Rounded off)

Amount of Tax

Up to ` 2,00,000 NilFrom 2,00,001 to 4,15,840@10% i.e 10% on

` 2,15,840winning from lotteries 30%Tax PayableAdd: EC& SHEC @3%Total Tax PayableTotal Tax Payable [Rounded Off]

96,00012,000

18,0006,000

-4,00020,00012,500exempt

84,00025,20058,80022,000

4,00,000

12,000

32,500

12,00033,465

36,800

4,12,000

32,5004,81,300

45,4654,35,8354,35,840

21,584 6,00027,584 82828,41228,410


2012 - June [6] (a) X and Y are two partners (1:2) of XY Enterprise, a firm engaged inmanufacturing chemicals. The profit and loss account of the firm for the year ended on31st March 2014 is as follows:

`̀̀̀ `̀̀̀

Cost of goods sold 43,00,000 Sales 63,00,000Salary to staff 8,89,800 Long-term capital gains 40,000Depreciation 80,000 Other business receipts 31,000Remuneration to Partners:

X 3,00,000Y 2,40,000 5,40,000

Interest on capital to partners @ 18%X 36,000Y 25,200 61,200

Other expenses 3,70,000Net Profit 1,30,000

63,71,000 63,71,000Other information:

(i) The firm completed all legal formalities to get the status of a ‘firm’.

(ii) The firm has given donation of `̀̀̀ 80,000 to a notified public charitable trustwhich is included in other expenses.

(iii) Salary and interest is paid to partners as per the partnership deed.

(iv) Depreciation allowable under section 32 is `̀̀̀ 78,000.(v) Income and investment of X and Y are as follows:

X Y

(`̀̀̀) (`̀̀̀)

Interest on company deposits 64,000 50,800Dividend from foreign companies 7,000 11,000Long-term capital gains 80,000 20,000Short-term capital gains 3,000 (-) 6,000Winnings from lotteries (gross) 4,000 10,000Contribution towards home loan account of the

National Housing Bank 40,000 60,000Find out the net income and tax liability of the firm and partners for the assessment year 2014-15. (9 marks)


Answer:

Computation of Net Income and Tax liability of the firm for the Assessment Year

2014-15

` `

Income of firm

Business incomeBook Profit (Refer W.N. No. 1) 732,400Less: Allowable Remuneration (Refer W.N. No. 2) 529,440 202,960Capital GainsLong Term Capital Gain _40,000

Gross Total Income 242,960

Less: Deduction under Section 80G; 50% of 20,296(Limited to 10% of adjusted total income of 2,02,960exclusive of Long-term Capital Gain) _10,148

Total Income 232,812

or 232,810

Tax Liability: on LTCG of ` 40,000 @ 20% 8,000On other income 1,92,810 @ 30% 57,843

65,843

Add: Education Cess & SHEC @ 3% 1,975

Tax (round off) 67,820

Income of X and Y X Y


Remuneration from firm 294,133 235,307Interest from firm to the extent allowed as deduction 24,000 16,800

Capital Gain

LTCG 80,000 20,000STCG 3,000 (6,000)income from other sources Interest from company deposits 64,000 50,800Dividend from foreign companies 7,000 11,000Winning from lotteries (fully Taxable) 4,000 _10,000

Gross Total Income 476,133 337,907

Less: Deduction 80C (40,000) (60,000)____________________________________________________________________

Total Income 436,133 277,907

____________________________________________________________________


Tax liability of X

Tax on LTCG of `. 80,000 @ 20% 16,000

Tax on Lottery income `. 4,000 @ 30% 1,200

Tax on other income of `. 3,52,130 15,213

32,413 Less: Rebate under section 87A 2,000

30,413Add: Education cess & SHEC @ 3% 913

Tax (rounded off) 31,330

Tax liability of Y

Tax on LTCG of `. 14,000 @ 20% 2,800

Tax on Lottery income `. 10,000 @ 30% 3,000

Tax on other income of `. 2,53,910 5,391

11,191

Less: Rebate under section 87A 2,0009,191

Add: Education cess & SHEC @ 3% 276____________________________________________________________________

Tax (rounded off) 9,470

W.N. 1

Computation of Book profitNet Profit as per profit and loss a/c 130,000Add: Inadmissible expenses Donation 80,000Depreciation 80,000Remuneration to partners 540,000Interest on capital in excess of 12% 20,400 720,400

850,400

Less: depreciation u/s 32 78,000

Long-term capital gain 40,000 118,000

Book Profit 732,400

2

Remuneration allowableFirst 3,00,000 @ 90% 2,70,000

On the balance ` 4,32,400 @ 60% 259,440

529,440


Remuneration to be distributed amongst partners in theration of 3,00,000: 2,40,000 i.e. 5: 4

X 2,94,133

Y 2,35,307

2012 - Dec [1] {C} (c) Ramesh, aged 66 years, sold a residential house at Pune for

` 20,00,000 on 1st October, 2013. This house was acquired by his father on 1st January,

1979 for ̀ 1,00,000. On the death of his father, he inherited the house on 5th July, 1986.

Fair market value of the house as on 1st April, 1981 was ̀ 1,40,000. He paid brokerage@ 1% to the real estate agent at the time of sale. He purchased a residential house at

Baramati on 7th March, 2014 for ̀ 8,00,000 and on 20th April, 2014 purchased bonds of

` 3,00,000 (redeemable after 3 years) of Rural Electrification Corporation Ltd.

His other incomes are ` 50,000. He deposited ` 10,000 in public provident fund.Compute the taxable income and tax liability of Ramesh for the assessment year 2014-15.Note: Cost inflation indices—

1981-82 : 100; 1986-87 : 140; and 2013-14 : 939. (5 marks)

Answer:

Computation of Taxable Income and Tax Liability of Ramesh

For the Assessment year 2014-15

`̀̀̀ `̀̀̀ `̀̀̀

Income under the Head Capital Gains

Full value of consideration 20,00,000

Less: Indexed cost of acquisition

` 1,40,000 × 9,39,000

Less: Brokerage 20,000 9,19,000

Long term capital gain 10,81,000

Less: Exemption u/s 54 8,00,000 2,81,000

Income from other sources 50,000


Less: Deduction under section 80C 10,000


Computation of Tax Liability

As the net income (other than the long term capital gain) is below the amount of firstslab which is not taxable (i.e. below the amount of first slab which is not taxable

(i.e.` 2,50,000), then the long term capital gain shall be reduced by the amount by whichthe total income (other than capital gain) falls short of the maximum amount which is not


chargeable to tax. Since in this case, normal income other than income from capital gain

is ` 40,000 only so long term capital gain for the purpose of calculation of Tax will be

2,81,000!(2,50,000!40,000)= ` 71,000

LTCG on ` 71,000 @ 20% 14,200

Less: Rebate under section 87A 2,000

12,200

Add: Education Cess & SHEC- @ 3% 366

TAX LIABILITY 12,566

2013 - June [2] (b) A partnership firm has two partners X and Y. They have contributed

` 6,00,000 each as capital and ` 2,00,000 each as loan. Partnership deed allowspayment of interest on loan as well as on capital @16% p.a. and remuneration of

`5,00,000 to each acting partner.If profits of the firm after paying interest but before deducting remuneration of partners

are ` 7,60,000, determine the total income of the firm. (6 marks)

Answer :

Determination of Total Income of the Firm

Profit after interest but before remuneration 7,60,000

Add: Interest on capital and loan@4% in excess of 12%

X: 4% on ` 8,00,000 i.e. capital + loan 32,000

Y: 4% on ` 8,00,000 i.e. capital + loan 32,000 64,000

8,24,000

Less: Remuneration to partnersOn first 3,00,000 of book profits @90% 2,70,000On remaining 5,24,000 @60% 3,14,400OrAs per deed , whichever is less

5,84,400

10,00,000 5,84,400

Business Income/ Total Income 2,39,600

2013 - June [3] (a) Sarita, aged 50 years received the following amounts during thefinancial year 2012-13:

`

Gross salary 5,50,000

Family pension (` 6,000 p.m. × 12) 72,000

She gets a gift of ` 75,000 from her maternal uncle on her birthday. She also gets gift

of ` 60,000 from her office colleagues on the same day. She deposited ` 50,000 inpublic provident fund account.Compute her tax liability for the assessment year 2013 - 14. (5 marks)


Answer :

Computation of Tax Liability of Sarita for the AY 2013-14

Income from SalaryIncome from Other SourcesFamily Pension 72,000

Less: deduction @33.33% or `15,000 whichever is less 15,000Gift from maternal uncleGift from unrelated person

57,000Exempt60,000

5,50,000

1,17,000


Less: deduction under section 80CPPF 50,000

TOTAL INCOME 6,17,000

Tax Liability

Upto ` 2,00,0002,00,001 to 5,00,000@ 10%5,00,001 to 6,17,000 @ 20%

Nil30,00023,400 53400

Add: Education cess@2%Add: Secondary and Higher Education Cess @1%

1,068534

Total Tax Liability [rounded off] 55,000

CS Inter Gr. I

DISTINGUISH BETWEEN

2008 - June [4] (b) Distinguish between the following:(ii) ‘Change in constitution’ and ‘succession of firm’. (5 marks)

Answer:Change in constitution of a Firm (Section 187 of the Income Tax Act): There is a changein the constitution of a firm if:(a) One or more of the partners cease to be partners or one or more new partners are

admitted; or(b) Where all the partners continue with a change in their respective shares or in the

shares of some of them.


Where at the time of making an assessment under Section 143 or 144, it is found thata change has occurred in the constitution of a firm, the assessment shall be made onthe firm as constituted at the time of making the assessment.

Succession of one firm by another firm (Section 188) where a firm carrying on abusiness or profession is succeeded by another firm and the case is not covered bySection 187, separate assessment shall be made on the predecessor firm and thesuccessor firm in accordance with the Provisions of Section 170 of the Act.

The Supreme Court laid down the following requisites of succession: (i) There is a change of ownership. (ii) The whole business is transferred.(iii) Substantially the identity and the continuity of the business are preserved.


2006 - June [3] Attempt the following:(iv) Discuss the special provisions relating to tax on income of foreign institutional

investors from securities or capital gains arising from their transfer. (5 marks)

Answer:

As per section 115AD, where the total income of a Foreign Institutional Investorincludes—(a) Income other than income by way of dividends referred to in section 115-O

received in respect of securities (other than unit referred to in section 115AB); or(b) Income by way of short-term or long-term capital gains arising from the transfer of

such securities,The income-tax payable shall be the aggregate of—(i) The amount of income-tax calculated on the income in respect of securities

referred to in clause (a), if any, included in the total income, at the rate oftwenty per cent;

(ii) the amount of income-tax calculated on the income by way of short-termcapital gains referred to in clause (b), if any, included in the total income, atthe rate of thirty per cent; However, the amount of income-tax calculated onthe income by way of short-term capital gains referred to in section 111A shallbe at the rate of ten per cent;

(iii) the amount of income-tax calculated on the income by way of long-termcapital gains referred to in clause (b), if any, included in the total income, atthe rate of ten per cent; and

(iv) The amount of income-tax with which the Foreign Institutional Investor wouldhave been chargeable had its total income been reduced by the amount ofincome referred to in clause (a) and clause(b)


Where the gross total income of the Foreign Institutional Investor—(a) consists only of income in respect of securities referred to in clause (a) of

sub-section (1), no deduction shall be allowed to it under sections 28 to 44C orclause (i) or clause (iii) of section 57 or under Chapter VI-A;

(b) includes any income referred to in clause (a) or clause (b) of sub-section (1), thegross total income shall be reduced by the amount of such income and thededuction under Chapter VI-A shall be allowed as if the gross total income as soreduced, were the gross total income of the Foreign Institutional Investor.

PRACTICAL QUESTIONS

2004 - June [2] (b) Determine the tax liability of Madhuri for the assessmentyear 2014-15 from the following particulars:

(i) Capital gains: `

Long term ` 2,50,000

Short term ` 1,11,000 3,61,000(ii) Business loss 45,000

She purchased National Savings Certificates for ` 12,000. (5 marks)

Answer:

Computation of Total Income of Madhuri for assessment year 2014-15


Business loss (45,000)

Capital Gain:

Short term 1,11,000Long term 2,50,000 3,61,000

Net Income 3,16,000Computation of tax liability.

Income from capital gain.

Income other then LTCG (3,16,000 - 2,50,000) 66,000Less: Basic Exemption Limit (2,00,000)

Short fall 1,34,000

Capital gain (LTCG) 2,50,000Less: Shortfall (1,34,000)

Taxable long term cap gain. 1,16,000

Tax @ 20% on LTCG on ` 1,16,000 23,200Less : Rebate u/s 87A 2,000

21,200 Add: Education cess @ 3% 636

Total Tax 21,836


2004 - June [3] (a) From the following particulars, compute the gross total income ofRadha for A.Y. 2014-15:

(i) She is employed on a part time basis in a fashion designing firm on a monthly

salary of ` 5,000.(ii) She has a house property situated in Delhi which has been let out at a rent of

` 3,000 p.m.(iii) She holds the following shares and securities:

— 1,000 Equity shares in X Ltd. of ` l0 each, bought @ ` 40 per share.

— ` 20,000, 8% ICICI Bonds.

— 1,000, 12% Preference shares of ̀ 100 each in Rosa Ltd. Dividend receivedon 25th March, 2014.

— X Ltd. declared 18% equity dividend on 25th March, 2014, but the chequewas received subsequent to 31st March, 2014. Other interest and dividendswere, however, duly received.

(iv) She had set up a factory with building, plant, machinery, furniture, etc. However,

she decided to give it on hire at a composite rent of ` 12,000 p.m.

During the year, she spent ̀ 15,000 for repairs and ̀ 5,000 for insurance of the factory.

The depreciation allowable is ̀ 50,000. She had borrowed ̀ 5,00.000 against mortgage

of these assets and paid ̀ 60,000 interest thereon. The amount was spent for marriageof her brother. (7 marks)

(b) Roger, a foreign national, furnishes the following data for the previous year ended

31st March, 2014: ` (i) Royalty from Indian concern under an

agreement made on 15th September, 2013approved by the central government 3,00,000

(ii) Expenditures as per sections 28 to 44C for earning such income 2,00,000(iii) Interest from an Indian company on money lent in foreign currency 6,00,000(iv) Expenditure on collection of above interest 50,000(v) Income from units of UTI purchased in foreign currency 5,00,000(vi) Collection charges for collecting above income 40,000(vii) Gross sale of business in India 30,00,000(viii) Expenditure as per sections 28 to 44C for above business 28,00,000(ix) Donations to Prime Minister National Relief Fund 6,00,000

Determine the total income of Roger for the assessment year 2014-15 and the taxpayable by him. (8 marks)


Answer:(a) ` `

Income from SalaryAnnual Salary (5000*12) 60,000Income from House PropertyAnnual rent (3000*12) 36,000Less: Statutory deduction @30% 10,800 25,200Income from other sourcesDividend on equity shares of X Ltd. ExemptDividend on preference shares ExemptInterest on bonds 1,600Rent of Building (12,000*12) 1,44,000Less: Expenses (15,000 + 5,000 + 50,000) 70,000 75,600Gross total income 1,60,800

(b) Computation of Total income and Tax Payable by Roger for the assessmentyear 2014-15Business in IndiaSales 30,00,000Less: Expenses u/s 28 to 44C 28,00,000 2,00,000Royalty 3,00,000Less: Expense Not allowed 3,00,000 5,00,000Income from other sourcesInterest on loan 6,00,000Less: Expenses Not allowed 6,00,000Income from units 5,00,000Less: Expenses Not allowed 5,00,000 11,00,000

Gross Total Income 16,00,000Less: Deduction u/s 80G (6,00,000)

Taxable Income 10,00,000Calculation of Tax Liability Tax @ 20% on 1000000 u/s 115A(I)(a) 2,00,000Add: Education cess @3% 6,000

Total Tax. 2,06,0002004 - June [5] (a) Chatterjee and Co., a firm of Company Secretaries at Kolkata, hasfurnished the profit and loss account for the year ended 31st March, 2014 as under:

` ` Expenses 1,65,000 Gross receipts from profession 2,20,000Depreciation on assets 45,000 Net loss 1,31,000Remuneration to partners 1,41,000

3,51,000 3,51,000


Additional information:

(i) Expenses include an amount of ` 22,500 being interest on capital to partners

credited @12% per annum on the balances and ̀ 22,500 being the expenditurenot allowable under section 37.

(ii) Depreciation as per the income-tax rules is ` 48,000.Compute the taxable income of the firm indicating the maximum permissible

remuneration and interest allowable to partners under the provisions of the Income-taxAct, 1961. (5 marks)

Answer:

Computation of total income and computation of Book Profits of R & Co.


`

Net Loss as per profit and loss (-) 1,31,000Less: Expenses not allowed 1,63,500Balance profits 32,500Less: Difference in depreciation as per income tax & book of a/c 3,000

Book Profits 29,500

Maximum Remuneration allowed is (90% of 29,500 or ` 1,50,000) whichever is more

Taxable Income ` 29,500

Less: Remuneration allowed ` 1,50,000

Loss to be carried forward ` 1,20,500

2004 - Dec [3] (a) Mrs. Kalyani, a retired central government employee, furnished thefollowing particulars:

Pension from employer: ` 16,000 per month upto 30th September, 2013 and

` 19,000 per month from 1st October, 2013 onwards.

Rent from house: ` 5,000 per month

Winnings from lottery (gross): ` 40,000

Contribution to public provident fund: ` 10,000

Medical insurance premium — Paid by cheque: ` 6,000

— Paid in cash: ` 4,500Expenditure incurred on medical treatment of her son being a person with

disability:` 32,000.Compute the taxable income and tax liability for the assessment year 2014-15

assuming that (i) she is aged about 60 years; and (ii) she is aged about 59 years.(5 marks)


Answer:

Computation of taxable income of Mrs. Kalyani for assessment year 2014-15

` `

Income from Salaries

Pension received (16,000*6 + 19,000*6) 2,10,000Less: Deduction Nil 2,10,000

Income from house property

Rent from house property 60,000Less: Statutory deduction @ 30% 18,000 42,000


Winning from lottery 40,000

Gross total income 2,92,000Less: Deduction u/s 80C 10,000

Deduction u/s 80D 6,000Deduction u/s 80 DD 50,000 66,000

Taxable Income 2,26,000Computation of Tax liability:

In both cases the taxable income excluding winning from lottery is less than the basicexemption limit, so tax will be computed only upon the lottery winning.Tax on lottery winning @ 30% 12,000Less: Rebate u/s 87A 2,000

10,000Add: Cess @ 3% 300Total Tax payable 10,300

2005 - June [2] (a) Jolly is an employee of a private limited company at Mumbai. Thefollowing particulars of his income for the year ended 31st March, 2014 have been

ascertained: `

(i) Basic salary per month 12,000(ii) Dearness allowance per annum (ad hoc, i.e.,

not provided in the terms of employment) 10,000(iii) Entertainment allowance per annum 10,000(iv) Employer's annual contribution to the provident fund 20,000(v) His own annual contribution to the provident fund 20,000(vi) Educational allowance per annum for his two

sons (for meeting the cost of their higher education) 7,400(vii) The company has hired a residential flat (unfurnished)

and allotted it to the assessee for his stay (No rent ischarged from him). Rent per month 3,500


(viii) Salary of domestic servant appointed by the employee is paid for the year by the employer 4,000

(ix) Gas and electricity bills paid during the year by thecompany on his behalf 6,000

(x) The company provided a sweeper at the assessee's residence. Monthly wages paid by the company 200

(xi) Interest from a nationalised bank received during the year 4,000(xii) Jolly also received gross income on units of a mutual

fund during the year 10,000A small motor car belonging to the company has been provided to the assessee

both for official and personal use and the company meets the entire expenses on thecar's maintenance and running.

Jolly had an insurance policy on his life for ` 50,000. He had paid the annual

premium of ` 6,000 for this policy during the year.Compute the total income of Jolly for the assessment year 2014-15 giving full

reasons for the treatment of each item. Also determine his tax liability. (12 marks)

Answer:

Computation of taxable income of Jolly for the assessment year 2014-15

`

Basic salary 1,44,000Dearness allowance 10,000Entertainment allowance 10,000Annual accretion to the PF in excess of 12% 2,720Children education allowance (7,400 ! 2,400) 5,000Valuation of rent free unfurnished accommodation 23,850

(WN1)Salary of domestic servant 4,000Gas & Electricity bills paid by the company 6,000Perquisite of sweeper 2,400Car @ 1800 p.m 21,600 2,29,570Income from other sourcesInterest from Bank 4,000Income from Mutual fund units exempts 4,000

Gross total Income 2,33,570Less: Deduction u/s 80C (20,000 + 6,000) (26,000)



Calculation of Tax Liability

Total Income 2,07,570(-) Basic Exemption Limit (2,00,000)

7,570Tax @ 10% on 7,570 757Less: Rebate u/s 87A 757

Tax Liability Nil

2006 - June [1] {C} (a) Arun, a citizen of India residing in Germany for the past 10years, came back to India for the first time during January, 2014. During the financialyear 2013-14, he received the following income:— He works in a company in Germany and earns a salary of Euro 1,000 per month;— He owns agricultural land near Bangalore and a residential house in Delhi which

has been let-out. While the agricultural income is being remitted to his account inGermany every year, the rental income of ` 84,000 is being deposited in his bankaccount at Delhi; and

— He also owns shares in various Indian companies and receives dividend everyyear, which has been regularly deposited in his bank account at Delhi.He seeks your advice as to taxability of the above income under the provisions of

the Income-tax Act, 1961 as he is an Indian citizen and earning income in India.(3 marks)

Answer:Mr. Arun is a non-resident under Income-tax Act, 1961 as he has been out of Indiacontinuously for the last 10 years. He does not satisfy any of the conditions of beingresident in India. Therefore, only the following income will be taxed in India.

(i) Incomes received or deemed to be received in India(ii) Incomes which accrue or arise or are deemed to accrue or arise in India

The following will be included in his taxable income:(i) Salary income will not form part of his taxable income in India since it is earned

and received abroad.(ii) The agricultural income, being exempt under section 10(1), will be included only

for the purpose of determining the rate of tax. The rental income received in Indiawill be included in his taxable income in India

(iii) Dividend received by him in India from Indian Companies is exempt u/s 10(34)2006 - Dec [1] {C} (a) A firm of Company Secretaries consisting of 3 partners earned

a net surplus of ` 2,08,000 during the accounting year ended 31st March, 2014 after

charging interest on capitals amounting to ` 36,000 calculated @ 18% per annum onthe capitals of partners but before charging remuneration to partners. You are requiredto calculate the taxable income of the firm and tax thereon after allowing the maximumallowable remuneration to partners under the provisions of the Income-tax Act, 1961.

(3 marks)


Answer:

Computation of taxable income of Firm for the assessment year 2014-15

Calculation of book profits

`

Net surplus as per profit and loss account 2,08,000Add: Disallowance of interest in excess of 12% 12,000

Book Profits 2,20,000Less: Remuneration allowed u/s 40(b)

On first ` 2,20,000@ 90% or ` 1,50,000 1,98,000Taxable income of firm 22,000

Tax on ` 22,000 @ 30% 6,600Add: Surcharge NilAdd: Education cess & SHEC 198

Total tax after rounding off u/s 288B 6,800

2006 - Dec [2] (a) A perusal of Rammohan’s bank account revealed the followingdeposits during the financial year 2013-14:

(i) Gift from his friend on 8th December, 2013 on his birthday: ` 12,000.

(ii) Dividends from shares of various Indian companies: ` 13,200.

(iii) Gift from his fiancee on 5th February, 2014: ` 85,000.

(iv) Gift from his mother’s friend on 7th July, 2013 on his engagement; ` 28,000.

(v) Gift from his sister in Netherlands on 29th September, 2013: ` 2,20,000.

(vi) Interest on bank deposits: ` 30,000.Compute his total income for the assessment year 2014-15 assuming that his

income from house property (computed) is ` 72,000. (5 marks)

Answer:

Computation of total income for the assessment year 2013-14

`

Income from house property 72,000


Gift from friend 12,000Gift from fiancée 85,000Gift from mother’s friend 28,000Gift from sister (Netherlands) Exempted —Dividend from shares exemptInterest on bank deposits 30,000 1,55,000

Gross total Income 2,27,000Less: Deduction NilTotal income 2,27,000


2006 - Dec [3] (b) Ronnie, a person with disability, submits the following information:

` Salary (per annum) 1,80,000Rent received (per month) 3,500Dividend from co-operative society 1,000Interest on bank deposits 8,000Interest on government securities 1,000Winnings from lotteries (gross) 4,000NSC (VIII Issue) purchased during the year 10,000Deposit under PPF Scheme 30,000

He earned a long-term capital gain of ` 12,000 on sale of gold during the year.Compute (i) taxable income; and (ii) tax payable by Ronnie for the assessment year2014-15. (7 marks)

Answer:

Computation of total income for the assessment year 2014-15

`

Income from salaryBasic salary 1,80,000Income from house propertyRent received (3,500*12) 42,000Less: Statutory Deduction @30% 12,600 29,400

Capital gainsLong term capital gain 12,000Income from other sourcesDividend income from co-operative society 1,000Interest on bank deposit 8,000Interest on government security 1,000Winning from lotteries 4,000 14,000Gross total Income 2,35,400

Less: Deduction U/s 80C to 80UNSC VIII issue purchased 10,000Deposit under PPF 30,000Under section 80U 50,000 90,000

Total income 1,45,400Calculation of Tax LiabilityWinning from lottery 1,200

(4,000 × 30%)Less: Rebate u/s 87A 1,200 Total Tax Liability NIL


Note: Long term capital gain can be adjusted upto the extent of income or amountwhich does not exceeds the basic exemption limit.Provision of Sec. 112. In the case of resident individual & HUF. If basic exemption limitis not exhausted by any other income then the long term capital gain shall be reducedby the unexhausted basic exemption limit and only the balance will be taxed @ 20% asLTCG.

In the above question the Total income as calculated is ` 1,45,400/-, Basicexemption being 2,00,000 and capital gain being 12,000 does not exceeds 2,00,000.So there will be no LTCG.

2006 - Dec [5] (b) Haryana Co-operative Society was constituted on 31st July, 1957.The society derived the following incomes during the previous year ended on 31st

March, 2014:`

Income from letting of godowns 50,000Dividends from other co-operative societies 10,000Agency business 56,000Processing of agriculture produce of its members 60,000Interest from members on delayed payment of the

price of goods purchased 10,000Income from house property 35,000Compute the total income of Haryana Co-operative Society for the assessment

year 2014-15. Note that the society is processing the agricultural produce without theaid of power. (8 marks)Answer:Computation of total income for the assessment year 2014-15

` `

Income from house property 35,000Letting of godowns 50,000 85,000Income from businessAgency Business 56,000Processing of goods 60,000 1,16,000Income from other sourcesInterest form members 10,000Dividends from others society 10,000 20,000Gross total income 2,21,000Deductions U/s 80PLetting of godowns 50,000Processing of goods 60,000Agency business 56,000Dividend from cooperative societies 10,000 176,000Total Income 45,000


2007 - June [1] {C} Attempt the following:(i) Anand & Sons is a partnership firm consisting of father and three sons. The

partnership deed provided that after the death of father, the business shall becontinued by his sons, subject to the condition that the firm shall pay 30% of theprofits to their mother. Father died on 31st March, 2014. In the previous year

2013-14, the reconstituted firm paid ` 1 lakh (equivalent to 30% of the profit) totheir mother and claimed the amount as deduction from its income. Examine thecorrectness of the claim of the firm. (3 marks)

Answer:

The issue raised in the provision is based on the concept of diversion of income byoverriding title, which is well recognized in the income tax laws. In the instant case, the

amount of ̀ 1 lakh, being 30% of the profits of the firm, paid to the mother gets divertedat source by charge created in her favour as per the terms of the partnership deed.Rather, such income stands diverted to other person as such other person has a bettertitle over the assessee. The firm might have received the said amount but it so receivedfor and on behalf of mother, who possesses the overriding title. Therefore, the amountpaid to the mother should be excluded from income of the firm.

2007 - June [5] (a) The income of an individual for the year ended 31st March,2014consists of the following:

`

(i) Business profits (Computed after claiming

deduction of ` 20,000 paid as donation to

a college and ` 6,000 as deposit in National Saving Certificates) 1,22,000

(ii) 25% Share of profit from a firm 50,000(iii) Interest on government securities 1,10,000(iv) Dividends on shares of Indian companies 2,000

Compute the total income and tax payable for the assessment year 2014-15, assuming

he has deposited ` 49,000 in the public provident fund. (7 marks)

Answer: Computation of total income for the assessment year 2014-15

` `

Profits and gains of business or profession

1. Business Profits 1,22,000Add: Donation 20,000Purchase of NSC 6,000 1,48,000

2. Share in profit from a firm [Sec. 10(2A)] Nil 1,48,000



1. Interest on government securities 1,10,0002. Dividend income from Indian

Company Exempt 1,10,000

Gross Total Income 2,58,000Less: Deductions1. U/s 80 C (49,000 + 6,000) 55,000

2. U/s 80G (50% of ` 20,300) 10,150 65,150


Tax payable Nil

Note:

Gross Adjusted Income = Gross total income – deduction u/s 80C= 2,58,000 - 55,000= 2,03,000

10% of the gross adjusted income = 20,300

2008 - June [2] (a) The net profits of Jolly Brothers, a partnership firm, consisting ofthree partners carrying on business for the accounting year ended 31st March, 2014 was

` 5,40,000. The said net profits after charging salary payable to all the partners were

amounting to ̀ 1,08,000, but before crediting interest to partners' accounts on their fixed

capitals amounting to ` 10 lakh totally. The partnership deed provided for payment ofinterest on fixed capital at 18% per annum.The partnership deed does not, however, specify any salary entitlement to partners. Onthis information, you are required to -

(i) compute the taxable income of the firm; and(ii) calculate the remuneration allowable under provisions of the Income-tax Act,

1961 to all the partners, if the partnership deed had provided for the payment ofremuneration to them. (5 marks)

Answer:

Computation of total income for the firm assessment year 2013-14

(i) Net Profit 5,40,000Add: Salary of partners 1,08,000

6,48,000Less: Interest allowable to maximum extent of

12% on `10,00,000 1,20,000Total Income 5,28,000


(ii) The allowable remuneration to partners if the partnership deed so authorize will becomputed as under

On 1st ` 3,00,000 @ 90% or ` 1,50,000whichever is more 2,70,000Balance @ 60% 1,36,800Maximum Remuneration allowed 4,06,800


Year 09J

09D

10J

10D

11J

11D

12J

12D

13J

13D

Practical 5 5 5

Total 5 5 5

3.206

Star Rating

On the basis of Maximum marks from a chapter j

On the basis of Questions included every year from a chapter jjjj

On the basis of Compulsory questions from a chapter jj

8 Filing of Returns, Signatures,

E-Filings, Assessment and

Reassessment

This Chapter Includes: Income-tax authorities - this appointment, jurisdiction andpowers, Procedure for assessment , Return of Income, E-filing of return, Allotmentof PAN, Regular assessment Re-assessment, Rectification of mistakes..


[Chapter #### 8] Filing of Returns, Signatures, E-Filings.. OOOO 3.207


OBJECTIVE QUESTIONS

2009 - June [1] {C} (a) State, with reasons in brief, whether the following statements arecorrect or incorrect.

(iii) Due date for filing of return of income of an individual is 31st July of the previousyear.

(vi) Return of income once filed cannot be revised. (1 mark)

Answer:

(iii) Incorrect: The due date for filing of return of income of an individual is 31st Julyof the assessment year.

(vi) Incorrect: As per section 139 (5) of the Income tax Act, 1961, if an assessee,after furnishing the return of income, discovers any omission or any wrongstatement in the return filed, he may furnish a revised return before the expiry ofone year from the end of the relevant AY or before the completion of theassessment, whichever is earlier.


(ii) Belated return can be filed within __________ from the end of the relevantassessment year. (1 mark)

Answer:

(ii) one year


(iv) A belated return of income can be filed at any time before the expiry of ______from the end of relevant assessment year. (1 mark)

Answer:

(iv) One year


(ii) The time limit for filing an appeal before the appellate tribunal on receipt of anappeal order from the Commissioner is _______ days. (1 mark)

Answer:

(ii) 30



(v) Tax return preparers are employees of income-tax department. (2 marks)

Answer:

(v) False: Tax return preparers are not the employees of Income Tax Department.They are independent professionals

2011 - June [1] {C} (b) Re-write the following sentences after filling-in the blank spaceswith appropriate word(s)figure(s):

(i) Belated return of income may be filed within________from the end of therelevant assessment year.

(iii) The amount of tax payable by the assessee and the amount of refund due, underthe provisions of the Income-tax Act, 1961 shall be rounded-off to the nearest________. (1 mark each)

Answer:

(i) One year

(iii) Multiple of `10


(v) Commissioner of Income-tax is appointed by __________. (1 mark each)

Answer:

(v) Central Government


(iv) The Commissioner (Appeals) may confirm, reduce or enhance the amount of taxassessed by the Assessing Officer.

(v) A partnership firm incurring loss need not to file return of income.(2 marks each)

Answer:

(iv) True: As per section 251, In an appeal against an order of assessment he mayconfirm, reduce, enhance or annul the assessment, or he may set aside theassessment and refer the case back to the Assessing Officer for making a freshassessment in accordance with the directions given by the Commissioner(Appeals) and after making such further inquiry as may be necessary, and theAssessing Officer shall thereupon proceed to make such fresh assessment anddetermine, where necessary, the amount of tax payable on the basis of suchfresh assessment.

(v) False: As per section 139(1), it is mandatory obligation on the firm to file returnof income or loss.



(iii) One is required to obtain a Permanent Account Number (PAN) whose total salesturnover or gross receipts are or is likely to exceed _______ in any previousyear. (1 mark)

Answer:

One is required to obtain a Permanent Account Number (PAN) whose total sales

turnover or gross receipts are or is likely to exceed ` 5,00,000 in any previous year.


(iii) The time limit for rectification of mistakes is a period of ____________ from theend of the financial year in which the order sought to be amended was passed.

(1 mark)

Answer :

(iii) 4 years.


(ii) Tax return preparers (TRPs) are employees of income-tax department.(1 mark)

Answer :

(ii) False, TRP’s may be an individual other than the person referred under section288(2)(ii),(iii),(iv) who has been authorized to act as TRP under Tax ReturnPrepare Scheme, 2006 and they are not the employee of the Income TaxDepartment.


(iv) A partnership firm incurring losses need not file return of income. (1 mark)

SHORT NOTES

2010 - June [2] (b)Write short notes on the following:(i) Belated return (3 marks)

Answer:

(i) Belated Return: [Sec. 139(4)]: if an assessee has not submitted his return ofincome on or before the due date, he can still file the return of income. Such areturn is called belated/late return. Belated return can be filed at any time beforethe expiry of one year from the end of the relevant assessment year or before

the completion of the assessment, whichever is earlier.


2010 - Dec [3] (b) Write notes on the following:(i) ‘Best judgement assessment’ under section 144 (4 marks)

Answer:

Section 144 provides that the Assessing Officer after taking into account all the relevantmaterial gathered by him, is under an obligation to make an assessment of the totalincome or loss to the best of his judgement in any of the following three cases:

(i) Where the person fails to make the voluntary return under section 139(1) andhas not made a return under section 139(4) or a revised return under section139(5); or

(ii) Where the person fails to comply with all the terms of a notice issued undersection 142(1) or failed to get the accounts audited under section 142(2A); or

(iii) Where the return has been made by the person but he does not comply with theterms of the notice issued under section 143(2)

The assessing officer shall give an opportunity of being heard to the assessee beforemaking the best judgment assessment.

2011 - June [5] (a) Write short notes on the following:(iv) Self-assessment (3 marks)

Answer:

Where any tax is payable on the basis of any return required to be furnished undersection 139 or section 148 or section 153A or, as the case may be, section 158BC, aftertaking into account the amount of tax, if any, already paid under any provision of thisAct, the assessee shall be liable to pay such tax, together with interest payable underany provision of this Act for any delay in furnishing the return or any default or delay inpayment of advance tax, before furnishing the return and the return shall beaccompanied by proof of payment of such tax and interest.

After a regular assessment under section 143 or section 144, or an assessmentunder section 158BC has been made, any amount paid under sub-section (1) shall bedeemed to have been paid towards such regular assessment or assessment, as thecase may be.

If any assessee fails to pay the whole or any part of such tax or interest or both inaccordance with the provisions of sub-section (1), he shall, without prejudice to anyother consequences which he may incur, be deemed to be an assessee in default inrespect of the tax or interest or both remaining unpaid, and all the provisions of this Actshall apply accordingly.

2011 - Dec [5] (a) Write short notes on the following:(iii) Circumstances in which best judgement assessment is made by the assessing

officer. (3 marks)


Answer:

The assessing officer shall after giving the assessee an opportunity of being heard,make the assessment to the best of his judgement in any of the following 3 cases:1. The assessee has failed to make the voluntary return under section 139(1) and has

not made a belated return under section 139(4) or revised return under section139(5)

2. There has been a failure to comply all the terms of a notice under section 142(1),requiring the assessee to produce accounts or other documents or informationspecified there in or fails to get the accounts audited under section 142(2A)

3. The return has been made, but the assessing officer considers it to be incorrect orincomplete and serves a notice under section 143(3) upon the assessee requiringhis appearance or the production by him of evidence in support of his return, butthe assessee does not comply with the terms of the notice.

2012 - June [4] (c) Write short notes on the following:(iii) Belated return of income under section 139(4) of the Income-tax Act, 1961.

(2 marks)

Answer:

Belated return of Income under section 139(4)

Any person who has furnished a return within the time allowed to him under sub-section(1),or within the time allowed under a notice issued under sub-section (1) of section 142,may furnish the return for any previous year at any time before the expiry of one yearfrom the end of relevant assessment year or before the completion of the assessment,whichever is earlier.

2012 - Dec [6] (a) Write short notes on the following:(i) ‘Best-judgment assessment’ under section 144

(iii) Due dates of filing of the return of income under the Income-tax Act, 1961.(2 marks each)

Answer:

(i) Please refer 2010 - Dec [3] (b) (i) on page no. 210

(iii) Due date for filling return of income

The time limit for filling of the return of Income by an assessee, if his total incomeof any other person in respect of which he is assessable exceeds the maximumamount not chargeable to tax shall be as follows:(a) Where the assessee is----

(i) a company,(ii) a person, other than a company, whose accounts are reqquired to be

audited under the Income-tax Act or any other law, for the time beingin force,


(iii) A working partner of a firm whose accounts are required to be auditedunder this Act or under any law for the time being in force, the 30th dayof September of the Assessment Year.

(b) In the case of an assessee being a company, which is required to furnish

a report referred to in section 92E, the 30th day of November of the

Assessment year.

(c) In the case of any other assessee, the 31st day of July of the Assessment

Year.

DISTINGUISH BETWEEN

2009 - June [3] (a) Distinguish between the following: (i) 'Scrutiny assessment' and 'best judgement assessment'. (2 marks)

Answer:

(i) Best Judgement Assessment, as the name indicates Best JudgementAssessment means the computation of income and tax is undertaken by the AOhimself, on the basis of the best of his judgement where as the purpose ofscrutiny assessment is to verify correctness of income declared by assessee.

Best Judgement Assessment are covered under section 144 of the Incometax Act, 1961 where as Scrutiny Assessment is covered under section 143(3) ofthe Income tax Act, 1961

2009 - Dec [3] (a) Distinguish between the following: (iii) ‘Compulsory best judgement assessment’ and ‘discretionary best judgement

assessment’. (4 marks)

Answer:

(iii) Compulsory best judgement assessment made by the assessing officer in casesof non co-operation on the part of the Assessee or when the Assessee is indefault as regards supplying information.

Discretionary best judgement assessment is done even in cases where theassessing officer is not satisfied about the correctness or the completeness ofthe accounts of the Assessee or where no method of accounting has beenregularly and consistently employed by the Assessee.

2010 - Dec [5] (a) Distinguish between the following:(ii) ‘Defective return of income’ and ‘belated return of income’. (4 marks)


Answer:

Belated Return -If an assessee has not submitted his return of income on or before thedue date, he can still file the return of income. Such a return is called belated/late return.Belated return can be filed at any time before the expiry of one year from the end of therelevant assessment year or before the completion of the assessment, whichever isearlier.

Defective Return- A return of income shall be regarded as defective unless all thefollowing conditions are fulfilled, namely:(a) the annexures, statements and columns in the return of income relating to

computation of income chargeable under each head of income, computation ofgross total income and total income have been duly filled in;

(b) the return is accompanied by a statement showing the computation of the taxpayable on the basis of the return

(c) the return is accompanied by the report of the audit obtained under section 44AB(d) the return is accompanied by proof of the tax, if any, claimed to have been

deducted at source and the advance tax and tax on self-assessment, if any,claimed to have been paid

(e) when the accounts of the assessee have been audited, the return is accompaniedby copies of the audited profit and loss account and balance and auditor’s report.

(f) where regular books of account are not maintained by the assessee, the return isaccompanied by a statement indicating the amounts of turnover or, as the casemay be, gross receipts, gross profit, expenses and net profit of the business orprofession and the basis on which such amounts have been computed, and alsodisclosing the amounts of total sundry debtors, sundry creditors, stock-in-trade andcash balance as at the end of the previous year.

(g) where regular books of account are maintained by the assessee, the return isaccompanied by copies of: (i) manufacturing account, trading account, profit and loss account or, as the

case may be, income and expenditure account or any other similar accountand balance sheet;

(ii) in the case of a proprietary business or profession, the personal account of theproprietor; in the case of a firm, association of persons or body of individuals,personal accounts of the partners or members; and in the case of a partner ormember of a firm, association of persons or body of individuals, also hispersonal account in the firm, association of persons or body of individuals;

Where the return is found to be defective, the Assessing Officer may intimate thedefect to the assessee and the assessee shall be required to rectify the defectwithin 15 days of such intimation or within such extended time as may be permittedby the Assessing Officer.


2011 - June [4] (b) Distinguish between the following:(iv) 'Belated return of income' and 'revised return of income'.

(v) 'Summary assessment' and 'scrutiny assessment'. (3 marks each)

Answer:

(iv) Please Refer 2013 - June [6] (a) on page no. 214

(v) ‘Summary assessment’ and Scrutiny assessment’ Under summary assessment, Assessing Officer completes the assessment without

passing a regular assessment order. The Assessing Officer issues an acknowledgment/intimation under section 143(1) of tax payable or refundable as the case may be on thebasis of Return of Income filed by the assessee under section 139 or in response to anotice issued under section 142 (1). The Assessing Officer (AO) processes the returnin the following manner:1. The total income or loss after making adjustment for any arithmetic error in the

return or for any incorrect claim which is apparent from any information in the returnis calculated

2. Then the tax and interest, if any, on the basis of the total income computed in step(1) is computed.

3. Now following adjustments are made to the tax and interest calculated above todetermine the sum payable by the assessee or any amount of refund due to him;• Tax deducted at source.• Any tax collected at source,• Any advance tax paid.

Under Scrutiny Assessment: The assessing officer may serve a notice undersection 143(2)requiring the assessee to submit the additional evidence to supportthe return of the income filed by him under section 139 or 142(1). The assesseecan also be asked to attend the office of the AO or produce the evidence by thedate mentioned in the notice. The AO then makes the assessment of total incomeor the loss of the assessee and determine the sum payable by him or refund dueto him. The assessment has to be made after taking into consideration suchevidence produced by the assessee and all relevant material gathered by him.

2013 - June [6] (a) Distinguish between the following.(i) ‘Belated return of income’ and ‘revised return of income’. (3 marks)

Answer :

(i) ‘Belated return of Income’ and ‘revised return of income’

Under section 139(4), if any person who has not furnished a return of income onor before the due date mentioned under sub-section 139(1), or within the timeallowed under a notice issued under sub-section (1) of section 142, may furnishthe return of income for any previous year at any time before the expiry of one


year from the end of the relevant assessment year or before the completion ofthe assessment, whichever is earlier.As per section 139(5) of the Income Tax Act, 1961, if an assessee afterfurnishing the return of income under Section 139(1), or in pursuance to a noticeunder Section 142(1), discovers any omission or any wrong statement in thereturn filed, he may furnish a revised return. Such revised return can be filed atany time before the expiry of one year from the end of the relevant assessmentyear or before the completion of the assessment, whichever is earlier.Belated return cannot be revised, as only return furnished u/s 139(1) or inpursuance of a notice u/s 142(1) can be revised.


2010 - June [2] (c) Discuss the procedure for rectification of mistakes under theIncome-tax Act, 1961. (4 marks)

Answer: If any order passed by an income tax authority suffers from a mistake apparentfrom the record, the assessee may make an application for rectifying the same beforethe expiry of 4 years from the end of the financial year in which the above order waspassed. The Finance Act has provided that where an application for rectification underthis section is made by the assessee on or after 1.6.2001, the same shall have to beacted upon by the income tax authority within a period of six months from the end of themonth in which the application is received.

2010 - June [5] (c) Describe the powers of Central Board of Direct Taxes (CBDT) underthe Income-tax Act, 1961. (4 marks)

Answer:

Since 1st January 1964 the Central Board of Direct Taxes (CBDT) has been chargedwith all matters relating to various direct taxes in India and it derives its authority fromCentral Board of Revenue Act, 1963. Following are the powers of CBDT:1. Instructions to subordinate authorities2. Orders issued by way of relaxation of certain provisions under section 119(2)(a)3. Orders giving extension of time limit [Section 119(2)(b)]4. Orders giving relaxation for claiming deduction [Section 119(2)(c )].

2010 - Dec [4] (b) Discuss the statutory obligations of an assessee to file the return ofincome and indicate the time-limits for filing the return. (5 marks)

Answer:

Section 139(1) of the Act contains the relevant provisions relating to the furnishing ofa return of income. It is statutorily obligatory for every person(a) Being a company


(b) Or being a person other than a company or firm to furnish a return of his totalincome or the total income of any other person in respect of which he is assessableunder the Income tax Act during the previous year

(c) Exceeds the maximum amount which is not chargeable to income tax.Further, in respect of individual, HUF,AOP, BOI, Artificial juridical person, filing ofreturn of income shall be compulsory if their gross total income before allowingdeductions under sections 10A, 10B or 10BA or Chapter VI A exceeds themaximum amount which is not chargeable to income tax. Due date for filing return of income:1. Where the assessee is-

(a) a company (b) a person other than company whose accounts are required to be audited

under the Income tax Act or any other law, for the time being in force(c) a working partner of a firm whose accounts are required to be audited

under this act or under any law for the time being in force the 30th day ofSeptember of the assessment year.

2. In the case of any other assessee, the 31st day of July of the assessmentyear.

2011 - Dec [1] {C} (c) What are the requisites for filing a revised return under theIncome-tax Act, 1961? (5 marks)

Answer:

1. As per section 139(5), the revised return can be filed before the expiry of one yearfrom the end of the relevant assessment year or before the completion ofassessment, whichever is earlier. Thus return of A.Y 2012-13 can be revised till31st March 2014 or before the completion of the assessment whichever is earlier.

2. Discovers any omission or any wrong statement in the return filed, he mayfurnished a revised return

3. If any person, having furnished a return under sub-section (1), or in pursuance ofa notice issued under sub-section (1) of section 142, discovers any omission or anywrong statement therein, he may furnish a revised return at any time before theexpiry of one year from the end of the relevant assessment year or before thecompletion of the assessment, whichever is earlier”.

2011 - Dec [6] (b) Discuss the procedure of regular assessment under the Income-taxAct, 1961. (5 marks)

Answer:

Assessment Procedure: Ascertaining total income is one major task of the procedureinvolved in levying tax on an assessee. The task of assessing the income returned anddetermination of tax liability is called ‘assessment’. The term ’assessment’ has been


used in the Income-tax Act meaning differently contexts. In certain situations, it refersto computation of income, sometimes to the determination of tax payable and in somecases to the whole procedure laid down in the Act of imposing tax liability on assessee.

Stages in Assessment: The following are the usual stages in the process ofassessment.1. Filing a Return2. Computation of taxable income3. Determination of Tax payable and issue of notice of Demand.4. The first stage in the process of assessment consists of (i) either the assessee on

his own filing a return of his total income5. The second stage is concerned with computation of taxable income of the

assessee.6. The third stage consists of determination of the sum payable by the assessee on

the basis of such computation and finally making the assessment order and issueof notice of demand specifying the same, if any, payable by the assessee or grantof refund to him.

Stages in Assessment Procedure:

1. Self-Assessment [Sec. 140A2. Summary Assessment [Sec. 143(1)]3. Scrutiny Assessment [Sec.143 (3)]4. Best Judgement Assessment [Sec.144 and 145(2)]

2012 - Dec [3] (c) For the previous year 2012-13, Ajit did not file the return of incomeon the due date. Can he file the return of income after due date? State in brief.

(2 marks)

Answer:

Filing of return of income after due date

Yes, as per section 139 (4), he can file a belated return at any time on or before31st March, 2015 (one year from the end of the assessment year 2013-14.

2012 - Dec [5] (d) The power of rectification of mistake lies with the authority whopassed the order. Explain briefly. (2 marks)

Answer:

Under Section 154 of the Income Tax, the power of rectification of mistake lies with theauthority who passed the order which is sought to be rectified. For instance, theAssessing Officer may amend any order of assessment or any other order passed byhim. Likewise the Commissioner or Commissioner ( Appeals) or any other Income TaxAuthorities mentioned under Section 116 may rectify any order passed by them.

2013 - June [2] (c) Under what circumstances the Assessing Officer is empowered toreopen the assessment made by him? Give examples. (4 marks)


Answer :

Income escaping Assessment or Reassessment under section 147

If the Assessing Officer has reason to believe that any income chargeable to taxhas escaped assessment for any assessment year, he may, subject to the provisionsof sections 148 to 153.

— assess or reassess income which has escaped assessment or— recompute the loss or the depreciation allowance or any other allowance, as

the case may be for the relevant assessment year.During the course of proceedings under section 147, if any other income

chargeable to tax has also escaped assessment for the relevant assessment year andit comes to the notice of the Assessing Officer, he can assess or reassess that incomealso.

Under the following circumstances the assessing officer may reassess the income,where an assessment has been made, but

— income chargeable to tax has been under assessed; or— such income has been assessed at too low a rate; or— such income has been made the subject of excessive relief under this Act; or— excessive loss or depreciation allowance or any other allowance under this

Act has been computed.

2013 - Dec [3] (b) What is ‘best judgement assessment’ ? Explain the provisions ofsection 144 in this regard. (4 marks)

PRACTICAL QUESTIONS

2009 - June [5] (c) Gaurav, aged 50 years, is an individual, whose gross total income

before deduction under section 80C is ` 2,10,000 and his total income after deduction

under section 80C is ` 95,000. Whether he is required to file return? (3 marks)

Answer:

Yes, he is required to file returnAs per section 139 (1) of the Act, every individual / HUF / AOP or BOI, whose totalincome during the PY without giving effect to provisions of section 10A or section 10Bor Chapter VI A exceeds the maximum amount which is not chargeable to income taxshall, on or before due date furnish a return of his income in the prescribed form and inthe prescribed manner.

Here, Gaurav’s GTI is more than maximum exemption limit (` 2,00,000), hence he isrequired to file return.


CS Inter Gr. I

SHORT NOTES

2004 - June [5] (b) Write a short note on 'time limit for completion of assessment orreassessment' under the provisions of the Income-tax Act, 1961. (5 marks)

Answer:

Section 153 prescribes time limit for completion of various assessments andreassessments which is mentioned in the following table:

1 Assessment u/s 143/144 24 months from the end of relevant AYin which the income was first asse-ssable. However in a case where thereference is made to Transfer PricingOfficer under sec. 92 CA (1), the periodof 24 months will be substituted by 36months.

2 Assessment or reassessment u/s 147 12 months from the end of the FY inwhich the notice u/s 148 was served onthe assessee.However in a case where the referenceis made to Transfer Pricing Officerunder sec. 92 CA (1), the period of 9months will be substituted by 24months.

3 Fresh assessment where originalassessment of income or fringebenefits has been set aside orcancelled by Appellate Authority u/s250, 254, or by CIT u/s 263 or 264

9 months from the end of the FY inwhich such order of set aside orcancelling the order passed by theappellate authority u/s 250 or 254 wasreceived by the CIT/ or order u/s 263 or264 was passed by the CIT, as the casemay be.However, in a case where the referenceis made to Transfer Pricing Officerunder sec. 92 CA (1), the period of 9months will be substituted by 21 monthsif such reference– (a) was made before 1-6-07 but order

is passed


(b) is made on or after 1-6-07 The Commissioner (Appeals) cannotcancel/ set aside the assessment andrefer back to the assessing officer forfresh assessment. However, it can beset aside by ITAT or commissionerunder section 263 or 264.

4 Where any proceeding initiated or theorder of assessment or reassessmentmade under section 153A (1) relatingto assessment of search cases hasbeen annulled in appeal or other legalproceedings and the assessment orreassessment relating to assessmentyear which was abated has revised

1 year from the end of the month ofsuch revival or within the time specifiedin this section i.e. section 153 or section153B (1), whichever is later.


(ii) Revised return of income. (4 marks)

Answer:

Revised Return [Section 139 (5)]If an assessee, after furnishing the return of income: (i) under section 139 (1), or (ii) in pursuance of to a notice under section 142 (1), discovers any omission or any wrong statement in the return filed, he may furnish arevised return. Such revised return can be filed at any time before the expiry of one year from the endof the relevant AY or before the completion of the assessment, whichever is earlier.Important points in this regard:• A return of loss submitted u/s 139 (3) can be revised u/s 139 (5).• A belated return filed u/s 139 (4) cannot be revised as section 139 (5) provides that

only return filed u/s 139 (1) or in pursuance to a notice under section 142 (1) canbe revised.

• Return filed within the period extended by CBDT can be revised.• It is possible to revise a revised return provided it is revised within the same

prescribed time.• Once a revised return is filed, the originally filed return must be taken to have been

withdrawn and substituted by the revised return.


2008 - June [1] {C} (a) Attempt the following:(iii) Write a short note on ‘signatory to return of income filed by an individual and

partnership firm’. (3 marks)

Answer:

As per section 140 of the IT Act, 1961, the return u/s 139 shall be signed and verified:

(i) In case of an individual –

(a) by the individual himself; or (b) where he is absent from India, by the individual himself or by some person

duly authorized by him on his behalf; or(c) where he is mentally challenged from attending to his affairs, by his guardian

or any other person competent to act on his behalf, and(d) Where, for any other reason it is not possible for the individual to sign the

return, by any person duly authorized by him.In case of (a) and (b) above, the person signing the return should hold a valid power ofattorney from the individual to do so, which shall be attached to the return.

(ii) In case of a partnership firm -

(a) by the managing partner; or(b) where for any unavoidable reason, such managing partner is not able to sign

and verify the return, or where there is no managing partner as such, by anypartner thereof, not being a minor.

DISTINGUISH BETWEEN

2007 - Dec [4] (a) Distinguish between the following:(ii) ‘Survey under section 133A’ and ‘search under section 132’. (4 marks)

Answer:

(ii) In the case of survey under section 133A reason to believe based on informationabout non-compliance/ concealment is not necessary whereas in the case ofsearch under section 132, such belief is a pre-condition. The powers undersection 133A can be exercised at the place of business only and that too duringnormal business hours whereas the powers under section 132 can be exercisedat any place at any time. The Assessing Officer has the power to break and openthe door, almirah etc under section 132 whereas this power is not availableunder section 133A. Similarly, the power to seize assets and valuables isavailable in the case of search under section 132 and it is not available in thecase of survey under section 133A.

2008 - June [4] (b) Distinguish between of the following:(iii) ‘Belated return’ and ‘revised return’ (5 marks)


Answer:

(i) If return is not filed within the due date mentioned in Sec 139(1), you can file thebelated return within one year from the end of relevant assessment year, it refersto a belated return whereas an assessee who is required to file a return ofincome is entitled to revise the return of income originally filed by him to makesuch amendments, additions or changes as may be found necessary by him.

(ii) Revised return may be filed by the assessee at any time before the assessmentis made whereas belated return has to be filed within one year from the end ofrelevant assessment year.


2004 - June [4] (c) Write a lucid note on 'best judgement assessment' with a suitableillustration. (5 marks)

Answer:

Section 144 of the Income Tax Act, 1961 provides for the Circumstances when bestjudgement assessments can be made:(a) if the person fails to make the return required u/s 139(1) and has not made a return

or revised return under sub-section (4) or (5) of that section.(b) If any person fails to comply with all the terms of a notice u/s 142(1) or fails to

comply with the direction requiring him to get his accounts audited in terms ofsection 142(2A)

(c) If any person, after having filed a return, fails to comply with the terms of a noticeu/s 143(2), requiring his presence or production of evidence and documents.

(d) If the AO is not satisfied about the correctness or the completeness of the accountsof the assessee or if no method of accounting has been regularly employed by theassessee.

Provided, however that such an opportunity shall be given by the Assessing Officer byserving a notice calling upon the assessee to show cause, on a date and time to bespecified in the notice, why the assessment should not be completed to the best of hisjudgement.

Provided further that it shall not be necessary to give such opportunity in a casewhere a notice under section 142(1) has been issued prior to the making of anassessment under this section.

2004 - Dec [4] (b) What is 'defective return'? What are the consequence and remediesavailable where such return is a defective return? (5 marks)


(c) With reference to the provisions of the Income-tax Act, 1961, critically examine theproposition that the 'Commissioner (Appeals) has no power to decide a matter that wasnot raised before him'. (5 marks)

Answer:

(b) A return of income shall be regarded as defective unless all the following conditionsare fulfilled, namely:

(i) the annexure, statements and columns in the return of income relating tocomputation of income chargeable under each head of income, computation ofgross total income and total income have been duly filled in;

(ii) the return is accompanied by a statement showing the computation of the taxpayable on the basis of the return

(iii) the return is accompanied by the report of the audit obtained under section 44AB(iv) the return is accompanied by proof of the tax, if any, claimed to have been


(v) when the accounts of the assessee have been audited, the return is accompaniedby copies of the audited profit and loss account and balance sheet and auditor’sreport.

(vi) where regular books of account are not maintained by the assessee, the return isaccompanied by a statement indicating the amounts of turnover or, as the casemay be, gross receipts, gross profit, expenses and net profit of the business orprofession and the basis on which such amounts have been computed, and alsodisclosing the amounts of total sundry debtors, sundry creditors, stock-in-trade andcash balance as at the end of the previous year.

(vii) where regular books of account are maintained by the assessee, the return isaccompanied by copies of- (1) manufacturing account, trading account, profit and loss account or, as the

case may be, income and expenditure account or any other similar accountand balance sheet;

(2) in the case of a proprietary business or profession, the personal account ofthe proprietor; in the case of a firm, association of persons or body ofindividuals, personal accounts of the partners or members; and in the caseof a partner or member of a firm, association of persons or body ofindividuals, also his personal account in the firm, association of persons orbody of individuals;

Where the return is found to be defective, the Assessing Officer may intimate thedefect to the assessee and the assessee shall be required to rectify the defectwithin 15days of such intimation or within such extended time as may be permittedby the Assessing Officer.36


(c) Section 251 of the Income Tax Act deals with the powers of the Commissioner(Appeals). According to sub-section (1) of section 251, in disposing of an appeal,the Commissioner (Appeals) shall have the following powers –

(a) in an appeal against an order of assessment, he may confirm, reduce, enhanceor annul the assessment;

(b) in an appeal against an order imposing a penalty, he may confirm or cancel suchorder or vary it so as either to enhance or to reduce the penalty;

(c) in any other case, he may pass such orders in the appeal as he thinks fit. Sub-section (2) of section 251 further provides that the Commissioner (Appeals)shall not enhance an assessment or a penalty or reduce the amount of refundunless the appellant has had a reasonable opportunity of showing cause againstsuch enhancement or reduction.

The Explanation to section 251 explains that in disposing of an appeal, theCommissioner (Appeals) may consider and decide any matter arising out of theproceedings in which the order appealed against was passed, notwithstanding thatsuch matter was not raised before the Commissioner (Appeals) by the appellant.

2005 - Dec [3] (b) What are the pre-conditions to be fulfilled for exercising revisionarypowers by the Commissioner of Income-tax under Section 263 of the Income-taxAct, 1961? Can he revise an order without affording an opportunity to the assessee?What is the time limit to exercise such powers? Briefly explain. (5 marks)

Answer:

The pre conditions/circumstances that must exist to enable the Commissioner toexercise the power of revision under section 263 of Income Tax Act, 1961 are: (i) Theorder should be erroneous; and (ii) by virtue of the order being erroneous, prejudicemust have been caused to the interest of the Revenue. If these preconditions exist, theCommissioner may call for and examine the record of any proceedings under this Actand he may pass such order enhancing or modifying the assessment or cancelling theassessment and directing a fresh assessment. Such order cannot be passed withoutgiving the assessee an opportunity of being heard. No order shall be made after theexpiry of two years from the end of the financial year in which the order sought to berevised was passed. In computing the period of two years limit, the time taken in givingan opportunity to the assessee to be reheard under section 129 and any period duringwhich revision proceeding is stayed by Court shall be executed. However, an order ofrevision may be passed at any time in the case of an order which has been passed inconsequences of or to give effect to finding or direction contained in an order of theAppellate Tribunal, the High Court or the Supreme Court.

2006 - June [1] {C} (e) When is a return of income regarded as a ‘defective return’ ?Can the assessee rectify the defect in return ? Explain. (3 marks)


Answer:

A return of income shall be regarded as defective unless all the following conditions arefulfilled, namely:(a) the annexure, statements and columns in the return of income relating to

computation of income chargeable under each head of income, computation ofgross total income and total income have been duly filled in;

(b) the return is accompanied by a statement showing the computation of the taxpayable on the basis of the return

(c) the return is accompanied by the report of the audit obtained under section 44AB(d) the return is accompanied by proof of the tax, if any, claimed to have been


(e) when the accounts of the assessee have been audited, the return is accompaniedby copies of the audited profit and loss account and balance sheet and auditor’sreport.

(f) where regular books of account are not maintained by the assessee, the return isaccompanied by a statement indicating the amounts of turnover or, as the casemay be, gross receipts, gross profit, expenses and net profit of the business orprofession and the basis on which such amounts have been computed, and alsodisclosing the amounts of total sundry debtors, sundry creditors, stock-in-trade andcash balance as at the end of the previous year.

(g) where regular books of account are maintained by the assessee, the return isaccompanied by copies of-

(i) manufacturing account, trading account, profit and loss account or, as the casemay be, income and expenditure account or any other similar account andbalance sheet;

(ii) in the case of a proprietary business or profession, the personal account of theproprietor; in the case of a firm, association of persons or body of individuals,personal accounts of the partners or members; and in the case of a partner ormember of a firm, association of persons or body of individuals, also his personalaccount in the firm, association of persons or body of individuals;

Where the return is found to be defective, the Assessing Officer may intimate thedefect to the assessee and the assessee shall be required to rectify the defectwithin 15days of such intimation or within such extended time as may be permittedby the Assessing Officer.

2006 - June [2] (b) What are the pre-conditions to be fulfilled for exercising revisionarypowers by the Commissioner of Income-tax under Section 263 of the Income-tax Act,1961 ? Can he revise an order without affording an opportunity to the assessee ? Whatis the time limit to exercise such powers ? Briefly explain. (5 marks)


Answer:

Please Refer 2005 - Dec [3] (b) on Page No. 224

2006 - June [3] Attempt the following:(iii) What is ‘self-assessment’ ? What are the consequences of non-payment of tax

on self-assessment ? (5 marks)

Answer:

As per section 140A of the Act, every person, before submitting a return of income u/s139/ 142 (1) / 148 / 153A, is under obligation to make a self – assessment of his incomeand after taking in account the amount of tax, if any, already paid, pay the self –assessment tax, if due.

The assessee shall be liable to pay such tax together with interest payable for anydelay in furnishing the return or any default or delay in payment of advance tax.

Procedure for making self – assessment –

(i) compute the total income;(ii) Calculate the tax payable on the total income at the applicable rates;(iii) Add surcharge, if applicable, on tax computed. (w.e.f. AY 2010-11, surcharge is

payable only by a company if its total income exceeds ` 1 crore)(iv) Add education cess @ 2% plus SHEC @ 1%(v) From the tax payable, deduct any relief u/s 89 / TDS / TCS / advance tax paid

etc.

Consequences of failure to pay whole or part of self – assessment tax – If the assessee fails to pay the whole or any part of such tax or interest or both, he shall,without prejudice to any other consequences which may incur, be deemed to be anassessee in default in respect of the tax or interest or both remaining unpaid and all theprovisions of the act shall apply accordingly, penalty u/s 221 would be one of them.

2006 - Dec [1] {C} (c) Explain briefly the provisions relating to time limit for completionof assessment or re-assessment under section 153 of the Income-tax Act, 1961.

(3 marks)

Answer:

Section 153 of the Income-tax Act, 1961 provides the time limit for completion ofAssessments and Reassessments. Accordingly the time limit specified in the saidsection is as under:

Relevant Section Type of Assessment/ReassessmentOrder

Time Limit

Section 153(1) Passing Assessment orders u/s143 or 144

Within 24 months from endof assessment year in whichincome was first assessable


Section 153(2) Making Assessment/Reassessment u/s147

Within 12 months from end ofFinancial year in which noticeu/s 148 is served

Section 153(3) Making assessment in pursuant oforder u/s 250,254,263, or 264setting aside or cancellingassessment

Within 12 months from end ofa financial year in whichorder u/s 250/254 is receivedby Commissioner or order u/s263, 264 is passed byCommissioner.

2006 - Dec [4] (b) What do you mean by ‘re-assessment’ ? State the provisions underthe Income-tax Act, 1961 relating to re-assessment. (5 marks)

Answer:

According to section 147, if the Assessing officer has reason to believe that any incomechargeable to tax has escaped to assessment for any assessment year, he may subjectto the provisions of section 148 to 153, assessment or reassessment of such incomeand also any other income chargeable to tax which has escaped to assessment andwhich comes to his notice subsequently in the course of the proceedings or recomputethe loss or the depreciation allowance or any other allowance, as the case may be, forthe assessment year concerned.

Before making the assessment, reassessment or recomputation u/s 147, theassessing officer shall serve on the assessee a notice requiring him to furnish the returnof income with such period as may be specified.The time limit for issuing notice u/s 148 shall be as under.If the escaped income is Upto 4 years from the end of the relevant

# ` 1,00,000 assessment year.If the escaped income is Beyond 4 years but upto 6years from the

$ ` 1,00,000 end of the relevant assessment year.16 years from end of relevant AY where the assessee is found to have any assetlocated outside India or financial interest in any entity outside India.

Where a notice u/s 148 is received by the assessee, the proper course for theassessee is to file a return in response to the same.

If the assessee desire, he can seek reasons from the Assessing Officer for issueof such notice. If the reasons are asked for, the Assessing Officer is obliged to supplysuch reasons to the assessee within a reasonable time.

2007 - June [2] (a) What are the circumstances under which assessing officer shallmake the ‘best judgement assessment’ under the Income-tax Act, 1961 ? (5 marks)


Answer:

As per section 144 of the Income Tax Act, 1961, in the following conditions, compulsorybest judgement assessment shall be made:Where any Person:1. Fails to file any return required to be filied u/s 139(I) or has not filed a belated

return or a revised return of his income, or2. Fails to comply with all the terms and conditions of the notice issued by the

Assessing Officer u/s 142 requiring the assessee to produce such accounts ordocuments that he might desire; or

3. Fails to get the accounts audited by an accountant nominated by theCommissioner or fails to submit a report of such audit in the prescribed time; or

4. Fails to comply with the accounting standards prescribed by the CentralGovernment in terms of section 145 (2).

5. Having filed a return, fails to comply with all the terms and conditions of the noticeissued to him, requiring the presence of the assessee or the production of evidenceon which the assessee may rely in support of the return. The Assessing officerwould make the assessment of the total income loss of the assessee to the bestof his judgement and determine the sum payable by the assessee or refundableto him on the basis of such assessment after taking into account all the relevantmaterials which he has gathered.

Provided, however, that such an opportunity shall be given by the Assessing officer byserving a notice calling upon the assessee to show cause, on a date and time to bespecified in the notice, why the assessment should not be completed to the best of hisjudgement.

2007 - June [3] (b) Briefly answer the following:(i) What do you mean by self-assessment? (1 mark)

Answer:

Every person before submitting a return of income u/s 139 or section 142(I) or section148 is under an obligation to make a self - assessment of his income and after takinginto account the amount of tax if any, already paid, pay the self - assessment tax due,if any. From Assessment year 2000 - 01, the provisions of self - assessment of tax willbe applicable to block assessment u/s 158 BC also. The assessee shall be liable to paysuch tax together with interest payable for any delay in furnishing the return or anydefault or delivery in payment of advance tax.The Procedure of self - assessment is as under:1. Compute the total income.2. Calculate the tax payable on the total income at the rates in force.3. Allow rebate, if any.4. Any surcharge as applicable on tax computed after allowing rebate.


5. Allow relief, if any.6. From the balance tax payable deduct tax deducted/collected at source as well as

advance tax paid.7. Add interest payable, if any.8. The above tax and interest payable should be paid as self - assessment tax before

filing of return of income.

2007 - Dec [1] {C} (b) Who are the persons qualified to be ‘tax return preparers’? Brieflyexplain the provisions of section 139B with regard to new scheme for submission ofreturns through tax return preparers. (5 marks)

Answer:

The Finance Act, 2006 has inserted a new section 139B with effect from 1.6.2006 whichenables the Central Government to frame a scheme by which specified class or classesof persons may file their return of income through a Tax Return Preparer. Tax ReturnPreparer (TRP) shall assist the specified class of persons in preparing their return ofincome and affix his signature on such return.

TRP for the purpose of this section means an individual authorized to act as a TRPunder the Scheme, but cannot include a Chartered Accountant, Lawyer entitled topractice in any civil court, an officer of a Scheduled Bank with which the assesseemaintains a current account or other account or an employee of the specified class ofpersons.

“Specified Class or Classes of Person”, for the purpose of this section, shall meanany person who is required to furnish the return of income under the income tax Act,1961 other than a company or a person whose accounts are required to be auditedunder Section 44AB or under other law for the time being in force. The Scheme framedby the board may provide for the following:

(i) Educational and other qualification to be possessed, training and otherconditions to be fulfilled by the person to act as TRP;

(ii) Code of Conduct for the TRP;(iii) Duties and obligations of the TRP(iv) The manner in which and the period for which the TRP shall be authorized;(v) Circumstances under which the authorizations given to the TRP may be

withdrawn.


(iii) Commissioner of Income-tax has powers only to revise order in favour of theassessee. (5 marks)


Answer:

Incorrect Statement: The Commissioner also has power under section 263 to reviseorders which are prejudicial to the revenue. The Commissioner may call for andexamine the record of any proceedings under the act, and if he considers that any orderpassed therein by the Assessing Officer is erroneous in so far as it is prejudicial to theinterests of the revenue. He may pass such orders thereon as the circumstances of thecase justify. He may pass an order enhancing or modifying the assessment or cancelingthe assessment and directing a fresh assessment. However, he has to pass an orderonly after giving the assessee an of being heard and after making or causing to bemade such enquiry as he deems necessary.



1 What is ‘self-assessment’? What are the consequences ofnon-payment of tax on self-assessment ?

06 - June [3] (iii), 7 June 3(b)(i) 2 Times

2 Write short notes on the following with reference to theprovisions of the Income-tax Act, 1961:Revised return of income.

07 - Dec [5] (a) (ii), 12 - June [4] (c) (iii) 2 Times

3 Write notes on‘Best judgment assessment’ under section144

04 - June [4] (c), 10 - Dec [3] (b) (i), 12 - Dec [6] (a) (i) 3 Times

4 Distinguish Between on ‘Belated return of income’ and‘revised return of income’.

11 - June [4] (b) (iv), 08 - June [4] (b) (iii),13 - June [6] (a) (i) 3 Times

5 What is ‘best judgement assessment’ ? Explain theprovisions of section 144 in this regard.

12 - Dec [6], 13 - Dec [3] (b) 2 Times



Year 09J

09D

10J

10D

11J

11D

12J

12D

13J

13D

Short Notes

Descriptive 5

Total 5

3.232

Star Rating


On the basis of Questions included every year from a chapter jjj


9 TDS and Other

Related Tax Matter

This Chapter Includes: Collection and Recovery of Tax; Payment of Income-tax;Refunds u/s 237 to 245; Settlement of Cases; Revision by the Commissioner;Appeals; Interest payable/Receivable under the Income-tax Act; Penalties under theIncome-tax Act; Offences and Prosecutions; Miscellaneous Matters.


[Chapter #### 9] TDS and Other Related Tax Matter OOOO 3.233


OBJECTIVE QUESTIONS


(iv) Advance tax is payable in___________ instalments by a non-corporate assessee. (1 mark)

Answer:

(iv) Three


(iii) It is obligatory for an assessee to pay advance tax where the amount of tax

payable is `______ or more. (1 mark)

Answer:

(iii) 10,000


(v) When the prize is given partly in cash and partly in kind, income-tax will bededucted from cash only. (1 mark)

Answer:

(v) True


(v) Sushil, a non-resident, received ` 18,000 by way of dividend from a foreign

company and the company deducted ` 2,000 by way of tax at source. Theamount includible in income of Sushil will be —

(a) ` 2,000

(b) ` 18,000

(c) ` 20,000(d) None of the above. (1 mark)

Answer:

(v) (b) ` 18,000



(i) The tax payable or refund due to an assesse is to be rounded off to thenearest________.

(iv) No deduction of tax at source will be made by a banking company under section194A with respect to aggregate amount of interest paid or payable on time

deposits during the financial year 2012-13, if it does not exceed `__________.(1 mark each)

Answer:

(i) Multiple of Ten Rupees

(iv) `10,000


(ii) The maximum amount which can be paid without deduction of tax at source fromwinnings from lotteries is__________ . (1 mark)

Answer:

The maximum amount which can be paid without deduction of tax at source from

winning from lotteries is ` 10,000/-.


(iv) Every person is liable to pay advance tax. (1 mark)

Answer:

False, advance tax shall be payable during a financial year, only when the amount of

such advance tax payable by the assessee during that year is ` 10,000 or more.


(ii) In case of winnings from horse races, payments exceeding ̀ ____________ aresubject to tax deduction at source at the rate of ____________ %.

(v) ____________ of advance tax is paid upto 15th September in previous year bya Hindu Undivided Family. (1 mark each)

Answer :

(ii) ` 5,000/-, 30%(v) 30%


(i) Tax is not deducted at source, from a resident person if payment/credit does not

exceed ` _________, in the case of bank interest. (1 mark)


SHORT NOTES

2011 - June [5] (a) Write short notes on the following:(ii) Consequences of failure to deduct tax at source (3 marks)

Answer:

If any such person and in the cases referred to in section 194, the principal officer andthe company of which he is the principal officer does not deduct or after deducting failsto pay the tax as required by or under this Act, he or it shall, without prejudice to anyother consequences which he or it may incur, be deemed to be an assessee in defaultin respect of the tax: Provided that no penalty shall be charged under section 221 fromsuch person, principal officer or company unless the [ Assessing] Officer is satisfied thatsuch person or principal officer or company, as the case may be, has without good andsufficient reasons] failed to deduct and pay the tax.

Without prejudice to the provisions of sub- section (1), if any such person, principalofficer or company as is referred to in that subsection does not deduct or after deductingfails to pay the tax as required by or under this Act, he or it shall be liable to pay simpleinterest at [ fifteen] per cent per annum on the amount of such tax from the date onwhich such tax was deductible to the date on which such tax is actually paid

Where the tax has not been paid as aforesaid after it is deducted, 3[ the amountof the tax together with the amount of simple interest thereon referred to in sub- section(1A)] shall be a charge upon all the assets of the person, or the company, as the casemay be, referred to in sub- section (1).

2011 - Dec [5] (a) Write short notes on the following:(iv) Consequences of failure to deduct tax at source. (3 marks)

Answer:

Failure to deduct the whole or part of the Tax at source (non-deduction, short deductionor delay in deduction)1. Failure to deposit whole or part of the TDS (non-deposit, short deposit or late

deposit)2. Failure to apply for TAN within the prescribed time limit or failure to quote TAN on

allotment as required under section 203A.3. Failure to furnish, in due time, TDS returns or TDS certificates or to deliver or

cause to be delivered a copy of declaration in form no. 15H/15G/27C/copy ofquarterly statement.

4. Failure to mention the PAN of the deductee in all quarterly statements as well asin all certificates furnished.


Default Under section Nature of Demand Quantum of Penalty/Demand

Failure todeduct TDS

201(1) Tax Demand Equal to tax amount deductiblebut not deducted

201(1A) Interest @1% p.m. of tax deductible

271 Penalty Equal to tax amount deductiblebut not deducted

2013 - June [6] (c) Write short notes on the following.(iii) ‘Pay-as-you-earn’ scheme. (2 marks)

Answer :

(iii) ‘Pay-as-you-earn’ scheme

Section 207 to 219 of the Income Tax Act contains the provisions relating toadvance payment of tax. The scheme of advance payment of tax is known aspay as you earn scheme. The income on which the assessee is required to payadvance tax is commonly known as income subject to advance tax and the taxpayable on such income is known as advance tax.As per section 208, advance tax shall be payable during a financial year in everycase where the amount of such tax payable by the assessee during that year,

as computed in accordance with the provision is ̀ 10,000 or more. An individualwho is of the age of 60 years or more and does not have any income chargeableunder the head profits and gains of business or profession during the previousyear is not required to pay advance tax.

2013 - Dec [6] (c) Write short notes on the following:(ii) Consequences of failure to deduct tax at source (2 marks)


2008 - Dec [1] {C} (c) What is meant by ‘pay-as-you-earn’ scheme? (3 marks)

Answer:

Sections 207 to 219 of the Income tax Act lay down the provisions relating to advancepayment of income-tax. The scheme of advance payment of tax is also known as‘pay-as-you-earn’. The income on which the assessee is required to pay advance taxis commonly known as ‘income subject to advance tax’ and the tax payable on suchincome is known as ‘advance tax’. The liability to pay advance tax arises during anyfinancial year, in accordance with the provisions of Sections 208 to 219, in respect ofthe total income of the assessee which would be chargeable to tax for the assessmentyear immediately following that financial year. Such income is, enumerated under


section 207, referred to as current income. As per section 208, advance tax shall bepayable during a financial year in every case where the amount of such tax payable bythe assessee during that year as computed in accordance with the provisions of this

chapter, is ̀ 10,000 or more. This scheme of advance payment of tax is also called payas you earn scheme, i.e., pay tax as you earn income.

2009 - June [4] (a) Who is liable to pay advance income-tax? On what dates theinstalments of advance tax are payable and what amount is to be paid under eachinstalment? (4 marks)

Answer:

Advance tax is paid by the all persons, both corporate assessee (company assessee)and non-corporate assessee (other than non-corporate assessee). The advance tax isto be paid in the following installments on the following dates. Every person whose tax

liability to pay tax in an year is `10,000 or more has to pay advance tax.However following are not liable to pay advance tax:1. An assessee who has opted for computation of Income u/s 44AD.2. Individual who is of 60 years or move and does not have any income chargeable

under head PGBP.

For Non-Corporate Assessee

Due Dates Amount of Tax payable

On or before 15 September - not less than 30% of tax payableOn or before 15 December - not less than 60% of tax payableOn or before 15 March - not less than 100% of tax payable

For Corporate Assessee


On or before 15 June - not less than15% of tax payableOn or before 15 September - not less than 45% of tax payableOn or before 15 December - not less than 75% of tax payableOn or before 15 March - not less than 100% of tax payableSince, the actual tax and actual income can be computed only after completion of theyear therefore, the income is estimated at different due dates mentioned above. The taxon such estimated income is computed and percentage of the tax as mentioned aboveis payable by the assessee at different due dates.

2009 - June [4] (b) What are the provisions regarding deduction of tax at source fromthe following incomes:

(i) Winnings from lottery(ii) Payment to a resident contractor(iii) Commission and brokerage(iv) Payment of rent. (2 marks each)


Answer:

(i) Winnings from Lottery (Sec. 194B) – The person responsible for paying to anyperson any income by way of lottery winnings or crossword puzzle, card game

and other game of any sort in an amount exceeding ` 10,000, shall, deductincome-tax thereon at the applicable rate at the time of payment of such income.Rate of TDS for the FY 2012 – 13 is 30%.

(ii) Payment to a resident contractor (Sec. 194C) – Any person responsible forpaying any sum to any resident contractor for carrying out any work (includingsupply of labour for carrying out any work) under a contract in pursuance of acontract between contractor and person, shall deduct income tax at the time ofsuch payment thereof in cash or by issue of a cheque or draft or by any othermode, whichever happens earlier.

No individual / HUF shall be liable to deduct income-tax on the sum paid toa contractor where such sum is credited or paid for personal purposes of suchindividual or any member of HUF.

(iii) Commission and Brokerage (Sec. 194H) – The person responsible for payingto a resident, the income mentioned below is required to deduct income-tax. Remuneration or reward whether by way of commission or otherwise– for soliciting or procuring insurance business, orfor continuance, renewal or revival of policies of insurance.Such tax will be deducted at the time of credit of commission income to theaccount of payee or the payment thereof in cash or by issue of a cheque or draftor by any other mode, whichever is earlier.

Rate of TDS:

Payee Rate of TDS

Resident person other than company 10%

Domestic Company 10%

No surcharge or cess will be added to the above mentioned rates.

(iv) Payment of Rent (Sec. 194I) - Section 194-I lays that any person (not being anindividual or HUF) responsible for paying rent to a resident or non-resident or toa resident is required to deduct tax at source.

The person responsible for paying rent should deduct tax at source either;at the time of credit of such income to the account of payee; orat the time of payment thereof in cash or by issue of a cheque or draft or by anyother mode, whichever is earlier.

Where any income by way of rent is credited to any account in the books ofaccount of the person liable to pay such rent, such crediting shall be deemed tobe credit of such income to the account of the payee. No tax is deductible if the


amount of rent credited/ paid during the Financial Year does not exceed

`1,80,000 shall be deducted at the following rate:• Where payment of rent is for land, building, furniture or fitting - 10%.• Where payment of rent is for use of plant, machinery or equipment - 2%

2009 - Dec [3] (b) What is the time-limit for deposit of ‘tax deducted at source’ (TDS)to the credit of Central Government ? (3 marks)

Answer:

Sections under whichdeduction is made

Person Time limit of deposit withCentral Government

1. Sum deducted undersection 193, 194A, 194C,194D,194E,194G,194H,194-I,194J,195,196A to196D

(A)Tax deducted by or onbehalf of the Government

(B)Tax deducted by or behalfof any other person:

(i) if the amount iscred i ted to theaccount of the payeeas on the date up towhich the account ofsuch persons aremade

(ii) in any other case

Same day of deduction:Within 2 months of theexpiration of the monthin which that date falls

Within 1 week for thelast day of the month inwhich the deduction ismade

2. Sum deducted undersections 192,194, 194B,194BB,194EE,194F and194K

(A) Tax deducted by or onbehalf of the Government(B) Tax deducted by or onbehalf of any other person:

Same day of deduction:Within 1 week for thelast day of the month inwhich the deduction ismade

2010 - June [4] (b) State the provisions regarding deduction of tax at source in respectof the following incomes:

(i) Winnings from horse races.(ii) Payment by way of fees or royalty for professional or technical services.(iii) Payment of compensation on acquisition of immovable property.

(2 marks each)

Answer:

(i) Winnings from horse races [Sec. 194BB]Any person responsible for paying income on winning from horse races shalldeduct tax @ 30% plus surcharge plus education cess. TDS is payable if the

amount of winning exceeds ` 5,000. Thus, no TDS on payment of ` 5,000 or less


(ii) TDS on Professional or Technical Fees [Sec 194 J] 1. Payment should be made by any person, except HUF & individuals 2. Tax to be deducted at the time of making due or making payment, whichever

is earlier. 3. Tax to be deducted @ 10 % plus surcharge plus education cess of total

amount.

4. TDS only if amount exceeds ` 30,000, during a financial year for each kindof payment separately

(iii) Section 194 LA applies to any person responsible for paying to a resident, anysum being in the nature of compensation or enhanced compensation orconsideration or enhanced consideration on account of compulsory acquisitionof any asset under any law for the time being in force. Such person, at all timeof payment of such sum in cash or by issue of a cheque or draft or by any othermode whichever is earlier, shall deduct an amount equal to 10% of such sum asincome tax on income comprised therein. However, no deduction shall be madewhere the amount of such payment or aggregate of such payments during the

financial year does not exceed ` 2,00,000.

2010 - June [6] (b) What are due dates of payment of advance tax in the case ofcorporate and non-corporate assessees? (3 marks)

(c) How is the liability to advance tax computed as per provisions of section 210?(3 marks)

(d) Explain the deductions which are available to an assessee under section 57 whilecomputing taxable income chargeable under the head ‘income from other sources’.

(3 marks)

Answer:

(b) For Non-Corporate Assessee


On or before 15 September - not less than 30% of tax payableOn or before 15 December - not less than 60% of tax payableOn or before 15 March - not less than 100% of tax payable

For Corporate Assessee


On or before 15 June - not less than15% of tax payableOn or before 15 September - not less than 45% of tax payableOn or before 15 December - not less than 75% of tax payableOn or before 15 March - not less than 100% of tax payable

Since, the actual tax and actual income can be computed only after completionof the year therefore, the income is estimated at different due dates mentioned above.The tax on such estimated income is computed and percentage of the tax as mentioned


above is payable by the assessee at different due dates.

(c) Advance tax is payable during a financial year where the amount of such tax

payable during the years is ` 10,000 or more.

Computation of Advance Tax

The amount of advance tax payable by an assessee in the financial year shall becomputed as follows:

1. Computation by an Assessee: Where the computation is made by the assesseefor payment of advance tax, he will estimate his current income keeping in viewprovision of Section 210. On such current income, income tax will be calculated atthe prescribed rate for financial year.

2. Computation by Assessing Officer: Where a person as already been assessedby way of regular assessment and who has not paid any advance tax, theAssessing Officer will take the total income of the latest assessed previous year ortotal income returned by assessee in any return of income furnished for anysubsequent previous year, whichever is higher. On such income, income tax willbe calculated at the prescribed rate for the financial year.

3. The income tax so calculated under (1) and (2) as the case may be shall bereduced by the amount of income tax deductable or collectable at source during

the said financial year.(d)The income chargeable under the head "Income fromother sources" shall be computed after making the following deductions, namely:-1. in the case of dividends, or interest on securities, any reasonable sum paid by

way of commission or remuneration to a banker or any other person for thepurpose of realizing such dividend or interest on behalf of the assessee;

2. in the case of income in the nature of family pension, a deduction of a sumequal to thirty-three and one-third per cent of such income or fifteen thousandrupees, whichever is less.Explanation.-For the purposes of this clause, "family pension" means a regularmonthly amount payable by the employer to a person belonging to the familyof an employee in the event of his death;

3. any other expenditure (not being in the nature of capital expenditure) laid outor expended wholly and exclusively for the purpose of making or earning suchincome.

2012 - Dec [5] (c) Describe the different modes of collection and recovery of income-tax. (4 marks)

Answer:

The Income Tax Act provides for collection and recovery of income tax in the followingways namely:


Collection of Income tax

(i) Deduction of tax at source in respect of income by way of salaries, interest onsecurities, other interest, wining from lotteries and crossword puzzles, winningfrom horse races, insurance commission, dividend, payment to contractors orsubcontractors and payment to non-resident.

(ii) Advance payment of income tax before the assessment made by the assesseehimself.

(iii) Self Assessment Tax i.e. Direct payment of income tax by the assessee. (iv) Payment made after the assessment is made by the Assessing Officer.

Recovery of Income Tax

(i) Issue of demand notice under section 156(ii) Certificate to be drawn by Tax recovery Officer (iii) Attachment of movable/immovable property (iv) Arrest of assessee(v) Appointment of receiver.

2013 - June [3] (c) Enlist the deductors for whom the e-filing of the statement of TDSis mandatory. (3 marks)

Answer :

E-Filing of quarterly statement of TDS is mandatory for the deductors where:1. The deductor is an office of the Government.2. The deductor is the principle officer of a company.3. The deductor is a person required to get his accounts audited u/s 44AB in the

immediate preceding financial year or.4. The number of deductees records in a quarterly statement for any quarter of the

financial year are twenty or more.Other than the above, any other deductor may also opt to furnish the statementelectronically.

2013 - June [6] (b) Explain the procedure regarding refund of excess tax paid by theassessee to the department. (5 marks)

Answer :

Procedure regarding refund of excess tax paid by the assessee to the department

Where an assessee has submitted any return of income and any refund of tax isdue, such refund shall be granted by the Assessing Officer on his own. The assesseeis not required to file any claim for such refund. Similarly, if any refund arises due to anorder of appeal, rectification of mistakes, revision by CIT or appeal to the High Court,the refund shall be granted by the Assessing Officer himself.

However, in any other case every claim for refund should be made in theprescribed form i.e. From No. 30 and should be verified in the prescribed manner. The


claim of refund should be made within one year of the last day of the relevantassessment year.

The delay in filing the claim may be condoned by the Assessing Officer and theclaim may be disposed off according to merits under certain circumstances. The claimfor refund may be presented by the claimant in person or through a duly authorisedagent or may be sent by post.

2013 - Dec [5] (c) When does a person become liable to pay advance tax? When doespayment of advance tax become due? (5 marks)

PRACTICAL QUESTIONS

2010 - Dec [4] (a) The tax payable for the assessment year 2014-15 by an individual

is ` 1,23,600. He has deposited the following amount as advance tax:Date of Deposit Amount Deposited.

(`)14th September, 2013 20,00015th December, 2013 60,00015th March, 2014 30,000

Compute the interest payable under section 234C. (5 marks)

Answer:

Calculation of Interest Payable under Section 234C

Tax Payable for the assessment year 2014-15 is ` 1,23,600 `

1. First installment payable on 15-09-2013 (1,23,600*30%) 37,080Less: Tax Paid 20,000

Shortfall 17,080

Interest payable @ 1% for 3 months (17,080*1%*3) 5122. Second installment payable on 15-12-2013 (123600*60%)-20000 54,160

Less: Tax Paid 60,000

Shortfall Nil

Interest payable Nil3. Third installment payable on 15-03-2014 (123600*100%)-80,000 43,600

Less: Tax Paid 30,000

Shortfall 13,600

Interest payable @ 1% for 1 months (13,600*1%*1) 136

Total Interest Payable 648

Rounded off 650


2011 - Dec [3] (b) Narayan had to pay ` 1,13,300 as advance tax during the financialyear 2013-14. He has deposited the amount of advance tax as follows:

Date `̀̀̀

15.09.2013 29,76015.12.2013 36,40015.03.2014 47,140

Is he liable to pay any interest under section 234C? If yes, determine the amount ofinterest payable by him. (5 marks)

Answer:

Calculation of Interest Payable under section 234C by Shree Narayan

Amount to be payable as advance tax at the time ofFirst instalment (15.09.2012)(113300*30%) 33,990

Less: Amount actually paid

Short Fall

Interest Payable on short fall (4230*1%*3months)

29,760

4,230

126.9

Amount to be payable as advance tax at the time ofSecond Installment [15.12.2012] (113300*60%} 67,980

Less: Amount actually paid

Short Fall

Interest Payable on short fall(1820*1%*3months)

66,160

1,820

54.6

Amount to be payable as advance tax at the time of

third instalment [15.03.2012](113300*100%]Less: Amount actually paid

Short Fall

1,13,3001,13,300

Nil

Total Interest Payable under section 234C 182

2012 - June [4] (b) An HUF has estimated the following income for the financial year2012-13:

`̀̀̀

Rent from house property 1,80,000Income form cloth business (taxable) 4,85,500Interest from savings bank account 9,800Dividend on shares of Reliance Industries Ltd. 6,500

Income of one of the member Kamlesh is taxable. Another member of the family

Saraswati is disabled and the family spent on her medical treatment ` 20,000. A


donation of ` 10,600 is also given by the family to National Children’s Fund.Determine the amount payable as advance tax on prescribed dates during the financialyear 2012-13. (5 marks)

Answer:

Computation of Total Income for the Financial Year 2013-14

` `


Rent Received 1,80,000

Less: 30% as Standard Deduction 54,000 1,26,000

Income from Business & Profession

Income from Cloth Business 4,85,000


Bank Interest 9,800

Dividend (Exempt)


Less: Deduction under Section 80DDLess: Deduction under Section 80G (Donation) 10,600 ×50%

50,000

5,300 (55,300)


Computation of Tax (As per Tax Rates for 2013-14)

-

30,000

13,200 1,296

Tax on First ` 2,00,000

Tax on Next ` 3,00,000 @ 10%

Tax on Next ` 66,000 @ 20%

Add: Education Cess 3%

Total Tax Payable 44,496


Advance Tax Instalments:

15th September 2012 or before 30% of `44,496 13,349

15th December 2012 or before 30% of ` 44,496 13,349

15th March 2013 or before 40% of ` 44,496 17,798

Total 44,496

2012 - Dec [3] (a) Compute the advance tax payable by Rohan from the followingestimated income submitted for the financial year 2012-13:

`

(i) Income from salary 5,80,000(ii) Rent from house property (per annum) 3,60,000(iii) Interest on government securities (gross) 25,000(iv) Interest on saving bank deposits 3,000(v) Receipt from horse race (net) 14,000(vi) Agricultural income 90,000(vii) Contribution towards PPF 60,000

Tax deducted at source by the employer on salary is ` 37,080. (7 marks)

Answer:

Computation of Estimated Total Income for the Previous Year 2012-13

` `

Income from Salary 5,80,000


Rent received 3,60,000

Less: Statutory deduction u/s 24(a) 30% 1,08,000 2,52,000

Income from Other Sources

Interest on Government securities 25,000

Interest on Bank Deposit 3,000

Horse Races (Gross) 20,000 48,000

Estimated Gross Total Income 8,80,000

Less: Deduction under section 80C 60,000

8,20,000


Estimated Tax

Step 1: Add ( Agricultural income+Non-Agricultural income)(90,000+8,20,000) = 9,10,000

Tax on Income from Horse Race of ` 20,000 @ 30% 6,000

Balance income of ` 8,90,000 1,08,000

1,14,000

Step 2: Add maximum exemption limit to agricultural income2,00,000 + 90,000 = 2,90,000

Tax on ` 2,90,000 7,000

Step 3: Tax on non- agricultural income Tax under step-1 ! Tax under step-21,14,000 !7,000 1,07,000

Estimated tax payable 1,07,000

Add: Education cess & SHEC @3% 3,210

1,10, 210

Less: Estimated TDSOn salaryOn horse races

37,080 6,000 43,080

Advance tax payable (rounded off) 67,130

Working notes:

Computation of gross winnings fron horse races: `

Net Amount 14,000

Grossing up 14,.000 × 20,000

Tax deduced at source

(Gross amount ` 20,000 ! Amount received ` 14,000) 6,000

2013 - June [4] (a) Smt. Juhi (resident in India and aged 82 years) has estimated thefollowing taxable incomes for the financial year 2012-13:

`

Income from business 12,00,000Long-term capital gains on 10th October, 2012 80,000Interest (gross) from a branch of Syndicate Bank (FDR) 20,000Dividend 30,000Interest on savings bank a/c 8,000

13,38,000


— She paid life insurance premium on her own life 25,000— She made deposit in public provident fund 70,000— Paid to Prime Minister’s National Relief Fund 30,000— Health insurance premium paid in cash 12,000Determine the amount payable as advance tax on prescribed dates during thefinancial year 2012-13 (assessment year 2013-14). (5 marks)

Answer :

Computation of Tax Liability for the


` `

Income from Business 12,00,000Income under the head Capital Gain- Long Term Capital Gain 80,000Income from other sources- Interest from a branch of Syndicate Bank (FDR) 20,000- Dividend (Working Note No.1) Exempt- Interest on saving bank a/c 8,000 13,08,000


Less: Deduction under section 80C to 80U

• Section 80C: Life Insurance Premium 25,000Public Provident Fund 70,000

• Section 80D: Health Insurance Premium NIL (Working Note No.2)

• Section 80G: Prime Minister’s National Relief Fund (allowed 100% without qualifying limit) 30,000

• Section 80TTA: Interest on saving account 8,000 1,33,000Total Income 11,75,000

Tax Liability:

Upto ` 5,00,000 NIL

` 5,00,000 to ` 10,00,000 @ 20% 1,00,000

` 10,00,001 to ` 10,95,000 @ 30% 28,500 1,28,500

Long Term Capital gains tax @ 20% on ` 80,000 16,0001,44,500

Add: Education cess @ 2% and SHEC@1% 4,335

Total tax liability (rounded off) 1,48,840

Computation of Advance Tax Liability (Rounded Off)

On or before the 15th September 2012 : Not lessthan 30% of advance tax liability without LTCG(1,48,840-16,480) = 1,32,360 x 30% 39,710


On or before 15th December 2012 : Not lessThan 60% minus amount already paid = (1,48,840 × 60%)On or before 15th March 2012 : 100% of = !39,710 49,590Advance tax liability minus amount already paid = 1,48,840

!89,300 59,540

Advance Tax Liability

The provisions of advance tax shall not apply to an individual resident India, who— does not have any income chargeable under the head “Profits and gains of

business of professions.”— is of the age of sixty years or more at any time during the previous year.

Here, smt.Juhi has business income therefore she is liable to pay advance tax.

Working Notes

(1) It is assumed that dividend is received from Indian company and hence exemptunder section 10(34).

(2) Deduction under section 80D on account of health insurance premium shall notbe available as the payment is made in cash.

(3) As per provision to section 234C(1)(b), no interest shall be leviable for shortfall inpayment of instalment of advance tax where such shortfall is on account ofunder-estimate or failure to estimate the amount of capital gains. Therefore, if anysuch income arises after the due date of any instalment, then the entire amountof tax payable on such capital gain should be paid in remaining instalment ofadvance tax which are due or where no such instalment is due by 31st March ofthe relevant financial year.

2013 - Dec [5] (a) Compute the tax payable, additional income tax payable and penaltypayable under section 271(1)(c), if any, for the assessment year 2013-14 from thefollowing:

`

Income as per return of income submitted for

assessment year 2013-14 1,80,000

Additions made under section 143(3):

On question of fact 1,00,000

On question of law 30,000

Intangible additions 20,000 1,50,000

Total income assessed 3,30,000

(5 marks)


CS Inter Gr. I


2004 - June [1] {C} (d) Mention the penalty imposable under the following cases:(i) Failure to pay tax deducted at source.(ii) Failure to get accounts audited as required under section 44AB.(3 marks)

Answer:

(i) Failure to pay tax deducted at source: [Sec. 276B] If a person fails to pay tothe credit of the Central Government, the tax deducted at source by him, he shallbe deemed to be an assessee in default in respect of the tax and shall be liableto penalty under Section 221 of the Income Tax Act.

(ii) Failure to get accounts audited as required under section 44AB: [Sec.271B] If any person fails to get its accounts audited in respect of any previousyear or years relevant to an assessment year or furnish a report of such personshall pay, by way of penalty, a sum equal to ½% of the total sales, turnover orgross receipts as the case may be, in business, or of the gross receipts in

profession, in such previous year or years or a sum of ` 1.5 lakhs which ever isless.

2004 - June [1] {C} (e) Explain the provisions of the Income-tax Act, 1961 regarding taxdeduction at source on rent. (3 marks)

Answer:

Section 194-I lays that any person (not being an individual or HUF) responsible forpaying rent to a resident or non-resident or to a resident is required to deduct tax atsource.The person responsible for paying rent should deduct tax at source either:(a) at the time of credit of such income to the account of payee; or(b) at the time of payment thereof in cash or by issue of a cheque or draft or by any

other mode, whichever is earlier.Where any income by way of rent is credited to any account in the books of

account of the person liable to pay such rent, such crediting shall be deemed to becredit of such income to the account of the payee. No tax is deductible if the amount of

rent credited/paid during the Financial Year does not exceed ` 1,80,000 tax shall bededucted at the following rate:(a) For the use of any machinery or plant or equipment: @ 2%(b) For the use of other assets: @ 10%


2004 - June [5] (c) Briefly explain the provisions with regard to 'payment of advance tax'under the Income-tax Act, 1961. (5 marks)Answer:Advance tax is payable during a financial year where the amount of such tax payableduring the years is ` 10,000 or more. However not payable by assessee opted for Sec44AD and individual above 60 years of age with no PGBP income.For Non-Corporate AssesseeDue Dates Amount of Tax payableOn or before 15 September - not less than 30% of tax payableOn or before 15 December - not less than 60% of tax payableOn or before 15 March - not less than 100% of tax payableFor Corporate AssesseeDue Dates Amount of Tax payableOn or before 15 June - not less than15% of tax payableOn or before 15 September - not less than 45% of tax payableOn or before 15 December - not less than 75% of tax payableOn or before 15 March - not less than 100% of tax payableIf the last day for the payment of any installments of advance tax is a day on which thereceiving bank is closed, the assessee can make the payment on the next immediatelyfollowing working day, and in such case the mandatory interest leviable under section234B and 234C would not be charged.2004 - Dec [1] {C} (c) Who is responsible to collect tax at source? When tax has to becollected at source? (3 marks)

Answer:

Under Section 206C of the Income Tax Act, 1961, in some cases tax has to be collectedat source. Every person, being a seller, shall collect tax from the buyer of goodsspecified in section 206(1).

Seller means the central government, a state government or any local authority orcorporation or authority established by or under a central, state or provincial act, or anycompany, or firm or cooperative society. However, it includes an individual, or a HUFwhose books of account are required to be audited under section 44AB during thefinancial year immediately preceding the financial year in which goods are sold, w.e.fJune 1, 2003

Buyer means a person who obtains in any sale, by way of auction, tender or anyother mode, goods of the nature specified in section 206(1) or the right to receive anysuch goods. But it does not include a public sector company and a buyer in further saleof such goods obtained in pursuance of such sale. Tax has to be collected at source bythe seller at the time of debiting of the amount payable by the buyer to the account ofthe buyer or at the time of receipt of such amount in cash or by issue of cheque/draft,or by any other mode, whichever is earlier.


2005 - June [2] (b) Discuss the provisions of the Income-tax Act, 1961 regardingpenalties imposed in the following cases:

(i) For concealment of income.(ii) For failure to get his accounts audited as directed under section 142(2A).

(3 marks)

Answer:

(i) For concealment of income: under Section 271(1)(c ) of the Act, concealmentof particulars of income or furnishing of inaccurate particulars of income willattract a minimum penalty of 100% of the tax sought to be evaded.

(ii) For failure to get his accounts audited as directed under section 142(2A):

If the Assessing Officer having regard to the nature and complexity of theaccounts of the assessee and in the interest of revenue, direct the assessee toget his accounts audited by a Chartered Accountant nominated by ChiefCommissioners or Commissioner and furnish a report of such audit, but theassessee fails to do so under Section 142(2A). In addition to any tax payable by

him, a sum of `10,000 for each such failure may be imposed by way of penaltyby the Assessing Officer or the Commissioner (Appeals) or the Commissioner.

2005 - June [5] (c) Explain the provisions regarding deduction of tax at source onpayment to contractors. (3 marks)

Answer:

Every person is required to deduct tax at source on payment made to contractors. Asper section 194C, the following person shall be required to deduct tax at source in casethe payment is made by them to any resident contractor:(a) the central or state government;(b) any local authority;(c) any corporation established by or under a central, state or provisional act;(d) any company;(e) any cooperative society;(f) any authority constituted in India or under any law, engaged either for the purpose

of dealing with satisfying the needs for housing accommodation or for the purposeof planning, development or improvement of cities, towns and villages or both;

(g) any society registered under the Societies Registration Act, 1860 or under anysuch corresponding laws;

(h) any trust;(i) any university or deemed university;(j) any firm.This section is not applicable where the contract is between individual/ HUF and acontractor.


2005 - Dec [1] {C} (e) State the provisions of the Income-tax Act, 1961 for claiming theinterest on the delayed refunds and also indicate the method of calculation of interestthereon. (3 marks)

Answer:

Section 244A where in pursuance of any order passed under the Act, refund of anyamount become due to the assessee, he shall be entitled to receive, in addition to thesaid amount, simple interest thereon @ 0.5% per month, calculating in the followingmanner:

(i) Refund of Advance tax, tax deducted or collected at source: From the first dayof Assessment Year to the date of grant of refund

(ii) In any other case, such interest shall be calculated at the rate of 1.5% for everymonth comprised in the period or periods from the date or as the case may bedate of payment of the tax or penalty to the date on which the refund is granted.

Interest is payable if the amount of refund is less than 10% of the tax determined.

2005 - Dec [2] (b) When and how tax is to be deducted at source on the income fromwinnings from lotteries or crossword puzzles under Section 194B of the Income-tax Act,1961? (5 marks)

Answer:

As per section 194B of the Income tax Act, 1961, the person responsible for paying toany person any income by way of winnings from lotteries or crossword puzzles or card

game or any other game of any sort, an amount exceeding ̀ 10000, shall deduct tax atthe prescribed rate at the time of such payment and a statement in Form No. 26B hasto be filed by the end of the month of May falling in the financial year immediatelyfollowing the previous year. Rate of TDS shall be 30% (plus surcharge as applicable +education cess)

Where the prize is given is given partly in cash and partly in kind, tax will bedeductible from cash prize, with reference to aggregate amount of cash prize and thevalue of the prize in kind. While the winnings are wholly in kind or where they are partlyin cash and partly in kind but the part is not sufficient to meet the liability for taxdeduction in respect of the whole of the winnings, the person responsible for payingshall, before releasing the winning either in cash or in kind, ensure that tax has beenpaid in respect of the winnings.

2005 - Dec [5] (b) Discuss the powers of the Settlement Commission to grant immunityfrom prosecution and penalty under section 245H of the Income-tax Act, 1961.Underwhat circumstances can the immunity granted be withdrawn? (5 marks)

Answer:

Settlement Commission may, if it is satisfied that any person who made the applicationfor settlement under section 245C has cooperated with the Commission in theproceedings before it, and has made a full and true disclosure of his income and the


manner in which such income has been derived, grant to such person, subject to suchconditions as it may think fit to impose, immunity from prosecution for any offence underthis Act or under the Indian Penal Code or under any other central Act for the timebeing in force and also from the imposition of any penalty under this Act, with respectto the case covered by the settlement.

However, the Settlement Commission in cases shall grant no such immunity wherethe proceedings for any such offence have been instituted before the date of receipt ofthe application under Section 245C. An immunity granted to a person shall standwithdrawn if such person fails to pay any sum specified in the order of settlement withinthe time specified in such order or fails to comply with any other condition subject towhich the immunity was granted and there upon the provisions of this Act shall applyas if such immunity had not been granted.

An immunity granted to person may, at any time, be withdrawn by the Commission,if it is satisfied that such person had, in the course of settlement proceedings, concealedany material particulars to the settlement or had given false evidence, and there uponsuch person may be tried for the offence with respect to which the immunity wasgranted or for any other offence of which he appears to have been guilty in connectionwith the settlement and shall also become liable to the imposition of any penalty underthis Act to such person would have been liable, had not such immunity been granted.

2006 - Dec [2] (c) What do you understand by ‘wilful attempt to evade tax’? Mention theconsequences of a wilful attempt to evade tax, etc., under section 276C of the Income-tax Act, 1961. (5 marks)

Answer:

For the purpose of Section 276-C, a willful attempt to evade any tax, penalty or interestchargeable or imposable under the Act or the payment thereof shall includenon-disclosure for a case where any person:

(i) has in his possession or control any books of account; other documentscontaining a false entry or statement; or

(ii) makes or causes to be made any false entry or statement in such books ofaccount or other document; or

(iii) willfully omits or causes to be omitted any relevant entry or statement in suchbooks of account or other documents; or

(iv) Causes any other circumstances to exist which will have the effect of enablingsuch person to evade any tax penalty or interest chargeable or impossible underthe Act or the payment thereof.

If a person willfully attempts in any manner whatsoever to evade any tax, penalty orinterest chargeable or imposable under the Act, he shall besides any penalty imposableunder any other provision of this Act, be punishable


(i) in case where the amount sought to be evaded exceeds ̀ 1,00,000 with rigorousimprisonment for at least 6 months or at the most 7 years and with fine.

(ii) in any other case, with rigorous imprisonment for a term which shall not be lessthan 3 months and not more than 3 years and fine

Willful attempt to evade payment of tax, etc. be punishable with rigorous imprisonmentfor at least 3 months and at the most than 3 years and shall, in the discretion of Court,also be liable to fine.

2006 - Dec [4] (c) Who and at what stage can apply for settlement of a case ? Discussthe procedure adopted by the Settlement Commission for disposing off the applicationreceived for settlement. (5 marks)

Answer:

An assessee may, at any stage of a case relating to him, make an application in theprescribed form along with the prescribed fees to the Settlement Commission to settlethe case. Such an application once made cannot be withdrawn by the applicant. Suchapplication can be made only in cases where the additional income tax payable on the

income disclosed in the application exceeds ` 1,00,000 rupees.On receipt of an application, the Settlement Commission shall call for a report from

the Commissioner and on the basis of the material contained in such report and havingregard to the nature and circumstances of the case, the Settlement Commission may,by an order allow the application to be processed with or reject the application. But noapplicant can be rejected unless an opportunity has been given to the applicant of beingheard.

A copy of every order shall be sent to the applicant and to the Commissioner. Theassessee shall within 45 days of the receipt of a copy of the order, allowing theapplication to be proceeded with; pay the additional amount of income-tax payable onthe income disclosed in the application and shall furnish proof of such payment to thesettlement commission

Where an application is allowed to be proceeded with the Settlement Commissionmay call for the relevant records from the Commissioner and after examination of suchrecords, if the Settlement Commission is of the opinion that any further enquiry orinvestigation in the matter is necessary, it may direct the Commissioner to make suchfurther enquiry or investigation and furnish a report thereon. After examination ofrecords and the reports of the Commissioner and after giving an opportunity of beingheard to both the parties, the Settlement Commission may, in accordance with theprovisions of the act, pass such order as it thinks fit.

2006 - Dec [5] (a) What do you understand by ‘advance payment of tax’ under theIncome-tax Act, 1961 ? When does liability to pay advance tax arise ? When such a taxis to be paid and how is it calculated ? (7 marks)


Answer:

Condition of liability to pay advance tax (Section 208)

Advance tax is payable during a financial year where the amount of such tax payable

during the years is ` 10,000 or more.

Computation of Advance Tax (Section 209)

The amount of advance tax payable by an assessee in the financial year shall becomputed as follows:

1. Computation by an Assessee: Where the computation is made by the assesseefor payment of advance tax, he will estimate his current income keeping in viewprovision of Section 210. On such current income, income tax will be calculated atthe prescribed rate for financial year.

2. Computation by Assessing Officer: Where a person as already been assessedby way of regular assessment and who has not paid any advance tax, theAssessing Officer will take the total income of the latest assessed previous year ortotal income returned by assessee in any return of income furnished for anysubsequent previous year, whichever is higher. On such income, income tax willbe calculated at the prescribed rate for the financial year.

3. The income tax so calculated under (1) and (2) as the case may be shall bereduced by the amount of income tax deductible or collectible at source during thesaid financial year.

For Non-Corporate Assessee

Due Dates Amount of Tax payableOn or before 15 September - not less than 30% of tax payable On or before 15 December - not less than 60% of tax payableOn or before 15 March - not less than 100% of tax payable

2007 - June [1] {C} Attempt the following:(vi) State the provisions of the Income-tax Act, 1961 relating to tax deduction at

source in the case of payments of compensation on acquisition of certainimmovable property. (3 marks)

Answer:

Section 194LA applies to any person responsible for paying to a resident, any sumbeing in the nature of compensation or enhanced compensation or consideration orenhanced consideration on account of compulsory acquisition of any asset under anylaw for the time being in force. Such person, at all time of payment of such sum in cashor by issue of a cheque or draft or by any other mode whichever is earlier, shall deductan amount equal to 10% of such sum as income tax on income comprised therein.However, no deduction shall be made where the amount of such payment or aggregate

of such payments during the financial year does not exceed ` 1 lac.


2007 - June [4] Comment on the following statements:(i) If any person fails without a reasonable cause, to furnish a return of his income,

he is subjected to three types of punishment. (3 marks)(v) ‘Pay as you earn’ scheme means that assessee has to pay tax simultaneously

along with the earning of his income. (3 marks)

Answer:

(i) Three types of Punishment for failing to furnish a return of income withoutreasonable cause are as follows:

(a) Interest for default in furnishing Return of Income (Section 234A): Incases where a return of income is furnished after the due date or is notfurnished at all, the assessee has to pay interest at the rate of 1% for everymonth or part of the month of default on the amount of tax on the totalincome as determined under section 143(1)

(b) Penalty for failure to furnish Return of Income (Section 271F): Where aperson is required to furnish a voluntary return of his income under Section139(1) or an obligatory return under economic indicator scheme, but fails tofurnish such return before the end of the relevant assessment year, he is

liable to a pay penalty of `5000

(c) Prosecution for failure to furnish Return of Income (Section 276CC): Ifa person willfully fails to furnish in due time the return of income which he isrequired to furnish either voluntarily or in pursuance of notice, he ispunishable: (i) in a case where the amount of tax which would have been evaded if the

failure had not been discovered exceeds `1,00,000 with rigorousimprisonment for a term which cannot be less than 6months but mayextent to 7 years and with fine

(ii) in any other case, with imprisonment for a term which cannot be lessthan 3 month but may extent to 3 years and with fine.

(v) Under the scheme of pay-as-you-earn, advance payment of tax is to be madei.e., an assessee is required to pay tax in a particular financial year, precedingthe assessment year, on the basis of his estimated income. This would meanthat though the income earned during the previous year 2006-07 is taxable in theAssessment year 2007-08, tax on such income is payable during the financialyear 2006-07 under the scheme of advance payment of tax. The income onwhich the assessee is required to pay advance tax commonly known as ‘incomesubject to advance tax’ and the tax payable on such income is known as‘advance tax’

Every person is liable to pay advance tax if advance tax payable is ` 10,000 ormore. All items of income are liable for payment of advance tax.


2007 - Dec [3] Comment on the correctness or otherwise of the following

statements/propositions with reference to the relevant provisions of tax laws:

(v) Every person is required to deduct tax at source on payments made to

contractors. (5 marks)

Answer:

Please refer 2005 - June [5] (c) on page no. 252

2008 - June [1] {C} (a) Attempt the following:

(i) Is it compulsory to file a claim for refund ? Discuss. (3 marks)

Answer:

Where an assessee has submitted any return of income and any refund of tax is due,

such refund shall be granted to the assessee by the Assessing Officer on his own. The

assessee is not required to file any claim for such refund. Similarly, if any refund arises

as a result of an order in appeal, rectification of mistakes, revision by CIT or appeal to

the High Court, the refund shall be granted by the Assessing Officer himself. In this case

also assessee is not required to file any claim for refund of tax. However, in any other

case, for example, where the tax has been deducted at source from the income of a

person not liable to pay tax, the assessee is required to file a claim of refund. Such

claim must be submitted in Form No.30 and should be verified in the prescribed

manner. Form No.30 must be accompanied by a return of income if such return has not

been submitted earlier.

PRACTICAL QUESTIONS

2005 - June [4] (c) The following particulars are furnished by Ms. Madhuri for the

financial year 2012-13:

Tax on total income (paid on 31.7.2013) ` 50,000

Date of filing the return 1.8.2012

Due date for filing the return 31.7.2012.

Compute the total interest payable under sections 234A, 234B and 234C of the

Income-tax Act, 1961. (5 marks)


Answer:

The total interest payable by Mr. Abdul under Section 234 for the Assessment Year

2013-14 is computed as under:

Delayed in filing return U/s 234A for 1 month 50,000*1% 500

Default in payment of advance tax U/s 234B 50,000*1%*4 2,000

(April to July)

Deferment of advance tax U/s 234C 15,000*1%*3 450

30,000*1%*3 900

50,000*1%*1 500

4,350

2006 - June [3] Attempt the following:

(i) A return of income has been filed for the assessment year 2013-14 declaring a

loss of ` 2 lakh. At the time of assessment, the assessing officer discovered a

concealment of income of ` 3 lakh. Calculate the amount payable as tax and

penalty imposable under Section 271(1)(c), if the asessee is (i) a company; or

(ii) an individual. (5 marks)

Answer:

As per explanations 4 to section 271, of the Income-tax Act, 1961 where a returned loss

is converted in to income due to concealment of income, the income sought to be

evaded shall be treated as the total income of the assessee. Therefore, a total income

in case shall be ` 3,00,000

Tax payable (in case of Company) shall be

30% of ` 3,00,000 ` 90,000

Add: Education cess and SHEC@3% 2,700

92,700

Tax payable (in case of Individual) shall be

Tax on ` 3,00,000 at slab rate 10,000

Add: Education cess & SHEC @3% 300

10,300

Minimum Penalty 100% of tax so evaded

Maximum Penalty 300% of tax so evaded




1 Explain the provisions regarding deduction of tax at source onpayment to contractors. 05 - June [5] (c), 07 - Dec [3] (v) 2 Times

2 Write short notes on the following:Consequences of failure to deduct tax at source

11 - June [5] (a) (ii), 11 - Dec [5] (a) (iv), 13 - Dec [6] (c) (ii) 3 Times

3.261

Star Rating

On the basis of Maximum marks from a chapter jjj

On the basis of Questions included every year from a chapter jjjjj


10 The Wealth Tax Act, 1957

This Chapter Includes: Charge of Tax; Incidence of Wealth-tax; Valuation date;Tax Rate; Assess belonging to other but includible in the net wealth of an individual;Assets exempt from Wealth-tax; Net Wealth; Location of Assets and Debts;Valuation of Assets; Return of Wealth; Assessment; Liability of Assessment inSpecial Cases; Payment and Recovery of Wealth-tax; Refunds; Rectification ofMistakes; Settlement of cases; Appeals; Revisions and References; Penalties;Power to Reduce or Waive Penalty; Offences and Prosecution.




OBJECTIVE QUESTIONS


(v) Which of the following is not an asset under section 2(ea) of the Wealth-taxAct, 1957!(a) Motor car(b) Boats and aircrafts(c) Guest house(d) Cash at bank. (1 mark)

Answer:

(v) (d) Cash at bank.

2008 - Dec [2] (a) Re-write the following sentences after filling-up the blank spaceswith appropriate word(s)/figure(s):(vii) One house or part of house belonging to an individual is ____ under the

Wealth-tax Act, 1957. (1 mark)

Answer:

(vii) Exempt

2009 - June [1] {C} (b) Re-write the following sentences after filling-in the blankspaces with appropriate word(s)/figure(s):

(v) Net wealth computed under the Wealth-tax Act, 1957 shall be rounded

off to the multiple of `___________. (1 mark)

Answer:

(v) 100

2009 - Dec [1] {C} (a) Choose the most appropriate answer from the given options inrespect of the following having regard to the provisions of the relevant direct taxlaws :

(v) Which of the following is an ‘asset’ under section 2(ea) of the Wealth-tax Act,1957 –(a) Equity shares in a company(b) Balance in provident fund(c) Motor car held as stock-in-trade(d) Jewellery for personal use. (1 mark)

Answer:

(v) (d) Jewellery for personal use

[Chapter #### 10] The Wealth Tax Act, 1957 OOOO 3.263

2009 - Dec [1] {C} (b) Re-write the following sentences after filling-in the blankspaces with appropriate word(s)/figure(s):

(v) Wealth-tax is levied on the net wealth of a person as on 31st March, this dateis known as ______ date. (1 mark)

Answer:

(v) Valuation

2010 - June [2] (a)Re-write the following sentences after filling-in the blank spaceswith appropriate word(s)/figure(s):

(iii) Wealth-tax is charged at the rate of ______ % on net wealth in excess of

`_________ lakh under the Wealth-tax Act, 1957. (1 mark)

Answer:

(iii) 1% and ` 30

2010 - Dec [2] (a) State, with reasons in brief, whether the following statements aretrue of false:

(iv) Net wealth computed under the Wealth-tax Act, 1957 shall be rounded off to

the nearest multiple of ` 100. (2 marks)

Answer:

(iv) True: Under Section 44C, net wealth computed under wealth-tax Act, 1957

shall be rounded off to the nearest multiple of `100

2012 - June [1] {C} (a) Write the most appropriate answer from the given options inrespect of the following having regard to the provisions of the relevant direct taxlaws:

(iii) Which one of the following is not an ‘asset’ under section 2(ea) of the Wealth-tax Act, 1957 —(a) Motor car(b) Boat and aircraft(c) Guest house(d) Balance in bank account.

(b) Re-write the following sentences after filling-in the blank spaces with appropriateword(s)/figure(s):

(v) Net wealth computed under the Wealth-tax Act, 1957 shall be rounded off tothe multiple of _______ . (1 mark)

Answer:

(a) (d) Balance in bank account

(b) Net wealth computed under the Wealth-tax Act, 1957 shall be rounded off to the

multiple of `100/-.


2012 - Dec [1] {C} (a) Write the most appropriate answer from the given options inrespect of the following having regard to the provisions of the relevant direct taxlaws:

(iv) The net wealth computed under the provisions of the Wealth-tax Act, 1957shall be rounded off to the nearest—

(a) ` 1

(b) Multiple of ` 10

(c) Multiple of ` 100

(d) Multiple of ` 1,000. (1 mark)

Answer:

(iv) (c) Multiple of ` 100

2012 - Dec [2] (a) State, with reasons in brief, whether the following statements aretrue or false:

(iv) Every person is liable to pay wealth-tax. (1 mark)

Answer:

(iv) False: Wealth tax shall not be levied in respect of the net wealth of (a) anysocial club; (b) any mutual fund; (c) any political party; (d) any co-operativesociety; and (e) any company registered under section 25 of the CompaniesAct, 1956.

2013 - June [1] {C} (a) Write the most appropriate answer from the given options inrespect of the following having regard to the provisions of the relevant direct taxlaws:

(iii) The amount of wealth-tax, interest, penalty, fine or any other sum payable,and the amount of refund due, under the provisions of the Wealth-tax, Act,1957 shall be rounded off to the —(a) Nearest rupee(b) Nearest multiple of ten rupees(c) Nearest multiple of one hundred rupees(d) Nearest multiple of one thousand rupees. (1 mark)

Answer :

(a) Nearest rupee



(i) Which of the following shall not be treated as an ‘asset’ for wealth-taxpurposes —(a) A truck used for transportation of goods(b) A farmhouse which is situated within 8 Kms. of any municipality(c) A motor car used for transportation of employees(d) A residential house given to non-working director. (1 mark)

SHORT NOTES

2010 - Dec [3] (b) Write notes on the following:(iii) ‘Deemed asset’ under the Wealth-tax Act, 1957. (4 marks)

Answer:

In computing the net wealth of an assessee, the following assets are included asbelonging to the assessee by virtue of section 4(l)(a) of the Wealth Tax Act, 1957.

(i) Assets transferred by one spouse or another.(ii) Assets held by minor children.(iii) Whether the assets are held by a physically or mentally handicapped minor

child (specified in section 80U of the Income Tax Act) such assets will not beclubbed with the net wealth of the parent. In such a case the net wealth of thehandicapped minor child shall be determined separately and assessee in hishands.

(iv) Assets transferred to a person or an Association of Persons for immediate ordeferred benefit of the transferor, his or her spouse without adequateconsideration.

(v) Assets transferred under revocable transfer.(vi) Assets transferred to son's wife.(vii) Assets transferred to a person or Association of Persons for the benefit

of son's wife.

2011 - June [5] (a) Write short notes on the following: (v) Valuation of jewellery under the Wealth-tax Act, 1957. (3 marks)

Answer:

Valuation of jewellery under the wealth-tax Act, 1957

The value of Jewellery shall be estimated to the price which it would fetch, if sold, in theopen market on the valuation date, which may be referred to as Fair market Value. Valuation of jewellery shall be determined in the following manner:

(i) Where the Fair Market Value, as estimated by the assessee, does not exceed

` 5,00,000.


In this case, the assessee shall have to file a statement in Form No. O-8A, alongwith a return of net wealth submitted by him. However, if the Assessing Officeris of the opinion that the Fair Market Value of the jewellery exceeds the value ofthe jewellery declared by the assessee in his return by more than 33 1/3% of the

returned value or ` 50,000, he may refer the valuation of such jewellery to aValuation Officer under Section 16A(1) and the value of the jewellery in suchcase shall be the Fair Market Value as estimated by the Valuation Officer.

(ii) Where the Fair Market Value, as estimated by the assessee, exceeds

` 5,00,000.In this case, the assessee has to obtain and furnish a report of a

Registered Valuer in Form No. O-8, along with a return of net wealth submittedby him. However, if the Assessing Officer is of the opinion that the Fair MarketValue of the jewellery exceeds the value of the jewellery declared by theassessee in his return, he may refer the valuation of such jewellery to aValuation Officer under section 16A(1) and the value of the jewellery in suchcase, shall be the Fair Market Value as estimated by the Valuation Officer. It maybe observed, that in this case, the reference to the Valuation Officer can be doneirrespective of the excess of the Fair Market Value, as estimated by theAssessing Officer over the Fair Market Value estimated by the RegisteredValuer.

2011 - Dec [5] (a) Write short notes on the following:(v) Assets exempt from tax as per section 5 of the Wealth-tax Act, 1957.

(3 marks)

Answer:

The following assets are exempt from wealth tax

1. Property held under trust Sec. 5(i):Any property held under trust or other legalobligations by the assessee for any public purpose of a charitable or religiousnature in India is exempt.

2. Interest in the coparcener property Sec. 5(ii): If the assessee is a member ofH.U.F., he is not liable to pay tax on his share in the joint property, so long as theproperty remains joint and he continues as the member of that family.

3. One building in the occupation of former Ruler Sec. 5(iii): Any one buildingwhich is in the occupation of a Ruler and which has been declared as his officialresidence by the Central Government is totally exempt from tax. However theexemption is available only to the Ruler during his life time.

4. Jewellery in possession of a former Rule Sec. 5(iv): Jewellery in possession ofa former Ruler not being his personal property which has been recognized by theCentral Govt. as his heirloom, before commencement of Wealth Tax Act or by theboard after that shall be exempt. However this exemption is subject to full fulfilment


of certain conditions like keeping of jewellery in India, in its original shape, allowingauthorized person to examine the jewellery as and when necessary.

5. Assets of Indian repatriate Sec. 5 (v):Indian repatriate means a person of Indianorigin or a citizen of India who was residing in a foreign country and on leavingsuch country assessee has returned to India with the intention of permanentlyresiding therein. In this case his following assets shall be exempt for 7 successiveassessment years, commencing with the assessment year following the date of hisreturn to India.

(i) Money brought by him in India.(ii) Assets brought by him in India.(iii) Any balance in Non-Resident External Accounts in India on the date of his

return(iv) Assets acquired by him out of money in his Non-resident External Account

or by sending money from foreign country within 1 year immediatelypreceding the date of his return to India.

(v) Any assets acquired by him out of money brought in by him in India or outof the balance in NRE account after his arrival in India.

6. House [Sec 5 (vi)]: One house or part of a house or a plot of land belonging to anindividual or HUF is exempt provided size of plot is not bigger than 500 squaremeters.

2012 - June [4] (c) Write short notes on the following:(i) Persons exempted from wealth-tax (2 marks)

Answer:

Persons Exempted from wealth-tax

According to section 45 of Wealth Tax Act, 1957,Wealth Tax shall not levy in respectof the net wealth of the following:

(i) Any company registered under section 25 of the Companies Act,1956.(ii) Any Social Club.(iii) Any Co-operative Society.(iv) Any Political party and (v) Any Mutual fund within the meaning of Section 10(23D) of the Income-tax Act.

2012 - Dec [6] (a) Write short notes on the following:(ii) ‘Deemed asset’ under the Wealth-tax Act, 1957 (2 marks)

Answer:

Please refer 2010 - Dec [3] (b) (iii) on page no. 265


DISTINGUISH BETWEEN

2009 - June [3] (a) Distinguish between the following: (v) 'Assets' and 'deemed assets' under the Wealth-tax Act, 1957. (2 marks )

Answer:

Assets [Section 2(ea)]- Assets means the following six assets to be included in the netwealth for wealth tax purposes:1. House(including Farm House),2. Motor car,3. Jewellery, bullion, furniture, utensils etc made of precious metals,4. Yachts, boats and aircrafts(other than those used by the assessee for commercial

purposes)5. Urban land,6. Cash in Hand.

Deemed Assets [section 4]- In computing the net wealth of the assessee, there shallbe included certain assets belonging to others. These assets are known as deemedassets. Such deemed assets are of two types:1. Deemed assets which are included in computing the net wealth of an individual

only;2. Deemed assets which are included in computing the net wealth of any of three

categories of assessee viz., individual, HUF and company.


2009 - June [6] (a) Discuss the provisions relating to incidence of wealth-tax.(5 marks)

Answer:

Incidence of tax in the case of an individual depends upon his residential status andnationality. Residential status is decided as per the provisions of the Income-tax Act(Chapter I Supra). The scope of liability to wealth tax is as follows:(a) In the case of an individual who is a citizen of India and resident in India, a

resident—HUF and company resident in India;Wealth tax is chargeable on net wealth comprising of (i) All assets in India and outside India;(ii) All debts in India and outside India are deductible in computing the net

wealth.


(b) In the case of an individual who is a citizen of India but non-resident or notordinarily resident in India, HUF, non-resident or not ordinarily resident in India anda company non-resident in India;

All assets in India except loan and debts interest whereon is exempt fromincome-tax under section 10 of the Income-tax Act are chargeable to tax. (i) All debts in India are deductible in computing the net wealth.(ii) All assets and debts outside India are out of the scope of Wealth Tax Act.

(c) In the case of an individual who is not a citizen of India whether resident,non-resident or not ordinarily resident in India:

PRACTICAL QUESTIONS

2008 - Dec [5] (b) Suresh is the owner of a house. The actual rent of this house is` 9,000 per month and municipal valuation of this house is `7,500 per month. Otherinformations about the house are $

(i) Municipal taxes are `10,000 out of which the tenant has paid ` 6,000.(ii) Suresh has accepted a deposit of `1,00,000 from the tenant on which Suresh

has paid interest @ 6% per annum.(iii) The tenant is also liable for meeting the expenses on repairs of the house.(iv) The tenant has paid ` 25,000 as premium for the house. The premium is non-

refundable. The lease period of the house is 5 years.Assuming that the house is built on free-hold land, determine the value of the houseunder the provisions of the Wealth-tax Act, 1957 for the assessment year 2014-15.

(8 marks)Answer:

` `

(a) Municipal Value (7500*12) 90,000(b) Actual rent paid by the tenant (9,000*12) 1,08,000Add:

(i) 1/9th of repairs expenses as born by the tenant (1/9*1,08,000) 12,000(ii) municipal tax paid by tenant 6,000(iii) Interest on deposit 15%*1,00,000 15,000

Less: Interest Paid -6,000 9,000(iv) Proportionate annual premium (25,000/5) 5,000

Annual Rent 1,40,000Gross Maintainable Rent (a)or(b) whichever is higher 1,40,000Less: Municipal Taxes 10,00015% of 1,40,000 21,000 31,000Net Maintainable Rent (NMR) 1,09,000House is constructed on freehold land, therefore NMR*12.5= 13,62,500 is thecapitalized value of the house.


2009 - June [3] (b) Compute the net wealth and tax liability of assessment year 2014-15of Sona Jewels which is engaged in jewellary business. Following are the particularsof assets on 31st March, 2014:

`

Factory building (W.D.V) 80,00,000Bank balance 15,00,000Unaccounted cash 5,20,000Silver ware 56,00,000Gold jewellery 54,00,000Car (W.D.V.) 10,00,000Farm house within municipal limit 25,00,000Guest house in Britain 90,00,000

The market value of car is ` 15 lakh. The assessee has raised a loan of ̀ 50 lakh froma bank by mortgaging guest house. The loan was utilised to construct factory building.

(5 marks)

Answer:

`

Factory Building —Bank balance —Unaccounted Cash balance 5,20,000Sliver ware —Gold Jewellery —Car 15,00,000Farm house 25,00,000Guest House in Britain 90,00,000

1,35,20,000Less: Loan 50,00,000Net wealth 85,20,000

Wealth tax liability = (85,20,000 - 30,00,000) x 1% = ` 55,200

2009 - June [5] (a) Karan made a gift to Sujata during their engagement which tookplace on 15 th May, 2013. After their marriage which was held on 15th June, 2013, theydecided to live apart owing to some reasons and they obtained a legal divorce on 15th

September, 2013. Whether transfer made on 15th May, 2013 be included for wealth-taxpurposes in the hands of Karan? (3 marks)


Answer:

No, transfer made on 15th May, 2013 shall not be included for wealth tax purpose in thehands of Karan.

2009 - Dec [4] (c) Alka is carrying on textile business. Compute her net wealth from thefollowing details of her assets and also determine her wealth-tax liability for theassessment year 2014-15: Market Value

(`)(i) Land in rural area (it lies within 8 kms. from a

municipality having a population of more than 10,000; land was purchased in 1990; construction is permissible) 48,00,000

(ii) Land in urban area (held as stock-in-trade since 2004) 35,50,000(iii) Motor cars 8,60,000(iv) Aircraft for use of employees and auditors 1,25,00,000(v) Bank balance 12,00,000(vi) Guest house situated in rural area 10,50,000(vii) Residential flats of identical size provided to employees

near the factory (salary of employees does not exceed` 5,00,000 in a year) 30,00,000

(viii) Residential house given to general manager (whose annual salary is ` 15,00,000) 25,00,000

(ix) Cash in hand as per cash book 2,00,000(x) Two residential houses let-out on rent

(value of each being ` 22 lakh; one is let-out for 250 days during the financial year2013-14).Alka has taken a loan of ̀ 24,00,000 for acquiring the aircraft; ̀ 5,50,000 for urban land;and ` 4,00,000 for residential house given to general manager. (5 marks)Answer: `

Land in rural area 48,00,000Land in urban area —Motor car 8,60,000Aircraft 1,25,00,000Bank Balance —Guest house situated in rural area 10,50,000Residential flats (salary less than `5lakh) —Residential house given to general manager 25,00,000Cash in hand as per cash book —

2,17,10,000Less: Loan for acquiring aircraft 24,00,000Residential house given to general manager 4,00,000Net Wealth 1,89,10,000Tax liability 1% ( 1,89,10,000 - 30,00,000) = ` 1,59,100.


2010 - June [4] (a) Raman has following assets and liabilities as on 31st March, 2014.Compute his net wealth and wealth-tax liability for the assessment year 2014-15:

Market Value

(`)(i) Cash in hand 75,000(ii) Cash at bank 10,00,000(iii) Residential house (Loan taken to purchase this house

` 5,00,000) 45,00,000(iv) Land in rural area (it is within 5 kms. from Delhi) 48,00,000(v) Land in urban area (construction not permitted

under the law, loan taken to purchase this land `3,00,000) 28,00,000(vi) Motor car for personal use 14,00,000(vii) Jewellery 6,00,000(viii) Aircraft for personal use (Loan taken to purchase

aircraft ` 20,00,000) 1,00,00,000(ix) Farm house situated within 20 kms. from local limits of

municipality 24,00,000(x) One let-out residential house given on rent throughout

the year (Loan taken to construct this house ` 2,00,000) 20,00,000(5 marks)

Answer:

Assets: `̀̀̀

Cash in hand (in excess of ` 50,000) 25,000Cash at bank NilResidential House NilLand in rural area 48,00,000Land in urban area NilMotor Car 14,00,000Jewellery 6,00,000Aircraft 1,00,00,000Farm house 24,00,000One let out house Nil

Total Assets 1,92,25,000

Less: Liabilities

Loan for purchase of Aircraft 20,00,000

Net Wealth 1,72,25,000

Wealth tax liability@ 1% on 1,42,25,000 (1,72,25,000 ! 30,00,000) 1,42,250


2010 - Dec [6] (b) Rohit provides the following particulars and asks you to work out theamount of net wealth to be declared by him in the wealth-tax return for the assessmentyear 2014-15:

(i) Value of a motor car ` 6,00,000.

(ii) Value of a motor cycle ` 60,000.(iii) A house of which ground floor is used by him for business purposes and first

floor for self-residence having value of ` 60,00,000 on 31st March, 2014.

(iv) Jewellery worth ̀ 12 lakh purchased on 30th March, 2014 by his wife out of funds

given by him of ` 5 lakh and by his son of ` 5 lakh.

(v) Shares of various companies worth ̀ 2,00,000 purchased by him in the name ofhis daughter-in-law.

(vi) Cash in hand ` 1,20,000. (6 marks)

Answer:

Computation of net wealth of Mr. Rohit


Particulars Amount (`)1. Motor Car 6,00,0002. Motor Cycle (not an asset) Nil3. House used for business & personal purpose Nil4. Jewellery 6,00,0005. Shares (Not an asset) Nil

6. Cash in Hand (in excess of `50000) 70,000Gross Wealth 12,70,000Less: Debt NilNet Wealth 12,70,000

Working Notes:

(a) Part of the house which is used for residential purpose shall be exempt underSection 5(vi) and part of the house which is used for business purpose shall not betreated as asset under Section 2(ea)

(b) 50% of the value of Jewellery shall be clubbed with the wealth of Rohit as half ofthe fund was provided by him.

2011 - June [3] (b) Mrs. Sarita is an ordinary resident and citizen of India. Theparticulars of her assets and liabilities as on 31st March, 2014 are as follows:

`

(i) House property at Indore (three-fourths is self-occupied and one-forth is let-out) 16,80,000

(ii) Fixed deposit in a nationalised bank 2,00,000(iii) Fixed deposit for five years in a chit fund 1,60,000


(iv) Agricultural land in Rajasthan ` 6,00,000 and tractor with other agricultural equipments 10,47,300

(v) Loan from bank for purchasing tractor 2,00,000

(vi) Two cars (valuation of small car ` 2,00,000; and

big car: ` 12,87,000) 14,87,000(vii) Ornaments (received by her in heritage) 13,60,000(viii) Share application money 60,000(ix) Cash in hand 2,30,000(x) Ornaments with her minor son, Sandeep. (These

were given to him by his grandfather.) 50,000Compute the net wealth and wealth-tax payable by Mrs. Sarita for the assessment year2014-15. (6 marks)

Answer:

(b) Computation of Net wealth of Mrs. Sarita


(i) House property at Indore(ii) FD in a Nationalized Bank(iii) FD for 5 years in a chit fund(iv) Agricultural land & equipment(v) Cars(vi) Ornaments(vii) Share application money

(viii) Cash in hand in excess of ` 50,000(ix) Property in the name of minor son

ExemptNot an assetsNot an assetNot an asset

Not an asset

14,87,00013,60,000

1,80,00050,000

Gross wealth 30,77,000

Less: Liabilities Nil

Net wealths 30,77,000

Wealth tax shall be @ 1% in excess of net wealth of ` 30,00,000 that is ` 770

2011 - Dec [4] (b) Mrs. Suman provides you following information regarding assets andliabilities owned by her on 31st March, 2014:

Market Value

(`̀̀̀)

(i) Residential house (self-occupied) 50,00,000(ii) Loan taken for purchase of self-occupied house 10,00,000(iii) Motor car for business use 10,00,000


(iv) Land in urban area 35,00,000(v) Loan taken to purchase above land 5,00,000(vi) Cash in hand 1,25,000(vii) Cash at bank 2,00,000(viii) Land in rural area within 5 kms. from Delhi 5,00,000(ix) Jewellery 14,80,000(x) Farm house situated outside 30 kms. from local

limits of municipality 40,00,000(xi) One residential house given on rent for 330 days

during the previous year 35,00,000(xii) Loan taken for construction of above house 5,00,000

Compute net wealth and wealth-tax liability of Mrs. Suman for the assessment year2014-15. (6 marks)

Answer:

Computation of Wealth Tax Liability of

Mrs. Suman for the Assessment Year 2014-15

Particulars Amount

Residential house exempt under section 5(vi)Motor Car for Business useLand in urban area

Cash in hand in excess of `̀̀̀ 50,000Cash at Bank not an assets Land in rural assets within 5km from DelhiJewelleryFarm house outside 30 Km from local limits of MunicipalityLet out house rented for 330 days during the previous [not anassets as per section 2(ea)]

Gross Wealth

Less: Loan taken to purchase the urban landNet Wealth

Wealth Tax @1% inexcess of ` 30,00,000

Nil10,00,00035,00,000

75,000Nil

5,00,00014,80,000

Nil

Nil

65,55,000

5,00,00060,55,000

30,550

2012 - June [4] (a) From the following information, compute the net wealth and taxliability of Lalit for the assessment year 2014-15 who is a citizen and resident andordinarily resident in India:


`̀̀̀

Residential house in Delhi 50,00,000Residential house situated outside India 25,00,000Maruti Esteem car for personal use 6,00,000Personal jewellery in India 10,00,000Personal jewellery outside India 5,00,000Bank loan taken to purchase residential house in Delhi 12,50,000Cash in hand 75,000Bank balance 2,50,000Farm house, which is outside 9 kms. of the municipal limits 15,00,000Urban land on which construction is not allowed 13,00,000Equity shares of AB Associates 3,50,000Income-tax liability 50,000

(6 marks)

Answer:

Computation of Net wealth for the Assessment Year 2014-15

Residential house in Delhi (Not an Asset) 0

Residential house outside India 25,00,000

Maruti Esteem for personal use 6,00,000

Personal Jewellery 10,00,000

Personal Jewellery outside India 5,00,000

Cash in hand (exceeding ` 50,000) 25,000

Bank Balance (Not an asset) 0

Farm House 15,00,000

Urban Land (construction not allowed) 0

Equity shares (not an asset) 0

Net wealth 61,25,000

Wealth Tax Liability

On First ` 30,00,000 0

ON ` 31,25,000 @ 1% 31,250

Tax Payable 31,250


2012 - Dec [6] (b) Piyush is engaged in the construction of residential flats. For thevaluation date 31st March, 2014 he furnishes the following data:

` (in lakhs)Land in urban area (construction not permittedas per Municipal laws in force) 20Motor cars 5Jewellery (investment) 10Cash balance (as per books) 2Bank balance (as per books) 3Guest House (situated in rural area) 4Residential flat occupied by the Manager for residence (annual

salary being `6,00,000) 8Residential house let-out for 100 days in the financial year 7Loans obtained for purchase of motor car 2Loans obtained for purchase of jewellery 2

Compute the taxable net wealth and state the reason for inclusion or exclusion of eachitem in the computation. (5 marks)

Answer:

Computation of Net Wealth as on 31.03.2014

Assets ` ( in lakh)

Land in urban area (Not an assets because construction is notpermitted)

-

Motor cars 5

Jewellery ( investment) 10

Cash balance as per books (in excess of ` 50,000) 1.5

Bank balance as per books (not an asset) -

Guest house in rural area 4

Residential flat (occupied by Manager but annual remuneration

exceeds ` 5,00,000) Exempt u/s 5 (1) (iv) in view of tax planning,

house having highest value i.e. ` 8 lakhs shall be considered asexempt

-

Residential house (let out for 100 days in the financial yea) 7

Gross Wealth 27.5

Less : Loan taken to purchase motor car & jewellery 4

Net Wealth 23.5


2013 - June [5] (a) Dev is an Indian citizen and resident in India. His assets andliabilities as on 31st March, 2013 are as follows:— Self-occupied residential house in Delhi ` 60,00,000.— Self-occupied residential house in foreign country ` 90,00,000. [For the

construction of this house, he borrowed ` 30,00,000 in the foreign country whichis due on 31st March, 2013.]

— He has National Savings Certificates VIII issue ` 1,00,000.— He has jewellery worth ̀ 60,00,000 out of which ornaments worth ̀ 18,00,000 are

meant for daily use by his wife.— He has motor car for his personal use valued at ` 7,70,000.— In December, 2011 he has transferred his house to his married daughter without

consideration. The value of the house is ` 24,00,000.— The house given to the daughter was purchased in 2010 for which a loan of

`10,00,000 was taken. Out of this loan ` 2,00,000 is outstanding.Compute the net wealth and wealth-tax of Dev. (6 marks)Answer :

Computation of Net Wealth & Wealth Tax of DEV for AY 2013-14

Self-occupied residential house exempt Nil

Self-occupied residential house in foreign country 90,00,000

National Saving Certificate not an asset Nil

Jewellery for personal purpose 60,00,000

Motor Car 7,70,000

House transferred to married daughter Nil

GROSS WEALTH 1,57,70,000

Less: debt taken for residential house 30,00,000

NET WEALTH 1,27,70,000

Wealth tax liability @ 1% on ` 97,70,000 97,700

2013 - Dec [5] (b) Kishore an Indian repatriate, came to India on 1st October, 2012.From the following information, determine which assets are exempt under section 5(v)of the Wealth-tax Act, 1957. Also give reasons for their exemption:

(i) He purchased a house in Bangaluru in June, 2011. He had remitted the moneyto purchase this house from London.

(ii) He brought with him 4 Kgs. gold and ` 20 lakh in cash. The balance in his non-

resident external account in India on 30th September, 2012 was ` 10 lakh.(iii) He sold 2 Kgs. gold and from the sale proceeds purchased a plot in March, 2013

to construct a house. (5 marks)


CS Inter Gr. I

Section A:: Assets/Deemed Assets/Exempt Assets

SHORT NOTES

2008 - June [1] {C} (a) Attempt the following:(vi) Write a short note on ‘valuation date’ under the Wealth-tax Act, 1957.

(3 marks)

Answer:

Valuation date [Section (2q)]- Valuation date in relation to any year for which anassessment is to be made under this Act means the last day of the previous year asdefined in section 3 of the Income Tax Act. In other words it shall be 31st Marchpreceding the relevant assessment year.As the net wealth on the last date of the previous year is to be assessed to tax, the netwealth at the last moment of the last date should be assessed not the net wealth at thefirst moment of the last date.[Banarsi Das v CWT].


2004 - Dec [1] {C} (e) Who are the persons not liable to pay wealth-tax in respect oftheir net wealth under the Wealth-tax Act, 1957? (3 marks)

Answer:

Section 45 provides that no wealth tax shall be levied in respect of the net wealth of thefollowing persons:1. a company registered u/s 25 of the Companies Act, 1956.2. a Co-operative society.3. a social club.4. a political party5. a mutual fund specified u/s 10(23D) of the Income tax Act.

2005 - June [1] {C} (b) State the circumstances under which a residential house will notbe liable to wealth-tax. (3 marks)


Answer:

The following buildings will not be included to assets:(i) a house meant for residential purposes which is allotted by a company to an

employee or an officer or a director who is in whole time employment, having a

gross annual salary of less than ` 5,00,000/-.(ii) any house for residential or commercial purposes which forms part of

stock-in-trade;(iii) any house which the assessee may occupy for the purposes of any business of

profession carried on by him.The following buildings shall also not be an asset w.e.f. A.Y. 1999-2000:(a) any residential property that has been let out for a minimum period of 300 days in

the previous year.(b) any property in the nature of commercial establishments or complexes.

2006 - June [1] {C} (c) Under what circumstances, land will not be considered as urbanland for wealth-tax purposes ? (3 marks)

Answer:

Urban Land- it means land situated:-(i) in any area which is comprised within the jurisdiction of a municipality or a

cantonment board and which has a population of not less than 10,000according to last preceding census of which the relevant figures have beenpublished before the valuation date; or

(ii) in any area within such distance, not being more than 8 kilometers from thelocal limits of any municipality or a cantonment board referred to in sub clause(i) as the central government may, having regard to the extent of, and scopefor, transition of that area and other relevant considerations, specify bynotification in official gazette.

The following land shall not be treated as urban land and shall therefore, not be treatedas asset for the wealth tax purposes:• land on which construction of a building is not permissible under any law for the

time being in force in the area in which such land is situated;• the land occupied by any building which has been constructed with the approval

of the appropriate authority • any unused land held by the assessee for industrial purposes for a period of two

years from the date of its acquisition by him;• any land held by assessee as stock in trade for a period of ten years from the date

of its acquisition by him.

2006 - Dec [2] (b) Explain in brief the meaning of the terms ‘assets’ under section 2 (ea)of the Wealth-tax Act, 1957. (5 marks)


Answer:

The assets liable to wealth tax as per the definition given in section 2(ea) of the WealthTax Act are as under:1. Any building or land appurtenant thereto which shall include:

(i) commercial buildings; (ii) residential buildings;(iii) any guest house;(iv) a farm house situated within 25 kilometers from the local limits of any

municipality (whether known as Municipality, Municipal Corporation or by anyother name) or a Cantonment Board.

However, the following buildings will not be included to assets: (i) a house meant for residential purposes which is allotted by a company to an

employee or an officer or a director who is in whole time employment, having

a gross annual salary of less than ` 5,00,000/-. (ii) any house for residential or commercial purposes which forms part of

stock-in-trade;(iii) any house which the assessee may occupy for the purposes of any business

of profession carried on by him.The following buildings shall also not be an asset w.e.f. A.Y. 1999-2000:(a) any residential property that has been let out for a minimum period of 300

days in the previous year.(b) any property in the nature of commercial establishments or complexes.

2. Motor Cars (excluding those used by the assessee in the business of running themon hire or as stock-in-trade).

3. Jewellery, bullion, furniture, utensils or any other, article made wholly or partly ofgold, silver, platinum or any other precious metal or any alloy containing one ormore of such precious metals (excluding those held as stock-in-trade by theassessee). Jewellery includes: (i) ornaments made of gold, silver, platinum or any other precious metal of any

alloy containing one or more of such precious metals, whether or not"containing any precious or semi-precious stones, and whether or not set inany furniture, utensils or other article or worked or sewn into any wearingapparel;

(ii) precious or semi-precious stones, whether or not set in any furniture, utensilsor other articles or worked or sewn into any wearing apparel.

For the removal of doubts it has been clarified by explanation 2 to section 2(ea)that the term jewellery does not include the Gold Deposit Bonds issued under theGold Deposit Scheme, 1999 notified by the Central Government.


4. Yachts, boats and aircrafts (excluding those used by the assessee for commercialpurposes).

5. Urban land; "Urban Land" means land situated: (i) in any area which is comprised within the jurisdiction of a local authority and

which has a population of not less than ten thousand according to the lastproceeding census of which the relevant figures have been published beforethe valuation date; or

(ii) any area within such distance, not being more than eight kilometers from thelocal limits of a local authority as the Central Government may, having regardto the extent, and scope for urbanization of that may, and other relevantconsiderations, specify in this behalf by notification in the Official Gazette.

However, the following urban land shall not be included in assets; (i) land on which construction of a building is not permissible under any law for

the time being in force in the area in which such land is situated; (ii) land occupied by any building which has been constructed with the approval

of the appropriate authority;(iii) any unused land held by the assessee for industrial purposes for a period of

two years from the date of its acquisition by him.(iv) land held by an assessee as stock-in-trade for a period of five years from the

date of its acquisition by him. (Ten years w.e.f. A.Y. 1999-2000).

Note: Agricultural land situated in urban area is not liable to wealth-tax.6. Cash in hand;

(a) In case of an individual and HUF cash in hand in excess of ` 50,000/- shallbe included in assets.

(b) In cash of any other person cash in hand not recorded in the books of accountshall be included in assets.

PRACTICAL QUESTIONS

2004 - June [4] (a) Meenakshi owns a house property which is situated at Delhi and isused for residential purposes throughout the year. The annual value of the property

as per the municipal records is ` 1,00, 000 whereas the rent received from the tenant

is ` 80,000. The municipal taxes are paid partly by Meenakshi (` 3,000) and partly by

the tenant (` 5,000). The tenant bears the entire repair expenses of ` 5,000. He also

deposited with the land lady a sum of ` 25,000 as refundable security which, however,does not carry any interest. The difference between 'unbuilt area' and 'specified area'does not exceed 5%. What will be the value of the house property on 31st March, 2014,


if — (i) the house is built on freehold land; (ii) it was acquired after 1st April, 1974 for

` 10,00,000; and (iii) the cost of improvement is ` 20,000? (5 marks)

(b) Vinod started a retail business in textiles on 1st April, 2013. During the financial

year 2013-14, the turnover from the business is ` 56,50,000 and net profit of `1,61,000 has been achieved from operations. As a tax consultant, advise him asto what conditions are to be complied with before filing return of income for theassessment year 2014-15? Briefly discuss the relevant provisions. (5 marks)

Answer: (a)

(i) Annual Rent: ` `

Actual rent paid by the tenant 80,000Municipal taxes paid by the tenant 5,000

Interest on deposit of ` 25,000 @ 15% 3,750

Expenses on repairs 1/9 of `80,000 8,888 97,638 1,00,000

(ii) Gross Maintainable Rent

Annual value 1,00,000Less: Municipal Taxes 8,000

15% of `1,00,000 15,000 23,000Net maintainable rent 77,000Capitalized ValueProperty constructed on free holds (77,000 × 12.5) 9,62,500

As the property is acquired after 1-4-1974, its value will be ̀ 10,00,000 + ̀ 20,000

= ` 10,20,000 or ` 9,62,500 which ever is higher. But there is an exception, whichprovides for no substitution of capitalized value if the property is self — occupied

and its value does not exceeds a limit of ` 50 lakhs (if the house is situated at

Mumbai, Kolkata, Chennai and Delhi) or ̀ 25 lakhs (if the house is situated at otherthan Mumbai, Kolkata, Chennai and Delhi). So here the value of property shall be

` 9,62,500.

(b) As per section 44AD, where the assessee is engaged in the business of retail trade

and its gross turnover does not exceed ̀ 60,00,000 he has to presume his incomefrom such business to be 8% of the turnover which in this question shall be

` 4,52,000. He can also show income higher than this amount. If the wishes toshow his income below 8%, he has to maintain accounts and get his accountsaudited in accordance with provisions of Section 44AB.

2007 - Dec [4] (b) Lovely Enterprises owns the following assets on 31st March, 2014:

(i) Land situated in rural area: Book value ` 18,00,000.


(ii) Unused land situated in urban area, purchased on 7th August, 2009 for

construction of factory: Book value ̀ 50,00,000; Value as per Schedule III to the

Wealth-tax Act, 1957: ` 62,00,000.

(iii) Motor car: Written down value ` 6,00,000; Value as per Schedule III to the

Wealth-tax Act, 1957: ` 6,50,000.

(iv) Residential house: Written down value ` 14,00,000; Value as per Schedule IIIto the Wealth-tax Act, 1957: 18,90,000.

(v) Gold and silver: Book value ̀ 1,10,000; Value as per Schedule III to the Wealth-

tax Act, 1957: ` 32,00,000.

(vi) Shares in companies: Book value ` 15,00,000; Quoted value: ` 17,00,000.

(vii) Cash in hand: ` 2,40,000.

(viii) Bank balance: ` 9,40,000.

(ix) Plant and machinery: Written down value ` 5,00,000; Cost `16,00,000; and

Market value ` 6,00,000.

Assuming that the firm has borrowed ` 4,00,000 for purchase of plant and

machinery (out of which ` 2,00,000 is outstanding on 31st March, 2014), find out thewealth-tax liability of Lovely Enterprises for the assessment year 2014-15. (7 marks)

Answer:

Computation of net wealth of Lovely Enterprise for the A.Y. 2014-15

`

Land situated in Rural Area-not a taxable asset —Urban land 62,00,000Motor Car 6,00,000Residential house 18,90,000Gold and Silver 32,00,000Shares in companies- not a taxable asset —

Cash in hand in excess of `50,000 1,90,000Bank balance- not a taxable asset —Plant and Machinery —

1,20,80,000Less: Basic Exemption 30,00,000Taxable wealth 90,80,000

Wealth tax would be 1% of the taxable wealth i.e., ` 90,800.

2008 - June [5] (a) On the basis of following information provided by Anand, computehis taxable wealth for assessment year 2014-15:

` Motor cars, not being held as stock-in-trade 15,00,000Land in urban area held as stock-in-trade since March, 2001 25,00,000Residential flat 18,00,000


Cash in hand as per cash book 5,60,000Jewellery (as per valuation report) not being held as stock-in-trade 25,45,000Bank balance 25,10,500Loan for acquiring the land in urban area 18,50,000

(5 marks)

Answer:

Computation of net wealth for the A.Y. 2014-15

`

Motor car, not being held as stock-in-trade 15,00,000Land in urban area 25,00,000Residential Flat —

Cash in hand in excess of `50,000 5,10,000Jewellery –as per valuation report not held as stock in trade 25,45,000Bank balance- not an asset —

70,55,000Less: Loan for acquiring land in urban area 18,50,000Taxable wealth 52,05,000

Section B:: Chargeability to Wealth Tax


2007 - June [1] {C} Attempt the following:(v) Who are the persons not liable to pay wealth-tax in respect of their net wealth

under the Wealth-tax Act, 1957 ? (3 marks)

Answer:

Under section 45 of Wealth Tax Act, 1957, wealth tax shall not be levied in respect ofthe net wealth of the following:

(i) any company registered under Section 25 of the Companies Act, 1956(ii) any co-operative society(iii) any social club(iv) any political party within the meaning of explanation to section 13A of the

Income-tax Act, and (v) any mutual fund with in the meaning of Section 10(23D) of the Income-tax Act

Besides, any person other than an individual, Hindu Undivided Family, company is notliable for wealth tax.


2008 - June [5] (b) Describe the assets not included in the net wealth of an assessee.(5 marks)

(c) Under the Wealth-tax Act, 1957, who can rectify a mistake in the ‘return of wealth’and at whose request ? Mention the time limit for rectification of a mistake.

(5 marks)

Answer:

(b) The following assets are totally exempt from Wealth Tax (Section 5).(a) Property held under a trust or other legal obligation for any public purpose of

a charitable or religious nature in India subject to the satisfaction of thestipulated conditions;

(b) Coparcenary interest in a HUF property;(c) One residential building belonging to a former Ruler;(d) Former Ruler's jewellery (excluding his personal jewellery) which has

been recognized as a heirloom by the Central Government before 1.4.1957 orby the CBDT after that date;

(e) Assets belonging to the Indian repatriates for 7 years on fulfillment of theconditions prescribed;

(f) One house or part of a house (with effect from 1.4.1999 one house or part ofa house or a plot of land) belonging to an individual or HUF is exempt fromWealth Tax.

(c) In case wealth tax authority commits any mistake while passing any kind of orderto rectify that mistake the wealth tax authorities have the following powers: (i) Amendment of any order (ii) Any order to refund(iii) The valuation officer may amend its order(iv) The joint Director, Commissioner, Commissioner (Appeals) or director may

amend any of its orderThe time limit for rectification is 4 years from the end of the financial year in which theorder was passed in the first appeal or revision and other cases it is four years from theend of financial year in which the order sought to be amended was passed.

PRACTICAL QUESTIONS

2004 - Dec [5] (a) Rakshit and Co., a partnership firm, is engaged in the business oftextile trading at Pune. Their minor son, Vivek has been admitted to the benefits ofpartnership. The abridged balance sheet of the firm as on 31st March, 2014 is as under:


Capital and Liabilities ` Assets `Capitals: Fixed Assets 5,20,000

Rakshit 5,00,000 Housing complex 10,30,000Mrs. Rakshit 4,00,000 Jewellery 2,00,000Vivek 3,00,000 Stock-in-trade 1,50,000

ICICI loan 2,20,000 Receivables 1,30,000Loan creditors 6,00,000 Cash in hand 60,000Trade creditors 1,25,000 Cash at bank 90,000Income-tax payable 35,000

21,80,000 21,80,000

The following further information are made available:(i) The sharing ratio of partners is 60: 40 among Rakshit and his wife in the event

of loss, and profit is shared among partners in the ratio of 40:30:30 respectively.(ii) Fixed assets include one urban plot of 350 square metres, the market value of

which being ` 8,000 per square metre and an agricultural land of 1,000 squaremetres located beyond 8 kms. to Pune municipal limits.

(iii) Housing complex consists of three flats, one flat being used by the firm for itsbusiness, one flat is on the lease since 1st January, 2005 and other flat is alsoon lease with effect from 10th June, 2012. The net maintainable rent of flats

under lease stood at ` 1,03,750 and ` 60,000 respectively. The capitalisationfactor may be assumed at 12.5.

(iv) The market value of jewellery is ` 7,35,000.

(v) ICICI loan relate to acquisition of urban land (` 1,85,000) and agricultural land

(` 35,000).

(vi) Loan creditors of ` 6,00,000 relate to the housing complex.

On the basis of above information, find out the interest of all partners in the firm as on31st March, 2013 for the purpose of computation of net wealth in their respective hands.In whose hands the net wealth of minor son will be assessed? (10 marks)

Answer:

Although firm is not chargeable to wealth tax but the value of interest of the partners inthe assets of the firm shall be deemed to be the wealth of partners under section 4. Thenet wealth of firm has to be computed in accordance with rules 15 and 16 of ScheduleIII.


Computation of net wealth of Rakshit & Co. for the A.Y. 2014-15

`

Urban plot of 350 sq. meter: 350*8,000 28,00,000Jewellery –market value 7,35,000Housing flat let out for less than 300 days (60,000*12.5) 7,50,000

42,85,000Less: ICICI loan on urban plot 1,85,000Loan creditors for let out (1/3) 2,00,000 3,85,000Net wealth 39,00,000Apportionment of net wealth among partners

Name of Partners Capital Balance in PSR Total

RakshitMrs. RakshitMr. Vivek, or Vivek

5,00,0004,00,0003,00,000

10,80,0008,10,0008,10,000

15,80,00012,10,00011,10,000

Total 12,00,000 27,00,000 39,00,000

2005 - June [5] (b) Arun furnishes the following details as on 31st March, 2014:

`

Commercial complex 21,60,000Units of UTI 7,50,000

Silver utensils (market value ` 1,75,000) 75,000Farm house (21 kms. away from municipal limit) 21,00,000Urban land (construction not permitted under the law) 42,01,000Loan taken to purchase units of UTI 3,00,000Cash in hand 11,00,000Wealth-tax paid for assessment year 2013-14 21,250

Compute the net wealth and the wealth-tax for the assessment year 2014-15.(7 marks)

Answer:

Computation of net wealth of Mr.Arun for the A.Y. 2014-15

`

Commercial complex –not an asset —Units of UTI —Silver utensils –Market value to be considered 1,75,000Farm house- considered as asset since situated within 25 kms 21,00,000Urban land-construction not permitted —

Cash in hand- in excess of `50,000 is an asset 10,50,000Gross total wealth 33,25,000


Less: Loan eligible for deduction —Net wealth 33,25,000Wealth tax 1% of (33,25,000 - 30,00,000) 3,250

2005 - Dec [5] (a) Hi-Fi-Home Ltd., a company carrying on business of construction andsale of residential flats, furnishes the following data:

Market Value

(`)(i) Land in rural area (it is within 5 kilometers of Ajmer;

construction is permissible; land was purchased in 1992) 92,78,600(ii) Land in urban area (construction not permitted as per municipal

laws) 23,00,000(iii) Land in urban area (held as stock-in-trade since 2005,

construction will commence during January, 2014) 49,50,000(iv) Motor cars 11,30,000(v) Jewellery 18,00,000(vi) Air craft for use of directors and auditors 1,58,00,000(vii) Bank balance 3,10,000(viii) Cash in hand as per cash book 1,70,000(ix) Guest house and land appurtenant thereto situated in rural area 8,00,000(x) Residential flats of identical

size provided to 6 employeesfor their use near factory whichis situated in rural area (salary

of two of them exceed ` 5,00,000 per annum) 15,00,000(xi) Residential house provided to the.

managing director (salary exceeds

` 5,00,000 per annum) 10,00,000(xii) Flats constructed and0 remaining

unsold (not being h0eld as stock-in-trade) 30,00,000

The company has taken a loan of ` 6,00,000 for acquiring jewellery. You arerequired to compute its net wealth and determine the tax payable for the assessmentyear 2014-15: (10 marks)

Answer:

Computation of net wealth of HI-Fi-Home Ltd. for the A.Y. 2014 -15

`

Land in rural area within 5 kms of Ajmer 92,78,600Land in urban area not an asset as construction is not allowed -Land in urban area held as stock in trade (Not an assets upto 10 years) -Motor cars 11,30,000


Jewellary 18,00,000Aircraft 1,58,00,000Guest House 8,00,000Four residential flats given to employees -Two residential flats given to employees 15,00,000*2/6 5,00,000Residential house given to managing director 10,00,000Flats remaining unsold 30,00,000Gross Wealth 3,33,08,600Less: Loan for acquiring jewellery 6,00,000Net Wealth 3,27,08,600

Tax @ 1% on ` 3,27,08,600 (3,27,08,600 - 30,00,000) 2,97,086

2006 - June [2] (c) Indicate the tax implications of the following transactions in thecomputation of net wealth as on 31st March, 2014:

(i) Ramnath obtained a loan of ̀ 6 lakh from his friend by mortgaging his residentialflat and the said loan was utilised by him for purchase of shares and securities.

As on 31st March, 2014, the loan outstanding stood at ` 2.40 lakh.

(ii) Mrs. Padmaja acquired jewellery in the year 2001 out of the cash gift of ` 8 lakhreceived from her husband. The fair market value of said jewellery as on 31st

March, 2014 stood at ` 16 lakh. (5 marks)

Answer:

(i) Ramnath has obtained the loan against the security of his residential flat andutilized the said loan for acquiring shares and securities. As the shares andsecurities are not assets within the meaning of section 2(ea), the loan utilized foracquiring share and securities cannot be claimed as deduction.

(ii) Section 4(1) of Wealth Tax Act, 1957, provides for clubbing of assets transferredby an individual to the spouse otherwise than for adequate consideration. Theclubbing provision applies irrespective of the form in which the transferred assetis held. In the given case Mrs. Padmaja utilized the cash gift from her husbandfor acquiring jewellary. Jewellary being taxable assets, shall be clubbed in the

hands of husband of Padmaja at its market value of `16 lakh as on valuationdate of 31-03-2014.


Section C:: Valuation of Assets

PRACTICAL QUESTIONS

2006 - Dec [4] (a) Zahir owns a house property which is situated at Pune. While annual

value of the property as per the municipal records in ` 1,20,000, rent received from the

tenant is ` 1,05,000. Municipal taxes are paid partly by Zahir ` 3,000, and partly paid

by the tenant ̀ 5,250. Repair expenses. however, are borne by the tenant ̀ 3,900. The

tenant has deposited `75,000 with Zahir as refundable security. It does not carry anyinterest. The difference between ‘unbuilt area’ and ‘specified area’ does not exceed 5%.Determine the value of the property on 31st March, 2014, being the valuation date forthe assessment year 2013-14, on the assumption that the house is built on free-hold

land. The property was acquired on 10th May, 1993 for ` 18,75,000. (5 marks)

Answer: ` `

Gross maintainable rent 1,20,000Annual Value as per municipal recordActual rent paid by the tenant 1,05,000Add:1/9th of repairs expenses as borne by the tenant 11,666municipal tax paid by tenant 5,25015%*75,000 11,250 1,33,166Gross Maintainable Rent is (a) or (b) whichever is higher 1,33,166Less: Municipal Taxes (-) 8,25015% of GMR (-) 19,975Net Maintainable Rent (NMR) 1,04,941Capitalized value, therefore NMR*12.5= 13,11,762.

The property was acquired on 10-05-1992 for `18,75,000. Therefore, value of the

property shall be `18,75,000.



1 Write notes on ‘Deemed asset’ under the Wealth-tax Act, 10 - Dec [3] (b) (iii), 12 - Dec [6] (a) (ii)

2 Times

3.292

Star Rating




11 Service Tax !!!!Background,

Administrative and

Procedural Aspects

This Chapter Includes: Introduction, Constitutional validity, AdministrativeMechanism, Categories of services, Rate of Service tax, Computation of Tax.


[Chapter #### 11] Service Tax -Background, Administrative .. OOOO 3.293


OBJECTIVE QUESTIONS

2008 - Dec [7] Attempt the following:(d) Choose the most appropriate answer from the given options in respect of the

following:(i) Tax on service is $

(a) A direct tax(b) an indirect tax(c) multipoint tax(d) None of the above.

(ii) Appeal to Customs, Excise and Service Tax Appellate Tribunal can be filedwithin $(a) One month(b) Two months(c) Three months(d) Four months.

(iii) Service tax is administered by the Department of $(a) Central Sales Tax(b) Central Excise(c) Revenue(d) Customs.

(v) Service tax is applicable in the case of $(a) All Company Secretaries(b) Company Secretaries in Practice(c) Company Secretaries below the age of 65 years(d) All services rendered by a Practising Company Secretary.

(1 mark each)

Answer:

(i) (b)(ii) (c)(iii) (b)(v) (b).


2010 - Dec [7] Attempt of the following:(v) State, with reasons in brief, whether the following statements are true or false:

(a) Service tax has been imposed by amending Chapter-VI of the Finance Act,1994.

(c) Service tax is applicable on whole India excluding Jammu and Kashmir.(e) No service tax is payable on free services. (1 mark each)

Answer:

(v) (a) False: Service tax has been imposed by amending Chapter V of FinanceAct, 1994 not by Chapter VI of the Finance Act, 1994

(c) True: as per section 64 of the Chapter V of Finance Act, 1994 theprovisions of service tax extends to the whole of India except the state ofJammu and Kashmir

(e) True: Service tax is payable on the consideration charged by the serviceprovider from the service recipient. As no consideration charged by theservice provider from the service recipient. As no consideration will bereceived in case of free services therefore the same is not liable to servicetax.

2011 - June [7] Attempt the following:(v) Re-write the following sentences after filling-in the blank spaces with appropriate

word(s)/figure(s): (a) Service tax in India made a humble beginning from __________with only

three services. (b) Currently, the rate of service tax is_________(including education cess and

secondary and higher education cess).(d) The provision of service tax extends to whole of India except __________.

(1 mark each)

Answer:

(a) July 1, 1994(b) 12.36%(d) Jammu & Kashmir

2011 - Dec [7] Attempt the following:(iv) Re-write the following sentences after filling-in the blank spaces with

appropriate word(s)/figure(s):(a) Rate of service tax payable for the financial year 2013-14 is __________

per cent.(d) Service tax in India is levied by ___________. (1 mark each)

(v) State, with reasons in brief, whether the following statements are true or false:(a) Service tax in India is levied under a separate enactment.


(b) The Central Excise Officer is empowered to impose penalty under servicetax.

(e) Service tax is administered by service tax department. (1 mark each)

Answer:

(iv) (a) 12.(d) Central Government

(v) (a) False: service tax in India is not levied under a separate enactment it islevied under Chapter V of Finance Act, 1994.

(b) True: under section 83A of the Finance Act, 1994 the Central ExciseOfficer has the power of adjudication conferred by the CBEC.

(e) False: service tax is administered by Central Board of Excise & Customs(CBEC).

2012 - June [7] (i) Re-write the following sentences after filling-in the blank spaces withappropriate word(s)/figure(s):(a) The service tax is administered and collected by _________. (1 mark)(e) According to the Finance Act, 1994 all services received and consumed on the

territory of _________ are not taxable. (1 mark)

Answer:

(a) The service tax is administered and collected by Central Board of Excise and

Customs [CBEC]

(e) According to the Finance Act, 1994 all services received and consumed on the

territory of Jammu and Kashmir are not taxable.

2012 - Dec [7] Attempt the following:(i) Re-write the following sentences after filling-in the blank spaces with appropriate

word(s)/figure(s):(c) From 1st April, 2012, the applicable rate of service tax is__________.(d) In India, service tax was first introduced in the year__________.

(1 mark each)

Answer:

(c) From 1st April,2012, the applicable rate of service tax is 12 percent.

(d) IN India, service tax was first introduced in the year 1994.

2012 - Dec [7] (iv) State, with reasons in brief, whether the following statements are trueor false:

(a) No service tax is payable on free services.(b) Service tax is always paid by the service provider.(c) The provisions of service tax extend to whole of India. (1 mark each)


Answer:

(a) True: No service tax is paid on services, which are provided free of cost.

(b) False: In special cases, service receivers are liable to pay service tax underreverse charge mechanism.

(c) False: Service tax extends to the whole of India except to the state of jammu& Kashmir.


2008 - Dec [7] Attempt the following:(a) What do you mean by ‘taxable services’ in the context of service tax? How is the

value of taxable services determined ? (5 marks)

Answer:

According to Section 67 of Chapter V of Finance Act, 1994, the value of any taxableservice shall be the “gross amount” charged by the service provider for such servicerendered by him. “Gross Amount” means the amount actually charged by the serviceprovider without making any deduction. The service provider will have to make a bill onthe receiver showing clearly the gross amount charged.For determining the value of taxable service, the following factors regardingidentification of services have to be taken in to consideration:1. Services to be included2. Services to be excluded3. Items which are statutorily includible or excludible4. Items which are includible or excludible according to departmental clarification5. If permissible, reimbursement of out of pocket expenses have to be excluded6. Inclusion of service tax element separately in the bills7. General and specific exempt services on which no service tax is leviable at all are

not required to be considered for determining the value of taxable services. Suchservices are the services which are not covered under the act and also thoseservices which are provided in the state of J&K where a service provider isproviding more than one taxable service, the gross amount in respect of allservices should be determined separately in respect of each such service so thatspecific exemption applicable to each service can be availed.

As per section 67 of the act, if consideration for a taxable service is in terms of money,the value of such service shall be the gross amount charged by the service provider forsuch service. If the consideration is not received in money, the value of taxable servicesshall be the amount equivalent to the total consideration thus arrived.


If the gross amount charged by the service provider is inclusive of service tax payable,the value of taxable service will be equal to = Gross amount charged *100/100 + Rateof service tax.Gross amount charged includes payment by cheque, credit card deduction from accountand form of payment by issue of credit or debit notes and book adjustment.

2009 - June [7] (ii) What is general rule regarding valuation of taxable service? Indicatethe position where the gross amount charged by a service provider includes service taxpayable. (5 marks)

Answer:

Please Refer 2008 - Dec [7](a) on Page No. 296

2011 - June [7] Attempt the following:(iv) What do you mean by 'taxable services' in the context of service tax ? How is the

value of taxable services determined ? (5 marks)

Answer:

Taxable Service and their valuation Service tax applies to taxable services provided on or after July 1, 1994. Section

66 of the Finance Act, 1994 is the charging section. Chargeability is changes w. e. f.1st July 2012 and services are charged as per new negative regime of service tax.

The consideration for a taxable service shall be the gross amount charged byservice provider for the service provided or to be provided. If the gross amount chargedby service provider is inclusive of service tax payable, the value of taxable service shallbe calculated as underValue of taxable services = (gross amount charged)/(100 + Rate of service tax) *100

2013 - June [7] Attempt the following:(i) Define the meaning of ‘services’ under the service tax. (5 marks)

Answer :

Clause (44) of Section 65B of the Act has defined a term Service as under:

“Service” means any activity carried out by a person for another for

consideration, and includes a declared service, but shall not include —(a) an activity which constitutes merely,—

(i) a transfer of title in goods or immovable property, by way of sale, gift orin any other manner; or

(ii) such transfer, delivery or supply of any goods which is deemed to be asale within the meaning of clause (29A) of Article 366 of the Constitution;or

(iii) a transaction in money or actionable claim;(b) a provision of service by an employee to the employer in the course of or in

relation to his employment;


(c) fees taken in any Court or tribunal established under any law for the timebeing in force.

Explanation 1 : For the removal of doubts, it is hereby declared that nothingcontained in this clause shall apply to,

(A) the functions performed by the Members of Parliament, Members of StateLegislative, Members of Panchayats, Members of Municipalities and Membersof other local authorities who receive any consideration in performing thefunctions of that office as such member; or

(B) the duties performed by any person who holds any post in pursuance of theprovisions of the Constitution in that capacity; or

(C) the duties performed by any person as a Chairperson or a Member or aDirector in a body established by the Central government or StateGovernments or local authority and who is not deemed as an employee beforethe commencement of this section.

Explanation 2 : For the purposes of this clauses, transaction in money shall notinclude any activity relating to the sue of money or its conversion by cash or by anyother mode, from one form, currency or denomination to another form, currency ordenomination for which a separate consideration is charged.

Explanation 3 : For the purposes of this Chapter,(a) an unincorporated association or a body of persons, as the case may be, and

a member thereof shall be treated as distinct persons;(b) an establishment of a person in the taxable territory and any of his other

establishment in a non? Taxable territory shall be treated as establishmentsof distinct persons.

Explanation 4 : A person carrying on a business through a branch or agency orrepresentational office in any territory shall be treated as having an establishment in thatterritory.

PRACTICAL QUESTIONS

2012 - Dec [7] (iii) X & Co. of Jammu rendered taxable services both within and outside

the State of Jammu & Kashmir. It received ̀ 53,24,000 for the services rendered inside

the State of Jammu & Kashmir and ` 45,00,000 for the services rendered outside theState of Jammu & Kashmir.Compute the value of taxable services. (5 marks)


Answer:

Service provided within the state of J & K is not subject to service tax. Consquently.

`53,24,000 ( for services rendered in the state of J & K) is not chargeable to service tax.

` 45,00,000 received from rendering services outside the state of J & K is chargeableto service tax.

It is assumed that he has received a sum of ` 45,00,000 ( inclusive of service tax)for providing services.

Therefore, Value of taxable services shall be;

= = ` 40,04,984

3.300

Star Rating




12 Levy, Collection and

Payment of Service Tax

along with CENVAT Credit Rules

This Chapter Includes: Assessment, levy, collection and payment of service tax,exemptions, CENVAT credit for Service Tax; Returns; Appeals; Revisions, advanceruling; Role of Practising Company Secretaries.


[Chapter #### 12] Levy, Collection and Payment .. OOOO 3.301


OBJECTIVE QUESTIONS


following:(iv) Service tax collected by mistake is required to be deposited under section 73A

of the Finance Act, 1994 to the $(a) Central Government(b) Account of the person who paid such tax(c) National Defence Fund(d) Chief Minister’s Relief Fund. (1 mark)

Answer:

(iv) (a) Central Government

2008 - Dec [7] (e) Re-write the following sentences after filling-up the blank spaces withappropriate word(s)/figure(s):

(i) The Superintendent of Central Excise is bound to grant certificate of registrationfor service tax within ______ days of the receipt of application.

(ii) Taxable services provided to any person by the Reserve Bank of India is ____from service tax.

(iii) Under section 77 of the Finance Act, 1994, a maximum penalty of ` _____ ispayable for late filing of service tax return.

(iv) The threshold limit for service tax exemption applicable in the case of smallservice providers has been increased to _____.

(v) When there is no consideration received for services rendered freely, the servicetax _____ apply. (1 mark each)

Answer:

(i) 7days (ii) Exempt

(iii) ` 20,000

(iv) ` 10,00,000(v) will not.

2008 - Dec [7] (f) State, with reasons in brief, whether the following statements arecorrect or incorrect:

(i) Service tax is to be paid to the credit of Central Government by the 5th of themonth immediately following the calendar month in which the payments arereceived.


(ii) In case the taxable services are provided from more than one premises/offices,the assessee can opt for registration of only one premises.

(iii) The facility for e-filing of returns is not applicable to service tax.(iv) There is no system of getting advance ruling in respect of service tax matters.(v) The CENVAT credit rules do not extend its scope to service tax paid in respect

of input services. (1 mark each)

Answer:

(i) Incorrect: Rule 6 of the Service Tax Rules 1994 provided that any assesseewho is providing taxable services shall pay service tax to the credit of CentralGovernment account by the 5th of that month immediately following the monthin which the payments are received or invoice is issued whichever is earlier.

(ii) Correct: Section 69 of the Finance Act provides that in case the taxable servicesare provided from more than one premises/offices the assessee can opt forCentralised registration for only one premises if there is a system of centralizedbilling accounting with permission from department.

(iii) Incorrect: Service tax providers can avail the benefit of e-filing of returnsthrough internet. The assessee can go to the e-filing site ‘Home page’ by typingthe address http://servicetaxfiling.nic.in in the address bar of the browser.Assessees having 15 digit STC code and falling under the categories can availthe facility of e-return.

(iv) Incorrect: Chapter VA has been added to the Finance Act, 1994 by the FinanceAct, 2003 to provide for advance ruling in service tax on the lines of the similarprovisions contained in the Central Excise Act, 1944 and Customs Act, 1962

(v) Incorrect: Under CENVAT Credit Rules, 2004 now credit can be taken forinputs, capital goods as well as for inputs services used in or in relation tomanufacture or production of final products or for providing of any taxableservices.

2009 - Dec [7] (f) Choose the most appropriate answer from the given options inrespect of the following:

(i) What would be the value of taxable service, if gross amount charged by a

service provider on 5th March, 2014 is ` 9,000 —

(a) ` 8,010

(b) ` 8,160

(c) ` 9,000

(d) ` 8,100.(ii) If Raj has collected any amount of service tax from Brij which is not required to

be collected, Raj shall pay the amount so collected to —(a) Brij(b) The Central Government


(c) Keep it with himself(d) None of the above.

(iii) E-payment of service tax is compulsory in the case of an assessee who had paidservice tax in the preceding financial year equal to at least —(a) ` 10 lakh(b) ` 40 lakh(c) ` 50 lakh(d) ` 1 crore.

(iv) Upto what amount, the value of all taxable services provided by a serviceprovider during a financial year is exempt from payment of service tax —(a) ` 4 lakh(b) ` 8 lakh(c) ` 10 lakh(d) ` 12 lakh.

(v) If a corporate assessee has paid ` 15,000 as excess service tax during theprevious half-year ending period, this excess amount can be adjusted againstits subsequent tax liability—(a) Equally every month(b) Equally per quarter(c) In one lump-sum(d) Equally on half-yearly basis. (1 mark each)

Answer:(i) (a) ` 8,010(ii) (b) The Central Government(iii) (a) ` 10 Lakh(iv) (c) ` 10 lakh(v) (c) In one lump-sum

2010 - Dec [7] Attempt of the following:(iv) Re-write the following sentences after filling-in the blank spaces with appropriate

word(s)/figure(s):(a) The application for registration shall be made within a period of ______of

commencement of business by an input service provider.(b) The registration certificate is issued to a service provider within 7 days by

the _____.(c) Return of service tax is required to be filed by every assessee in Form

No.______.(d) Due date for payment of service tax in the case of individual assessee is

________ immediately following the quarter of the financial year except incase of last quarter.

(e) Service tax is rounded off to the nearest multiple of _____. (1 mark each)


(v) State, with reasons in brief, whether the following statements are true or false:(b) There are provisions of TDS in respect of service tax.(d) Registration is mandatory under the service tax. (1 mark each)

Answer:

(iv) (a) 30 days(b) Superintendent central excise(c) ST-3(d) 5th day/6th day in case of e-payment(e) one rupee

(v) (b) True: no TDS shall be deducted on service tax included in the rent

(d) False: every person liable to pay service tax is liable to seek registration;however section 69(2) empowered the Central Government to specify anyperson or class of person who are required to seek registration. Thereforeit is not mandatory for every person providing services to get registration


word(s)/figure(s): (c) Every provider fo taxable services whose aggregate value of taxable

services in a financial year exceeds_________,must mandatorily obtainregistration.

(e) Every assessee shall submit the half yearly return by the_____________ofthe month following the particular half-year. (1 mark each)

Answer:

(c) ` 9,00,000(e) 25th of the month

2011 - Dec [7] Attempt the following:(iv) Re-write the following sentences after filling-in the blank spaces with appropriate

word(s)/figure(s):

(b) Maximum amount of penalty for late filing of service tax return is ̀ _______.(c) Under service tax rules, every assessee is required to furnish to ________

at the time of filing his return for the first time a list of all accountsmaintained in relation to the service tax.

(e) Service tax return can be revised within a period of ___________ from thedate of submission of return. (1 mark each)

(v) State, with reasons in brief, whether the following statements are true or false:(c) The Cental Government has exempted some of the taxable services.(d) Recovery and adjustment of service tax means the same thing.

(1 mark each)


Answer:

(iv) (b) ` 20,000(c) Superintendent of Central Excise(e) 90 days

(v) (c) True: the Central Government by virtue of Notification no. 22/2006-servicetax dated 31.5.2006 exempted some of the taxable services from the wholeof the service tax leviable thereon under section 66 of the Finance Act,1994.

(d) False: the recovery of service tax is made where the Central Excise Officerserves a notice for the amount of service tax which has not been levied orpaid or has been short levied or short paid or enormously refunded. On theother hand, the adjustment of service tax means the adjustment of excessamount of the service tax paid by assessee against his service tax liabilityon the succeeding month or quarter.

2012 - June [7] (i) Re-write the following sentences after filling-in the blank spaces withappropriate word(s)/figure(s):(b) Where service is received from outside India, such service shall be taxable in the

hands of __________. (1 mark)(c) Service tax is not payable in the year of commencement of business if the

aggregate value of taxable service does not exceed ___________. (1 mark)(d) If a new taxable service has to be included in the service tax registration

certificate, the service provider has to apply for amendment within __________.(1 mark)

Answer:

(b) Where service is received from outside India, such service shall be taxable in the

hands of Recipient of Service.

(c) Service tax is not payable in the year of commencement of business if the

aggregate value of table service does not exceed Rs. 10,00,000.

(d) If a new taxable service has to be included in the service tax registration

certificate, the service provider has to apply for amendment within 30 Days or

Assistant Commissioner/Deputy Commissioner."

*Note: Two versions of questions have been printed with the Word "within" or "with",therefore shall be answer can be "30 days" or "Assistant Commissioner/DeputyCommissioner."


word(s)/figure(s):


(a) Return of service tax is required to be filed by every assessee in FormNo.__________.

(b) Every small service provider of taxable services whose aggregate value oftaxable services in a financial year exceeds__________must mandatorilyobtain registration.

(e) If a person collects from any person an amount representing it as servicetax when not required to be collected, he shall forthwith deposit the amountso collected to__________. (1 mark each)

Answer:

(a) Return of service tax is required to be filed by every assessee in Form No.

ST-3.(b) Every small service provider tof taxable services whose aggregate value of

taxable services in a financial year exceeds ` 9,00,000 must mandatorilyobtain registration.

(e) If a person collects from any person an amount representing it as servicetax when not required to be collected, he shall forthwith deposit the amount

so collected to Central Government.


(d) Services provided to developer of special economic zone are liable forservice tax.

(e) The fee for application for advance ruling of service tax is ` 1,000.(1 mark each)

Answer:

(d) False: Services provided to developer of special economic zone areexempted from payment of service tax subject to the specified conditionsvide Notification No. 40/2012- Service Tax, dated 20th June 2012.

(e) False: The fee for application for advance ruling is ` 2,500.


2008 - Dec [7] Attempt the following:(b) Explain the procedure of registration for paying service tax.(c) Under certain circumstances, the service receivers are liable to pay service tax.

Indicate such cases. (5 marks each)


Answer:

(b) Section 69 of the Finance act deals with the procedure of registration for payingservice tax. The procedure of registration is as follows:1. Every person responsible for collecting service tax has to register with Central

Excise authorities. He has to apply in Form ST-12. The application for registration is to be made within a period of 30 days from

the date on which the service tax is liable.3. ST-1 Form shall be accompanied with copy of PAN, an affidavit declaring the

commencement of services, proof of residence, photograph of the assesseeetc,

4. If the assessee is a partnership firm copy of certificate of registration andpartnership deed must be attached to Form No.1

5. Where the assessee is providing more than one taxable service he can obtainregistration by making a single application mentioning all the taxable servicesprovided by him

6. The Central Excise Officer shall after satisfying himself that the applicationsform is in conformity with the prescribed guidelines shall grant a certificate ofregistration in Form ST-2 within 7 days of the date of receipt of the application.

(c) Service tax is paid by certain specified persons in the prescribed manner. Inpursuance of this power, the Central Government in Rule 2(1)(d) of Service TaxRules, 1994 has notified specific class of persons who are liable to pay service tax.Thus, as a general rule a service provider is liable to pay service tax, but in thecases and circumstances mentioned in Rule 2(1)(d), service receiver or thespecified persons are liable to pay service tax. In number of taxable services,recipient of service is specified as client or customer. Service tax is levied onservices received In India. For example, some musicians under an entity(established abroad) performs in India through an Indian entity. The musicians areof foreign nationality. The service receiver in India who are conducting the showhas to pay the service tax. Other examples are: insurance companies payingservice tax in respect of service provided by insurance agents. Service providedby mutual fund distributor- service receiver to pay service tax onbrokerage/commission received.

2009 - June [7] Attempt of the following:(i) Briefly state the provisions of service tax regarding following:

(a) Liability to registration(b) Procedure for registration(c) Issue of registration certificate(d) Time limit for registration(e) Surrender of certificate of registration. (1 mark each)


Answer:

(a) Liability to registration: Person providing taxable services in excess of ` tenlakhs per annum will have to register with Superintendent of Central Excise underthe Service Tax provisions.

(b) Procedure for registration: Every person liable to pay the service tax is requiredto make an application to the concerned Superintendent of Central Excise in FormST-1for registration within such time as may be prescribed.

(c) Issue of registration certificates: The Central Excise officer shall after satisfyinghimself that the applications form is in conformity with the prescribed guidelinesshall grant certificate of registration in Form ST-2 within 7 days of the date ofreceipt of the application.

(d) Time limit for registration: It is mandatory for every person liable to pay servicetax to get registered with Superintendent of Central Excise. An application forregistration can be made in Form ST-1, within 30 days from the date on which theservice tax is levied.

(e) Surrender of certificate of registration: The registered assessee who ceases toprovide the taxable services for which he had been registered shall surrender hiscertificate of Registration to the concerned Superintendent of Central Excise.

2009 - June [7] (iii) What is the due date for payment of service tax? What is the rateof interest for delayed payment and penalty for default in payment of service tax?

(5 marks)(iv) Discuss 'advance ruling in service tax'. (5 marks)(v) Explain the provisions regarding service tax on Company Secretaries.

(5 marks)

Answer:

(iii) Due date for payment of service tax: Service tax shall be paid by the:

In case of Individual/ Proprietary

Firm

In other cases

(a) 6th of month, if the duty isdeposited electronically throughinternet banking and

(b) 5th of the month in any othercase Immediately following thequarter in which the service isdeemed to be provided asPOTR*, 2011.

(a) 6th of month, if the duty is depositedelectronically through internet bankingand

(b) 5th of the month in any other caseImmediately following the calendarmonth in which the service is deemedto be provided as per POTR, 2011.

Further, the service tax on the service deemed to be provided in the month ofMarch or quarter ending in March, shall be paid by the 31st March.


Interest on delayed payment

Simple interest @ 18% is charged under Section 75 for the period for which thepayment is delayed. However, interest @ 15% is charged if the turnover ofassessee was upto 60 lac in preceding year and period of delay is not more than90 days.

Penalty for default in payment of service tax: If Service tax is not paid orbelatedly paid, will be higher of these 2:

(a) ` 100 per day of delay or(b) 1% per month of service tax.

(iv) Advance Ruling can be sought in respect of classification of service; value oftaxable service; applicability of Notifications and admissibility of credit of servicetax. Such ruling can be sought by a non-resident or a resident setting up a jointventure with non-resident and a wholly owned subsidiary of a foreign company.

Section 96C prescribes an application in Form AAR (ST) which shall berequired to be made to the authority in prescribed manner. The application

should be made in quadruplicate and accompanied by a fee of rupees ` 2,500only. The application can be withdrawn within a period of 30 days of theapplication. The authority is required to give its ruling within 90 days of thereceipt of valid application.

(v) Taxable service means any service provided to a client, by a practicing companysecretary in his professional capacity, in any manner. Value of the taxableservice in relation to the service provided by a practicing company secretary toa client, is the gross amount charged by such secretary from the client forservices rendered in professional capacity in any manner.

2009 - Dec [7] Attempt the following:(a) “Service tax is generally payable by the service provider, but there are certain

situations in which service receiver is liable to pay service tax.” Explain.(5 marks)

(b) What are the due dates for payment of service tax by different assessees?(5 marks)

(c) Indicate the amount of interest payable for late payment of service tax and theamount of penalty payable for late filing of return of service tax. (5 marks)

(d) Explain the provisions regarding submission of return under service tax.(5 marks)

(e) What is the basis of calculation of service tax payable? Explain the provisionsgoverning valuation of taxable services. (5 marks)


Answer:

(a) Service tax is paid by certain specified persons in the prescribed manner. Inpursuance of this power, the Central Government in Rule 2(1)(d) of Service TaxRules, 1994 has notified specific class of persons who are liable to pay service tax.Thus, as a general rule a service provider is liable to pay service tax, but in thecases and circumstances mentioned in Rule 2(1)(d), service receiver or thespecified persons are liable to pay service tax. In number of taxable services,recipient of service is specified as client or customer. Service tax is levied onservices received In India. For example, some musicians under an entity(established abroad) performs in India through an Indian entity. The musicians areof foreign nationality. The service receiver in India who are conducting the showhas to pay the service tax. Other examples are: insurance companies payingservice tax in respect of service provided by insurance agents. Service providedby mutual fund distributor- service receiver to pay service tax onbrokerage/commission received.

(b) Due date for payment of service tax: Service tax shall be paid by the:

In case of Individual/ Proprietary Firm In other cases

(c) 6th of month, if the duty is depositedelectronically through internetbanking and

(d) 5th of the month in any other caseImmediately following the quarter inwhich the service is deemed to beprovided as per POTR, 2011.

(c) 6th of month, if the duty isdeposited electronically throughinternet banking and

(d) 5th of the month in any other caseImmediately following the month inwhich the service is deemed to beprovided as per POTR, 2011.

Further, the service tax on the service deemed to be provided in the month of March orQuarter ending in March, shall be paid by the 31st March.

(c) Interest on delayed payment

Simple interest @ 18% is charged under Section 75 for the period for which thepayment is delayed. However, interest @ 15% is charged if the turnover ofassessee was upto 60 lac. in preceeding year and period of delay is not more than90 days.

Penalty for default in payment of service tax: If service tax is not paid orbelatedly paid, will be higher of these 2:

(c) ` 100 per day of delay or(d) 1% per month of service tax.


Where the return prescribed under Rule 7, is not furnished within due date, theperson liable to furnish the return shall pay to the Central Government, for theperiod of delay.

Period of delay from the date of

submission

Amount to be paid

# 15 days ` 500> 15 days but # 30 days ` 1,000

> 30 days ` 1,000 + ` 100 for each day inexcess of 31days

Provided that the total amount payable as late fees shall not exceed ` 20,000.

(d) Every assessee is required to submit a half yearly return in form S.T.3 or S.T.3A(in triplicate) along with copies of T.R.6 challans. For the purpose of filing returnshalf year is counted from April to September and October to March. In case theassessee has opted for provisional payment of service tax he is required to file theservice tax return in form S.T.3A. (Rule 7(1) of Service Tax Rules, 1994). The halfyearly return is required to be filed by the 25th of the month following a particularhalf year. (Rule 7(2) of Service Tax Rules, 1994)

(e) Please Refer 2008-Dec [7] (b) on Page No. 306

2010 - June [7] Attempt of the following:(a) As per rule 2(1)(d) of the Service Tax Rules, 1994, who is the person specified to

be liable for paying service tax in respect of the following services—(i) Telecommunication services.(ii) Services in relation to general insurance business.(iii) Services in relation to any taxable service or service to be provided by any

person from a foreign country to any person in India.(iv) Business auxiliary service of distribution of mutual fund by a mutual fund

distributor or an agent, as the case may be.(v) Sponsorship services provided to any body corporate or firm located in India.

(1 mark each)

Answer:

(i) Service Provider

(ii) Insurance Company

(iii) Recipient of such services

(iv) Mutual Fund Company

(v) Body corporate or firm providing sponsorship services.

2010 - June [7](b) (i) Which category of persons must mandatorily obtain registrationunder Chapter V of the Finance Act, 1994? (3 marks)


(ii) What are the time limits for making application for registration and grantingregistration for service tax under Chapter V of the Finance Act, 1994?

(2 marks)

Answer:

(i) The following category of persons must mandatory obtain registration 1. Every person liable to pay Service Tax.2. An Input service distributor3. Every provider of taxable service whose aggregate value of taxable service

in a financial year exceed ` 10 Lakh

(ii) Time Limit for Registration:The position in respect of the 3 categories of persons is as follows:

• Persons who are liable to pay Service Tax: Under Rule 4(1), theapplication for registration is required to be made within 30 days from thedate on which levy of service tax is brought into force in respect of therelevant services.

• Input Service Distributors: An Input Service Distributor must make theapplication in Form No.- ST-1 within a period of 30 days of thecommencement of business or June 16,2005 whichever is later.

• Small Service Provider: The small service providers must make theapplication in Form No. ST-1 within a period of 30 days of the date in thefinancial year on which the aggregate value of taxable services has

exceeded `10 lakh

Time Limit for Granting Registration:

The Department is required to issue the registration certificate within 7 days of thereceipt of the application. In case of failure to issue registration certificate within 7 days,the registration applied for is deemed to have been granted and the assessee can carryon with his activities. The provision of ‘Deemed’ registration is not particularly useful, asthe service provider is required to mention his registration number in his invoice.

2010 - June [7] (c) (i) When is an assessee registered under service tax required tosurrender the registration certificate?

(ii) On which amount—amount of bill raised on the client or amount actuallyreceived from the client, service tax is payable?

(iii) If an assessee pays service tax on the billed amount but he gets less amountfrom his customers, can he get refund from the government?

(iv) If the service provider fails to recover service tax on a bill of ` 12,000 whereservice tax is not shown separately in the invoice, what will be the amount ofservice tax?


(v) When will the small service provider claiming exemption from paying service taxapply for registration under service tax? (1 mark each)

Answer:

(i) Every registered assessee, who ceases to provide the taxable services for whichhe is registered, shall surrender his registration certificate immediately to theSuperintendent of Central Excise.

(ii) Though the service provider charges service tax on the amount of bill raised onhis client, service tax is payable to the Government on the amount actuallyreceived towards value of taxable services. It is, thus, not payable on amountscharged in the bills/invoice but on the amount actually received.

(iii) No he will not get the refund

(iv) ` 1,320(v) Whenever the value of taxable services provided by the small service provider

exceeds `10 lakh, such provider is required to get registered.

2010 - June [7] (d) Comment on the following statements—(i) “Service tax is payable as soon as advance is received even if the service is

provided later.” (2 marks)(ii) “Excess service tax collected is to be paid to the Central Government”.

(3 marks)

Answer: (i) Service tax is payable when advance is received, even if actual service is to

be provided later, but that is so only when service is a taxable service. Servicetax will indeed be payable. Hence the given statement is correct.

(ii) Any person who is liable to pay service tax under the provisions of this Chapteror the rules made there under, and has collected any amount in excess of theservice tax assessed or determined and paid on any taxable service under theprovisions of this Chapter or the rules made thereunder from the recipient oftaxable service in any manner as representing service tax, shall forthwith pay theamount so collected to the credit of the Central Government. Hence, Section 73Aof the Finance Act, 1994 makes it obligatory on every person who has collectedtax from any recipient of service in any manner as service tax, to remit the sameto the credit of the Central Government. Therefore, the given statement that“excess of service tax collected is to be paid to the Central Government” isabsolutely correct.

2010 - June [7] (e) Discuss the exemption available to small service providers frompaying service tax. (5 marks)


Answer:

(e) A small service provider is eligible to avail exemption from service tax on aggregate

value of taxable services not exceeding ̀ 10 lakh in any financial year subject to thecondition that during the preceding financial year, the aggregate value of all taxableservices provided by him from one or more premises, excluding exempted services

did not exceed `10 lakh.

For the purpose of calculating the aggregate value not exceeding ̀ 10 lakh, thetotal of first consecutive payments received during a financial year shall beconsidered. The amount so received shall be aggregated till such payments areequal to ten lakh rupees. However, gross amount received which is exempt fromwhole of service tax shall not be included.

2010 - Dec [7] Attempt the following:(i) How is the value of taxable services determined as per provisions contained in

section 67 of the Finance Act, 1994 ? (5 marks)(ii) Briefly state the provisions relating to the procedure of registration under the

service tax. (5 marks)(iii) What are the general exemptions which are available to service providers from

payment of the whole amount of service tax ? (5 marks)

Answer:

(i) Under Section 67 the value of taxable services shall be determined in thefollowing manner:(a) When the consideration for a taxable service is in monetary terms: The

value of such service shall be the gross amount charged by the serviceprovider for such service provided by him. The gross amount is value oftaxable service plus service tax payable

(b) When the consideration for a taxable service is not received wholly or partlyin money: the value of taxable service shall be the amount of money whichafter addition of service tax is equivalent to the consideration

(c) When consideration for a taxable service is not ascertainable, value of suchservice will be on the basis of Rules of valuation prescribed in this regardIf the gross amount charged by service provider is inclusive of service taxpayable, the value of taxable service will be equal to:

The gross amount charged for the taxable service can be received before, duringor after the provision of taxable service. The value of a taxable service shall bedetermined subject to these provisions in such a manner as may be prescribed.Money includes any currency, cheque, promissory note, letter of credit, draft, pay


order, traveller’s cheque, money order, postal remittance and other similarinstruments but does not include currency that is held for its numismatic value.Also, gross amount charged includes payment by cheque, credit cards,deduction from account and any form of payment by issue of credit notes or debitnotes and book adjustment.

(ii) Section 69 of the Finance act deals with the procedure of registration for payingservice tax. The procedure of registration is as follows:(a) Every person responsible for collecting service tax has to register with

Central Excise authorities. He has to apply in Form ST-1(b) The application for registration is to be made within a period of 30 days from

the date on which the service tax is liable.(c) ST-1 Form shall be accompanied with copy of PAN, an affidavit declaring

the commencement of services, proof of residence, photograph of theassessee etc,

(d) If the assessee is a partnership firm copy of certificate of registration andpartnership deed must be attached to Form No.1

(e) Where the assessee is providing more than one taxable service he canobtain registration by making a single application mentioning all the taxableservices provided by him

(f) The Central Excise Officer shall after satisfying himself that the applicationsform is in conformity with the prescribed guidelines shall grant a certificateof registration in Form ST-2 within 7 days of the date of receipt of theapplication.

(iii) As per section 93, the Central Government is empowered to exempt taxableservices from payment of service tax. The following general exemptions whichare applicable to all service are available to service providers from payment ofthe whole amount of service tax:

(a) Services provided to UN or an International Organization: As persection 65, the Central Government has exempted all taxable servicesprovided by any person to the UN or an International Organization frompayment of whole amount of service tax leviable on it.

(b) Services provided to a developer of SEZ or units of SEZ: Full exemptionis available to the service provider for providing taxable services to anapproved developer of SEZ or approved units of SEZ for consumption of theservices within such SEZ. The approved developer or approved unit of SEZshall have to maintain proper account of receipt account and utilization ofthe taxable services. It is essential that services rendered by the serviceprovider should be consumed in the unit in order to avail the exemption.


(c) Goods and materials sold by service provider to recipient of service:

with effect from September 10, 2004, this exemption shall apply in thecases where no credit of duty paid on such goods and materials sold hadbeen taken under the provisions of CENVAT Rules, 2004 or where suchcredit has been taken by the service provider on such goods and materials,such service provider has paid the amount equal to such availed before thesale of such goods and materials.

(d) Exemption for small service providers: service providers whose turnoverof taxable service from one or more premises is less than 10 lakhs perannum in the preceding financial year are exempt from payment of service

tax on turnover of `10 lakhs during the next financial year.

(e) Services provided by RBI: Taxable services provided by RBI are exemptfrom service tax.

(f) Service provided by Resident Welfare Associations: In case the monthly

contribution of members to their RWAs does not exceed ̀ 3,000 per month,exemption is available in respect of services provided by RWAs to theirmembers.

2011 - June [7] Attempt the following:(i) Discuss 'advance ruling' in service tax. (5 marks)(ii) Discuss briefly the procedure for registration of service tax provider. (5 marks)(iii) What is the due date for payment of service tax ? What is the rate of interest for

delayed payment and penalty for default in payment of service tax ? (5 marks)

Answer:

(i) Advance Ruling in Service TaxAdvance ruling “means the determination by the Authority, of a question of

law or facts specified in the application regarding the liability to pay service taxin relation to a service proposed to be provided by the applicant.Applicant means (i) (a) a non-resident setting up a joint venture in India; or

(b) a resident setting up a joint venture in collaboration with anon-resident.

(c) a wholly owned subsidiary Indian company of which the holdingcompany is a foreign company who or which, as the case may be,proposes to undertake any business activity in India;

(ii) a joint venture in India; or (iii) a resident falling within any such class or category of persons, as the

Central Government may, by notification in the Official Gazette, specify inthis behalf.


An applicant desirous of obtaining an advance ruling may make an applicationin such form and in such manner as may be prescribed stating the question onwhich the advance ruling is sought.

(ii) 1. Fill the Form ST-1 in duplicate. Enclose photocopy of PAN card and proofof address to be registered.

2. Copy of PAN card is necessary as a PAN based code (Service Tax Code)is allotted to every assessee.

3. These forms are required to be submitted to the jurisdictional Central Exciseoffice (in case of six Service Tax Commissionerates, to the jurisdictionalDivision office. There are separate service tax commissionerates inMumbai, Chennai, Delhi, Kolkata, Bangalore and Ahmedabad asmentioned in the previous chapter).

4. A person liable to pay service tax should file an application for registrationwithin thirty days from the date on which the service tax on particulartaxable service comes into effect or within thirty days from thecommencement of his activity.

5. Where a person, liable for paying service tax on a taxable service, (i) provides such service from more than one premises or offices; or

(ii) receives such service in more than one premises or offices; or, (iii) is having more than one premises or offices, which are engaged in

relation to such service in any other manner, making such personliable for paying service tax, and has centralised billing system orcentralised accounting system in respect of such service, and suchcentralised billing or centralised accounting systems are located in oneor more premises, he may, at his option, register such premises oroffices from where centralised billing or centralised accounting systemsare located.

6. The registration under sub-rule (2), shall be granted by the Commissionerof Central Excise in whose jurisdiction the premises or offices, from wherecentralised billing or accounting is done, are located:

Provided that nothing contained in this sub-rule shall have any effecton the registration granted to the premises or offices having suchcentralised billing or centralised accounting systems, prior to the 2nd dayof November, 2006.

7. A single registration is sufficient even when an assessee is providing morethan one taxable services. However, he has to mention all the servicesbeing provided by him in the application for registration and the field officeshall make suitable entries/endorsements in the registration certificate.


8. An assessee should get the registration certificate (registration number)within 7 days from the date of submission of form S.T.1, under normalcircumstances.

9. A fresh registration is required to be obtained in case of transfer of businessto another person.

10. Any registered assessee when ceases to provide the taxable service shallsurrender the registration certificate immediately.

11. In case a registered assessee starts providing any new service from thesame premises, he need not apply for a fresh registration. He can simply fillin the Form S.T.1 for necessary amendments he desires to make in hisexisting information. The new form may be submitted to the jurisdictionalSuperintendent for necessary endorsement of the new service category inhis Registration certificate.

(iii) Due date for payment of service tax; Rule 6(1) provides that service tax must bepaid by the due date. The prescribed due dates are as follows:(a) For individuals/proprietary firms/partnership firms

The payment has to be made every quarters. The due date of payment isupto 5th of the month (6th day if tax is deposited electronically) immediatelyfollowing the said quarter.

(b) For other (company and HUF)The payment has to be made every calendar month. The due date ofpayment is upto 5th of the month (6th day of tax is deposited electronically)immediately following the said calendar month.

Rate of interest for delayed payment: If the service tax is paid after the due date,simple interest is paid @ 18% for late payment of tax for the period of delay.

However, if the turnover of assessee was upto ` 60 lac in last year and periodof delay is upto 90 days rate of interest is 15%.Penalty for default in payment of service tax: if service tax is not paid or paidafter due dates penalty can be imposed which will be equal to:

(a) ` 100 per day during which the failure continues, or (b) 1% per month during which the failure continues whichever is higher.However, the penalty amount payable shall not exceed the amount of servicetax.

2011 - Dec [7] Attempt the following:(i) What are the various provisions relating to payment of service tax? Explain

(5 marks)


(ii) What are the provisions regarding penalties under service tax in the followingcases:(a) Failure to take registration.(b) Failure to keep books of account.(c) Failure to produce accounts and documents. (5 marks)

(iii) “The value of any taxable service shall be the gross amount charged by theservice provider for such service rendered by him”. In the light of this statement,explain how the value of taxable service is determined. (5 marks)

Answer:(i) The service tax shall be paid to the credit of Central Government;

(a) by the 6th day of the month, if the tax is deposited electronically throughinternet banking; and

(b) by the 5th day of the month in any other case,immediately following the calendar month in which the service is deemed to beprovided as per the rules framed in this regard.

Provided that where the assessee is an individual or proprietary firm orpartnership firm, the service tax shall be paid to the credit of the CentralGovernment by the 6th day of the month if the tax is deposited electronicallythrough internet banking, or, in any other case, the 5th day of the month, as thecase may be, immediately following the quarter in which the service is deemedto be provided as per the rules framed in this regard.

Provided also that the service tax on the services deemed to be providedin the month of March, or the quarter ending in March, as the case may be shallbe paid to the credit of the Central Government by the 31st day of March of thecalendar year.

(ii) (a) Any person who is liable to pay service tax or required to take registration,fails to take registration in accordance with the provisions of section 69 orrules made under this Chapter shall be liable to pay a penalty which mayextend to ten thousand rupees or two hundred rupees for every day duringwhich such failure continues, whichever is higher, starting with the first dayafter the due date, till the date of actual compliance.

(b) Any person who fails to keep, maintain or retain books of account and otherdocuments, as required in accordance with the provisions of this Chapteror the rules made thereunder shall be liable to a penalty which may extendto ten thousand rupees.

(c) Any person who fails to produce documents called for by a Central ExciseOfficer in accordance with the provisions of this Chapter or rules madethereunder shall be liable to a penalty which may extend to ten thousandrupees or two hundred rupees for every day during which such failurecontinues, whichever is higher starting with the first day after the due datetill the date of actual compliance.


(iii) Under Section 67, service tax shall be chargeable on any taxable service withreference to its value. Such value will be as follows:1. in a case where the provision of service is for a consideration in money, be

the gross amount charged by the service provider for such service providedor to be provided by him;

2. in a case where the provision of service is for a consideration not wholly orpartly consisting of money, the value of taxable service shall be determinedby the service provider in the following manner:-(a) the value of such taxable service shall be equivalent to the gross

amount charged by the service provider to provide similar service toany other person in the ordinary course of trade and the gross amountcharged is the sole consideration;

(b) where the value cannot be determined in accordance with clause (a),the service provider shall determine the equivalent money value ofsuch consideration which shall, in no case be less than the cost ofprovision of such taxable service.

3. Where the gross amount charged by a service provider, for the serviceprovided or to be provided is inclusive of service tax payable, the value ofsuch taxable service shall be such amount as, with the addition of taxpayable, is equal to the gross amount charged.

4. The gross amount charged for the taxable service shall include any amountreceived towards the taxable service before, during or after provision ofsuch service.

5. The gross amount shall include any expenditure or cost incurred by theservice provider. However, the expenditure incurred as a pure agent of theservice receiver shall not form part of the value of taxable services.

2012 - June [7] (iii) Discuss briefly the procedure for registration under the service tax.What is the amount of penalty for non-registration ? (5 marks)(iv) Name the person who is to apply for registration and pay service tax in the

following cases:(a) Service is provided by an insurance agent.(b) Goods transport agency provides taxable service to a specified

consignee/consignor.(c) Service is provided by a distributor to asset management company or

mutual fund.(d) Service is provided by any person from a country other than India.(e) Sponsorship of an event. (5 marks)


(v) State, with reasons in brief, whether the following are liable to service tax:(a) Services rendered to associated enterprise.(b) Services rendered by a sub-contractor.(c) Services provided to a developer of a special economic zone.(d) Services rendered to the Reserve Bank of India.(e) Services provided to a diplomatic mission for their personal use.

(5 marks)

Answer:

(iii) Procedure for registration for service tax provider

Section 69 of the Finance Act, read with Rule 4 of the Service Tax Rules makesprovisions relating to registration. It is mandatory for every person liable to pay servicetax to get registered with Superintendent of Central Excise by making an application inForm ST-1. This is to be made within a period of 30 days from the date on which theservice tax is leviable.

However, where a person commences the business of providing a taxable serviceafter such service become taxable, he shall make an application for registration withina period of 30 days from the date of such commencement.

Consequences of Non-registration

According to section 77, a person who is liable to pay service tax or is required totake registration, fails to take registration in accordance with the provisions of Section69 or rules made thereunder shall be liable to pay a penalty which may extend to10,000 rupees or two hundred rupees for every day during which failure continues,whichever is higher.

(iv) Person who is apply for registration and pay service tax (a) Insurer(b) Person making payment of freight(c) Asset Management company or mutual fund(d) Recipient of service in India.(e) Body corporate or a firm receiving sponsorship services i.e., service recipient.

(v) (a) Service rendered to associated enterprises: In transactions betweenassociated enterprises value of taxable service shall include any amountcredited or debited, as case may be, to any account, whether called"suspense account" of a person liable to pay service tax.

(b) Service rendered by a sub-contractor: Services provided by asubcontractor is subject to service tax.

(c) Service provided to a developer of a special economic zone: Such serviceare not subject to service tax.


(d) Services rendered to Reserve Bank of India: Services provided to RBI issubject to Service tax. However, services provided to RBI (where service taxis payable by the recipient of service under reverse charge basis) is nottaxable.

(e) Service provide to a diplomatic mission for their personal use: All taxableservices provided to diplomatic mission agents or career consular officersposted in foreign diplomatic missions or consular posts in India for theirpersonal use are exempted.

2012 - Dec [7] (ii) What general exemptions are available to service providers frompayment of the whole amount of service tax? Explain in brief. (5 marks)

Answer:

General exemption from service tax

The following general exemptions are available to service provider from paymentof the whole amount of service tax:

1. A service provider whose value for taxable services from one or more

premises does not exceed ̀ 10,00,000 in the preceding financial year shall beexempt from service tax upto the aggregate value of taxable service not

exceeding ` 10 lakh in the subsequent financial year. 2. Service provider shall not be liable to pay service tax on the services covered

under Mega Exemption list notified vide Notification No. 25/2012.3. Service provider shall not be liable to pay service tax on the services coverd

under the negative list of services.4. Service provider shall not be liable to pay service tax on the services provided

outside taxable territory.5. Service provider shall not be liable to pay service tax on services which are

specifically excluded in the definition of term “service”.

2012 - Dec [7] (v) What do you mean by ‘reverse charge’ and under whatcircumstances the service receivers are liable to pay service tax? (5 marks)

Answer:

As per Section 68, every person providing taxable services i.e. provider of outputservice is liable to pay service tax. But in special cases service receiver is liable to payservice tax. This is known as reverse charge. In the following case, service receivershall be liable to pay service tax.1. Services provided or agreed to be provided by an insurance agent to any person

carrying on insurance business.2. Services provided or agreed to be provided by a goods transport agency in respect

of transportation of goods by road.3. Services provided or agreed to be provided by way of sponsorship.


4. Services provided or agreed to be provided by an arbitral tribunal to any businessentity.

5. Service provided or agreed to be provided by individual advocate to any businessentity.

6. Services provided or agreed to be provided by way of support service byGovernment or local authority.

7. In respect of services provided or agreed to be provided by way of renting or hiringany motor vehicle designed to carry passenger.

8. Services provided or agreed to be provided by way of supply of manpower for anypurpose.

9. Services provided or agreed to be provided by way of works contract.10. Any taxable services provided or agreed to be provided by any person who is

located in a non- taxable territory and received by any person located in the taxableterritory.

2013 - June [7] Attempt the following:(ii) Service tax is now levied on all services except the services specified in the

negative list. Enumerate any five services which are covered in the negative list.(5 marks)

(iii) The Central Government vide Notification No. 25/2012 has exempted certainservices from the whole of service tax leviable thereon. Enumerate any fiveservices which are covered in the mega exemption notification. (5 marks)

(v) Every person providing taxable services is liable to pay service tax. Are thereany cases where service tax is to be paid by the service recipient? If yes, giveany three such cases. (5 marks)

Answer :

(ii) The following services are covered under negative list of services :(a) Services by government or a local authority(b) Services by the Reserve Bank of India(c) Services by a foreign diplomatic mission located in India(d) Services relating to agriculture or agricultural produce(e) Trading of goods(f) Any process amounting to manufacture or production of goods(g) Selling of space or time slots for advertisements other than advertisements

broadcast by radio or television(h) Service by way of access to a road or a bridge on payment of tool charges(i) Betting, gambling or lottery(j) Admission to entertainment events or access to amusement transmission or

distribution utility(l) Specified services relating to education


(m) Services by way of renting of residential dwelling for use as residence(n) Certain services provided by financial sector(o) Services relating to transportation of passengers(p) Services provided by way of transportation of goods(q) Funeral, burial, crematorium or mortuary services including transportation of

the deceased.

(iii) In exercise of the powers conferred by sub-section (1) of section 93 of theFinance Act, 1994, the Central Government has issued Notification No. 25/2012ST dated 20th June 2012 (Mega Exemption Notification) exempting the services.This notification has come in to effect from 1st day of July, 2012.The following is the illustrative list of exempted services.— Services provided to the United Nations or a specified international

organization.— health care services by a clinical establishment, an authorized medical

practitioner or para-medics.— Services by a veterinary clinic in relation to health care of animals or birds.— Services by an entity registered under section 12AA of the Income tax Act,

1961 (43 of 196) by way of charitable activities.— Services by a person by way of-

— renting of precincts of a religious place meant for general public; or— conduct of any religious ceremony.

— Services by way of technical testing or analysis of newly developed drugs,including vaccines and herbal remedies, on human participants by a clinicalresearch organisation approved to conduct clinical trials by the DrugController General of India.

— Services by way of training or coaching in recreational activities relating toarts, culture or sports.

— Services provided to or by an educational institution in respect of educationexempted from service tax.

— Services provided to a recognised sports body.— Services by way of sponsorship of sporting events.— services provided to the Government, a local authority or a governmental

authority by way of construction, erection, commissioning, installation,completion, fitting out, repair, maintenance, renovation, or alteration of a civilstructure or any other original works.

— Services provided by way of construction, erection, commissioning,installation, completion, fitting out, repair, maintenance, renovation, oralteration of, a orad, bridge, tunnel, or terminal for road transportation for useby general public.


— Services by way of construction, erection, commissioning, or installation oforiginal works pertaining to, an airport, port or railways, including monorailor metro.

(v) Section 68(2), provides that in respect of the taxable services notified by theCentral Government the service tax thereon shall be paid by such person asmay be prescribed. Notification No. 30/2012 dated 20th June 2012 provides forthe services where service tax shall be paid by service receiver or in some caseby both i.e. service receiver and service provider. The mechanism under which

liability for payment of service tax is on the service receiver is known as reverse

charge.

In the following case, service receiver shall be liable to pay service tax.1. Services provided or agreed to be provided by an insurance agent to any

person carrying on insurance business.2. Services provided or agreed to be provided by a goods transport agency in

respect of transportation of goods by road.3. Services provided or agreed to be provided by way of sponsorship.4. Services provided or agreed to be provided by an arbitral tribunal.5. Services provided or agreed to be provided by individual advocate by way

of legal services.6. Services provided or agreed to be provided by way of support service by

Government or local authority.7. In respect of services provided or agreed to be provided by way of renting

or hiring any motor vehicle designed to carry passenger.8. Services provided or agreed to be provided by way of supply of manpower

for any purpose or security services.9. Services provided or agreed to be provided in service potion in execution of

works contract.10. Any taxable services provided or agreed to be provided by any person who

is located in a non-taxable territory and received by any person located inthe taxable territory.

11. In respect of services provided or agreed to be provided by a director of acompany to the said company.

2013 - Dec [7] Attempt the following:(i) What are the documents to be attached by a service provider along with an

application for registration under service tax? What is the time-limit for makingsuch an application?

(iii) What do you mean by ‘reverse charge’ and under what circumstances theservice receivers are liable to pay service tax? Indicate such cases.

(5 marks each)


PRACTICAL QUESTIONS

2012 - June [7] Attempt the following:(ii) An individual furnished following particulars relating to services rendered by him

during half yearly period ended on 30th September, 2013:

— Total bill raised for ` 9,75,000 out of which ` 1,00,000 exempted from

service tax and ` 1,15,000 not paid till 30th September, 2013.

— An advance of ` 7,00,000 received from a client on 20th September, 2013to which service to be provided after 30th September, 2013.

You are required to compute tax liability of the service provider. (5 marks)

Answer:

Computation of Service Tax Liability

Total bill of the Services 9,75,000Less: Value of Exempted Service (1,00,000)

Amount of Taxable Service Received 8,75,000

Add: Amount received in Advance 7,00,000

Taxable Value of service 15,75,000

Service Tax @ 12% 1,89,000Add: Education Cess @ 3% 5,670____________________________________________________________________Total service tax payable 1,94,670____________________________________________________________________

2013 - June [7] Attempt the following:(iv) R Ltd., gives the following particulars relating to the services provided by it

to its various clients for the month ending 31st July, 2012:

— Total bills raised for ` 17,50,000 out of which bill for ` 1,50,000 was raised

on a Diplomatic Mission and payments of bills for ` 2,00,000 were notreceived until 31st July, 2012. Service tax is separately charged on the billsraised.

— Amount of ` 1,12,360 (including service tax) was received as an advancefrom XYZ Ltd. on 25th July, 2012 to whom the services were provided inAugust, 2012.

Compute —(a) Value of taxable services(b) Amount of service tax payable(c) Last date of service tax payable. (5 marks)


Answer :

(a) Value of Taxable Services for the month ending 31.07.2012

`̀̀̀

(i) Total bills raised during the month ending 31.07.2012 17,50,000Less: Bill raised on diplomatic Mission 1,50,000Less: Bill in respect of which payment not received

(Refer W.N. No. 2) NilAdd: Amount of advance received on 25.07.2012 1,00,000

` 1,12,360 × 100/112.36

Value of Taxable services 17,00,000

(b) Amount of Service Tax Payable `̀̀̀

Value of Taxable service 17,00,000Service tax @ 12% 2,04,000Add: Education Cess @2% 4,080Add: SHEC @ 1% 2,040

Total Service Tax Payable 2,10,120

(c) Last date of service tax payable

Since service provider is a company, the last date for making payment of ServiceTax payable will be 5th/6th August, as the case may be, in accordance with therule 6(1) of the Service Tax Rules, 1994.

Working Notes(1) No adjustment is required in respect of the bill for which payment was not

received because according to Rule 3 of Point of Taxation Rules, 2011 whereinvoice is issued within 30 days from the date of completion of the service, thepoint of taxation will be earlier of the following two dates:(a) Issue of invoice for the service provided or to be provided or(b) Date of payment to the extent it is received.

(2) Amount received as advance on 25.07.2012 is to be included in the taxablevalue of services because according to Explanation appended to Rule 3 ofPoint of Taxation Rules, 2011 wherever any advance by whatever nameknown is received by the service provider towards the provision of taxableservice, the point of taxation shall be the date or receipt of such advance.

2013 - Dec [7] Attempt the following:(ii) Vasudha Ltd. has been providing a taxable service for the last three years. For

the month of October, 2012, its gross receipts were ̀ 30,00,000. The break-upof the receipts is given below:

— Services rendered to associate enterprise during the month ` 6,00,000

and amount received during the month ` 2,00,000.

— Services rendered in Jammu & Kashmir ` 6,00,000.


— The balance amount received represents services rendered during themonth and realised in full.

Compute the amount of service tax payable and the due date for payment, onthe assumption that services rendered to associate enterprise is exclusive ofservice tax and services rendered to others is inclusive of service tax.

(iv) R Ltd., receives taxable services from G Ltd. of Japan on 28th August, 2012

for ̀ 6,00,000. G Ltd. raises the invoice on 5th September, 2012. R Ltd. makesthe payment as under:Case-I 6th January, 2013Case-II 28th March, 2013Determine the point of taxation in the above two cases.

(v) PQR Ltd. provides coaching in the field of engineering. One of the students,

Kapil, paid ̀ 15,000 in cash and a gold chain valuing ̀ 35,000 (cost to Kapil’s

father who is a jeweller ̀ 30,000) to PQR Ltd. Compute the amount of servicetax payable by PQR Ltd. thereon @ 12.36%. (5 marks each)



1 Attempt on Briefly state the provisions relating to theprocedure of registration under the service tax.

08 - Dec [7] (b), 10 - Dec [7] (ii)

2 Times

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13 Value Added Tax (VAT)

— An Overview

This Chapter Includes: Introduction, Extracts from Kelkar Committee Report, VATliability, Advantages, Work Contract Tax, Withdrawal of Central Sales Taxes, Goodsand Service Tax.




OBJECTIVE QUESTIONS

2008 - Dec [8] Attempt the following:(f) State, with reasons in brief, whether the following statements are correct or

incorrect:(ii) VAT helps in checking tax evasion and in achieving neutrality.(iii) The departmental audit also helps to check tax evasion.(v) As a result of introduction of VAT, the central sales tax will be phased out in

due course. (1 mark each)

Answer:

(ii) Correct: A cross checking through computerized system shall be done on thebasis of coordination between tax authorities of the State Governments and theauthorities of Central excise to compare constantly the tax returns and set-offdocuments of VAT System of States and those of Central Excise. Thiscomprehensive cross checking system help in reduction in tax evasions andleads to significant growth of tax revenue

(iii) Correct: Departmental Audit is conducted on the basis of sample checking incase of self assessment cases. If some disparities are noted then audit of thosecases is done thoroughly. It helps in checking tax evasion.

(v) Correct: With the introduction of VAT in majority of states in our country, CentralSales Tax Act, 1956 will be Phased out by 2010, it become imperative for oureconomy that the VAT system should be implemented all over the country.

2010 - Dec [8] Attempt the following:(v) State, with reasons in brief, whether the following statements are true or false:

(a) Value added tax (VAT) is levied by the Central Government.(b) VAT is a multi-point tax. (1 mark each)

Answer:

(a) False: Value Added Tax is levied and collected by the State Government

(b) True: VAT is a multi stage tax levied as a proportion of the value added at eachstage

2011 - June [8] Attempt the following:(v) State, with reasons in brief, whether the following statements are true or false :

(c) Tax cannot be evaded under VAT system. (1 mark)

Answer:

(c) True: the adoption of VAT helps in reducing evasion of tax

[Chapter #### 13] Value Added Tax (VAT) — An Overview OOOO 3.331

2012 - June [8] (i) State, with reasons in brief, whether the following statements are trueor false:(a) Value added tax (VAT) is a multi-point tax.(b) Input VAT credit is available on inter-State purchases.(c) Haryana was the first State to implement VAT in India. (1 mark each)

Answer:

(a) True: VAT is a state multi-point tax on value additions.

(b) False: Input VAT credit is generally given for the entire VAT within the state onpurchases of Taxable goods meant for resale/manufacture of taxable goods.

(c) True: Haryana was the first state to implement VAT in India.

2012 - Dec [8] Attempt the following:(i) State, with reasons in brief, whether the following statements are true or false:

(a) As a result of introduction of value added tax (VAT), the central sales taxwill be phased out.

(b) The White Paper specified that registration under the VAT is not compulsory

for the small dealers with gross annual turnover not exceeding ` 10 lakh.(c) Punjab was the first state to implement VAT w.e.f. 1st April, 2003.

(1 mark each)

Answer:

(a) True: Presently, CST is continued, though it is proposed to be phased outin due course.

(b) False: The White Paper specified that registration under VAT Act shall notbe compulsory for the small dealers with gross annual turnover not

exceeding ` 5 lakh.

(c) False: Haryana was the first state to implement VAT w.e.f. Aptil, 1, 2003.

2013 -Dec [8] Attempt the following:(i) State, with reasons in brief, whether the following statements are true or false :

(a) The value added tax (VAT) had its origin only in United Kingdom.(b) Central sales tax paid on inter-State purchases is eligible for being set-off

against VAT payable in the State. (1 mark)


2009 - June [8] Answer the following:(i) Who is liable to pay VAT? Discuss the advantages of introduction of VAT in

India. (10 marks)


Answer:

Who is liable to pay VAT

A dealer whose turnover exceeds the prescribed limit is liable to pay tax. VAT is basedon the value addition to the goods and the related VAT liability of the dealer iscalculated by deducting input tax credit from tax collected on sales during the paymentperiod. The registration under VAT Act is not compulsory for small dealers with gross

annual turnover not exceeding `10 lakhs.

Advantages of introduction of VAT in India

Under VAT system, tax is charged at each stage of sale on the value added to thegoods. Various advantages of introducing VAT are as under:1. Removes the cascading of taxes due to its inherent features of offering set-off

taxes paid already on inputs.2. Encourages buyers to demand tax invoices from (to in turn claim input tax credit,

when sold) thereby widening the tax base.3. Usually accompanies by a lesser number of rates which makes administration

much easier4. A properly designed system of VAT does not distort trade and production methods

i.e, it does not induce shifting of production bases, vertical integration ordisintegration or changes in constitution of the entity.

5. Encourage better compliance due to the availability of set off of taxes paid andthereby less evasion.

6. Ensures transparency because the purchaser know exactly how much of taxes areincluded in the purchase value.

7. Improves economic efficiency with its neutrality with respect to forms oforganization, production facilities and location

8. Particularly improves export competitiveness of local industries due to “zero rating”of exports.

It creates on audit trial due to its inherent nature where the purchase invoice forms thebasis for obtaining credit of tax.

2010 - June [8] Attempt the following:(i) “As a result of introduction of value added tax (VAT), the central sales tax will be

phased out.” Explain the statement. (5 marks)

Answer: The VAT will not only provide full set-off for input tax as well as tax on previouspurchases, but it will also abolish the burden of several of the existing taxes, such asturnover tax, surcharge on sales tax, additional surcharge, special additional tax, etc.In addition, Central Sales Tax is also going to be phased out. As a result, the overall taxburden will be rationalized, and prices, in general, will fall. Moreover, VAT will replacethe existing system of inspection by a system of built-in self-assessment by traders and


manufacturers. The tax structure will become simple and more transparent. This willsignificantly improve tax compliance and will also help increase revenue growth. In theexisting sales tax structure, there are problems of double taxation of commodities andmultiplicity of taxes, resulting in a cascading tax burden. For instance, in the existingstructure, before a commodity is produced, inputs are first taxed, and then after thecommodity is produced with input tax load, output is taxed again. This causes an unfairdouble taxation with cascading effects. In the VAT, a set-off is given for input tax aswell as tax paid on previous purchases. In the prevailing sales tax structure, there is inseveral States also a multiplicity of taxes, such as turnover tax, surcharge on sales tax,additional surcharge, etc. With introduction of VAT, these other taxes will be abolished.In addition, Central sales tax is also going to be phased out. As a result, overall taxburden will be rationalized, and prices in general will also fall. Moreover, VAT willreplace the existing system of inspection by a system of built-in self-assessment by thedealers and auditing. The tax structure will become simple and more transparent. Thatwill improve tax compliance and also augment revenue growth. Hence we can rightlysay that “as a result of introduction of value added tax, the central sales tax will bephased out”.

2010 - Dec [8] Attempt the following:(i) How is the value added tax (VAT) structure an improvement over the sales tax

system ? (5 marks)

Answer:

(i) VAT structure is an improvement over the sales tax system due to the followingreasons:(a) Removes the cascading of taxes due to its inherent features of offering

set-off taxes paid already on inputs.(b) Encourages buyers to demand tax invoices from (to in turn claim input tax

credit, when sold) thereby widening the tax base.(c) Usually accompanies by a lesser number of rates which makes

administration much easier.(d) A property designed system of VAT does not distort trade and production

methods i.e, it does not induce shifting of production bases, verticalintegration or disintegration or changes in constitution of the entity.

(e) Encourage better compliance due to the availability of set off of taxes paidand thereby less evasion.

(f) Ensures transparency because the purchasers know exactly how much oftaxes are included in the purchase value.

(g) Improves economic efficiency with its neutrality with respect to forms oforganization, production facilities and location.


2011 - June [8] Attempt the following:(i) Who is liable to pay value added tax (VAT) ? Discuss, in brief, the advantages

of introduction of VAT in India. (5 marks)

Answer:

Advantages of VAT

In the advantages part we will first look after the broad coverage of VAT in the Indianmarket. Then we will consider the level of security the Indian VAT is having on ourrevenues. Obviously the selection of items to be covered by VAT in India will be givena bullet to think upon and at last we will check out the co-ordination VAT in India will behaving with our existing direct tax system.

1. Coverage

If the tax is carried through the retail level, it offers all the economic advantages ofa tax that includes the entire retail price within its scope, at the same time the directpayment of the tax is spread out and over a large number of firms instead of beingconcentrated on particular groups, such as wholesalers or retailers.

If retailers do evade, tax will be lost only on their margins because customersthat are registered firms gain nothing if their suppliers fail to collect tax, exceptdelay in payment; they will pay more to the government themselves. Under otherforms of sales tax, both seller and customer gain by evading tax. One particularadvantage is that of the widening of the tax base by bringing all transactions intothe tax net. Specifically, VAT gives the new government the opportunity to bringback into the tax system all those persons and entities who were given taxexemptions in one form or another by the previous regime.

2. Revenue security

VAT represents an important instrument against tax evasion and is superior to abusiness tax or a sales tax from the point of view of revenue security for threereasons.

In the first place, under VAT it is only buyers at the final stage who have aninterest in undervaluing their purchases, since the deduction system ensures thatbuyers at earlier stages will be refunded the taxes on their purchases. Therefore,tax losses due to undervaluation should be limited to the value added at the laststage. Under a retail sales tax, on the other hand, retailer and consumer have amutual interest in underdeclaring the actual purchase price.

Secondly, under VAT, if payment of tax is successfully avoided at one stagenothing will be lost if it is picked up at a later stage; and even if it is not picked upsubsequently, the government will at least have collected the VAT paid at stagesprevious to that at which the tax was avoided; while if evasion takes place at thefinal stage the state will lose only the tax on the value added at that point.


If evasion takes place under a sales tax, on the other hand, all the taxes dueon the product are lost to the government.

A significant advantage of the value added form in any country is thecross-audit feature. Tax charged by one firm is reported as a deduction by the firmsbuying from it. Only on the final sale to the consumer is there no possibility of crossaudit.

Cross audit is possible with any form of sales tax, but the tax-credit featureemphasises and simplifies it and is likely to make firms more careful not to evadebecause they know of the possibility of cross check.

3. Selectivity

VAT may be selectively applied to specific goods or business entities. We havealready addressed essential goods and small business. In addition the VAT doesnot burden capital goods because the consumption-type VAT provides a full creditfor the tax included in purchases of capital goods. The credit does not subsidizethe purchase of capital goods; it simply eliminates the tax that has been imposedon them.

4. Co-ordination of VAT with direct taxation

Most taxpayers cheat on their sales not to evade VAT but to evade personal andcorporate income taxes. The operation of a VAT resembles that of the income taxmore than that of other taxes, and an effective VAT greatly aids income taxadministration and revenue collection. It is interesting to note that when Trinidadand Tobago set out to introduce VAT it chose one of its top income taxadministrators as the VAT Commissioner.

2011 - Dec [8] Attempt the following:(i) What is ‘white paper’? What are the different parts of white paper under value

added tax (VAT)? (5 marks)

Answer:

The empowered committee of the State Finance Ministers constituted by the Ministryof Finance Government of India on the basis of the resolution adopted in the conferenceof the Chief Ministers on November 16, 1999 under the chairmanship of Dr. AsimDasgupta came out with a white paper on state level VAT, which was released onJanuary 17, 2005 by Shri P Chidambaram, the Finance Minister, Government of Indiaon this occasion the Finance Minister remarked:

This is the first document which have been collectively prepared and put out to thepeople of the country by the Finance Ministers of all states...... We have formed therainbow coalition to undertake one of the biggest tax reforms”.

This paper consists of three parts. In Part I Justification of VAT and the backgroundhas been mentioned. In Part II main design of VAT as evolved on the basis ofconsensus among the states through repeated discussions in the Empowered


Committee has been elaborated and in Part III other related issues for effectiveimplementation of VAT have been discussed.

2012 - June [8] (iii) What are the major deficiencies of VAT system in India ?(5 marks)

Answer:

The design of VAT that has been adopted by the states in India meets several ofthe criteria of a good VAT but is deficient in some crucial aspects. Some of these aregiven below:• It does not cover goods as well as services.• AS per the scheme, VATs was expected to be fairly comprehensive as exemptions

were supposed to be few. However, under continuous pressure from variousquarters the number of commodities which are now being exempted from VAT invarious states is not that small.

• The other deficiency of the design of VAT is the one embedded in the structure ofthe rates.

• The general VAT rate of 12.5% percent is unduly high. This is supposed to berevenue neutral rate, though it is difficult to see how a uniform rate could berevenue neutral for all states.

• Classification of goods under different lists is, in many instances, arbitrary andleaves wide room of doubts and disputes as to whether a particular item comeswithin the lower rate category or not.

• So long as the Central VAT is not integrated with the State VAT, it will bedifficult to put the purchases from other states at par with the state purchases. Inother words, the advantage of neutrality will be confined only for purchases within the state.

2013 - June [8] Attempt the following:(v) (b) “VAT avoids cascading effect”. How? (2 marks)

Answer :

“VAT avoids cascading effects”

VAT does not have cascading effect due to the system of deduction or creditmechanism. Since, VAT does way with cascading, it avoids distorting businessdecisions; the need for vertical integration is dictated only by the market forcesor technical considerations and not by the tax structure.

2013 - Dec [8] (iv) State any two benefits and any two drawbacks for a dealer who optsfor composition scheme under VAT as per White Paper. (5 marks)

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14 Computation and Other

Procedural Aspects Relating to VAT

This Chapter Includes: Method of Computation, Procedure, Rates of Tax,Distinction Between Existing System and VAT, Registration, Exempt Sale, Creditand Set-off under VAT, Assessment, Audit, Returns, Zero Rating, Refunds, ScrutinyProcess.




OBJECTIVE QUESTIONS


incorrect:(i) Zero rating transaction is the same as an exempt transaction.

(iv) Introduction of VAT has increased the professional development opportunitiesfor the Company Secretaries. (1 mark each)

Answer:

(i) Incorrect: Zero rating means that the tax payable on sale of a commodity isfixed at 0%. Though apparently, it looks similar to an exempt transaction, thereis significance difference between two. While in an exempt transaction, the taxpaid on input lapse i.e., it cannot be set-off under the zero rated sales, prior stagetax is set-off against the 0% tax and effectively the entire tax paid on purchaseis eligible for refund

(iv) Correct: With the inception of VAT Company Secretaries are now able to actauthorized representative of their clients in some states, through statutoryprovisions provided in the respective VAT Acts.


(c) VAT system has six broad tax rates.(d) VAT system is followed by all States in India.(e) Registration of dealer is mandatory under VAT. (1 mark each)

Answer:

(c) False: VAT system has four broad tax rates instead of six broad tax rates. Thebroad rates are 1%, 4%, 20% and 12.5%

(d) True: now VAT is followed by all the states

(e) False: a dealer with turnover below the specified amount (say `5 lac or 10 lac )need not to be registered compulsorily)


(a) Under zero-rated sales, prior stage tax is set-off against the zero percent taxpaid, and effectively the entire tax paid on purchases is eligible for refund.

(b) A special VAT rate of 2% is prescribed for precious and semi-preciousmetals.

[Chapter #### 14] Computation and Other Procedural... OOOO 3.339

(d) There are certain cases of purchases in respect of which generally no inputtax credit is available.

(e) Input VAT credit is available on inter-State purchases. (1 mark each)

Answer:

(a) True: There is a significant difference between the two. While in an exemptedtransaction, the tax paid on input lapses. i.e, it cannot be set off , under the zerorated sales prior stages is set off against the 0% tax paid and effectively the entiretax paid on purchase is eligible for refund

(b) False: a special VAT rate of 1% instead of 2% is prescribed for precious andsemi-precious metals

(d) True: on certain purchases such as from unregistered dealer, from interstate, froma dealer who opt for composite scheme etc no input credit is available’

(e) False: Input VAT credit is not available on inter state purchases

2012 - June [8] (i) State, with reasons in brief, whether the following statements are trueor false:(d) Zero-rating is advantageous to the dealer compared to exempting of sale

transactions.(e) Stock/consignment transfers are exempt from VAT. (1 mark each)

Answer:

(d) True: Zero rating in advantages to the dealer compared to ‘exempting’ of saletransactions. In as exempted transaction, the tax paid on input lapses, but underzero rating, it is eligible for refund.

(e) True: Stock/consignment transfers are exempted from VAT as these were neverunder the purview of State Tax Acts.

2012 - Dec [8] (i) The rate of VAT for precious and semi-precious metals is 4%.(e) There are certain cases of purchases in respect of which generally no input tax

credit is available. (1 mark each)

Answer:

(e) True: Generally, no credit is available in respect of purchases from unregistereddealers, purchased from other states/ contries, purchase of capital goods, etc.

2013 - June [8] Attempt the following:(i) State, with reasons in brief, whether the following statements are true or false:

(a) Input VAT credit is available in respect of goods purchased formanufacture of export goods.

(b) Under consumption variant, deduction is allowed for all businesspurchases excluding capital assets.


(c) Introduction of composition scheme will obstruct the flow of audit trail andthis scheme can be mis-utilised by unscrupulous dealers.

(d) If an assessee (who is otherwise required to get registration) fails toobtain registration under the VAT, he/it may be registered compulsorilyby the Commissioner.

(e) A special VAT rate of 2% is applicable only for gold and silver ornaments,etc. (1 mark each)

Answer :

(a) True : Input VAT is available in respect of goods purchased for manufacture ofexport goods as exports are zero rated.

(b) False: Under consumption variant, deduction is allowed for all business purchasesincluding capital assets.

(c) True: Introduction of composite scheme will obstruct the flow of audit trial and thisscheme can be misutilized by unscrupulous dealer.

(d) True: Such assessees may be registered compulsorily by the commissioner.

(e) False: The rate of VAT for precious and semi-precious metal is 1%.


(d) No declaration form is prescribed under VAT system.(e) Registration of dealer is mandatory under VAT. (1 mark each)

SHORT NOTES

2009 - June [8] Answer the following:(iv) Write notes on ) (a) Registration under VAT; and (b) Zero rating.

(10 marks)

Answer:

(a) Registration under VAT

1. Registration of dealers with gross annual turnover above ` 10 lakh will becompulsory

2. There will be provision for voluntary registration for dealers with gross annual

turnover of less than ` 5 lakhs3. All existing dealers will be automatically registered under the VAT Act4. A new dealer will be allowed 30days time from the date of his being liable to

get registered.

5. Small dealers with gross annual turnover not exceeding ` 5 lakhs will not beliable to pay VAT


6. Small dealers with annual gross turnover not exceeding ̀ 50 lakhs shall havethe option for a composite scheme with payment of tax at a small percentageof gross turnovers. The dealers opting for this composition scheme will not beentitled to input tax credit.

(b) Zero Rating

Zero rating means that the tax payable on sale of a commodity is fixed at 0%.In anexempted transaction, the tax paid on input lapses i.e., it cannot be set off, underzero rate sales, prior stage tax is set off against the 0% tax paid and effectively theentire tax paid on purchases is eligible for refund. Zero rating is advantageous tothe dealer and thereby exporters are granted refund of taxes paid by them on theirinputs.

DISTINGUISH BETWEEN

2012 - June [8] (v) Distinguish between ‘zero rating’ and ‘exempted transaction’. (5 marks)

Answer:

Zero rating means that the tax payable on sale of commodity is fixed at 0%.Though apparently it looks similar to an exempted transaction. There is a significantdifference between the two. In an exempted transaction the tax paid on input lapses i.e.,it cannot be set-off. While in Zero rated sales, prior stage tax is set-off against the 0%tax paid, and effectively the entire tax paid on purchase is eligible for refund. Thus zerorating is advantages to dealer compared to exempted transactions. Generally exportsales are Zero rated and thereby exporters are granted refund of taxes paid by them oninputs. Exports gain significantly due to zero rating.


2008 - Dec [8] Attempt the following:(e) Write a brief note on rates of VAT. (5 marks)

Answer:

Under the VAT system five different rates are applicable as follows:1. 0% on natural and unprocessed produces in unorganized sector, goods having

social implications and items which are legally barred from taxation (e.g.newspaper and national flag).

2. 1% floor rate for gold and silver ornaments, precious and semi-precious stones


3. 4% for goods of basis necessities (including medicines and drugs), all industrialand agricultural inputs, declared goods and capital goods.

4. 12.5% revenue neutral rate on other remaining goods other than luxury goods5. 20% in the case of luxury goods.

2008 - Dec [8] Attempt the following:(a) What are the different modes of computation of value added tax (VAT) and what

are the advantages of adoption of tax credit method? (5 marks)(b) “In the old sales tax structure, there were problems of double taxation of

commodities and multiplicity of taxes, resulting in a cascading burden.” In the lightof this statement, explain how VAT is an improvement over the old sales taxstructure. (5 marks)

(d) “Input tax credit is generally given for the entire VAT paid within the State onpurchases of taxable goods meant for resale or manufacture of taxable goods”. Inthe light of this statement, enumerate the cases of purchases of goods in respectof which tax credit is not available. (5 marks)

Answer:

(a) There are three different modes of computation of VAT:

(a) Addition Method: Under this method identification of value added isestimated by adding values of all the elements of production wages, profits,rent and interest. Under this method, the incidence of tax evasion is greaterbecause it does not require matching of invoices.

(b) Subtraction Method: In this method value added is computed by subtractinginputs from outputs. This is known as the product approach.

(c) Tax Credit Method: Under this method, VAT payable by a dealer is arrivedat by deducting tax on inputs from the tax on sales. This method is known asthe invoice method. This method is universally used because of theadvantages of computing tax liability under this method. As rate of tax isdifferent in respect of inputs and outputs, the addition method and thesubtraction method are not practicable in the case of a manufacture.

The advantages of using tax credit method in estimating VAT liability are:1. Under this method exports are exempted from levy of domestic indirect taxes

as export are taxed zero rate and refund of input taxes paid.2. Under this method, dealers at intermediate stage are indifferent to tax rates

because burden of VAT is dependent upon rate of Tax at the final stage.3. Under this method, cross-checking of tax paid at earlier stages is

comparatively easier because of the fact that dealers are required to specifythe amount of their invoices.


(b) In the old sales tax structure, there were problems of double taxation ofcommodities and multiplicity of taxes, resulting in a cascading burden.

Earlier the local sales tax was based on single tax. The single point tax waseither at first point or at last point. The FPT was convenient to the revenue but hadinbuilt cascading effect. The LPT is an ideal system but it was evasion proneresulting into loss of revenue to the government. The VAT system on the otherhand reduces the disadvantages of both FPT and LPT and at the same time drawsthe advantages from resulting into both. The VAT system obviously is moretransparent uniform and less prone to tax evasion.

Under the existing sales tax system, inputs used for manufacture, whethercapital or otherwise, are eligible for concessional rate of tax on furnishing therequisite forms. However, under the VAT system, there is no place for concessions.Goods will be taxed at their respective rates, of course with a provision for set offin future. There will be no incentive schemes under VAT, barring those carriedforward from the existing system.

(d) “Input tax credit is generally given for the entire VAT paid within the State onpurchases of taxable goods meant for resale or manufacture of taxable goods.”The statement is very true in all respect. In Input tax credit means setting off theamount of input tax by a registered dealer against the amount of his output taxliability. Input tax is the tax a dealer pays on his local purchases of business inputswhich include the goods he purchases for resale, raw materials, capital goods aswell as other inputs for use in his business directly or indirectly. Output tax is thetax that a dealer charges on his sales. Adjustment of input tax from the amount ofoutput tax is known as input tax credit.

The input tax credit is to be given for both manufactures and traders forpurchase of inputs meant for both sales within the state as well as to other states.The essence of VAT lies in providing set-off for tax paid earlier through the systemof input tax credit.Following are the cases of purchases of goods in respect of which tax credit is notavailable:

1. No credit if final product is exempt: Credit of tax paid on inputs is availableonly if tax is paid on final products. Thus when final product is exempt fromtax, credit will not be availed, if availed, it will have to be reversed on pro-ratebasis.

2. No credit if output goods are transferred to another state: If the finalproducts are transferred to another state as stock transfer or branch transfer,input credit availed will have to be reversed on pro-rate basis, which is inexcess of 4%. In other words, in case of goods sent on stock transfer/branchtransfer out of State, 4% tax on inputs will become payable.


3. No input credit in certain cases: In the following cases, the dealer is notentitled to input credit- (a) Input used in exempted final products (b) Finalproduct not sold but given as free sample (c) Input lost/damaged/stolen beforeuse. If credit was availed, it will have to be reversed.

4. Zero rated sale: Certain sales are zero rated i.e, tax is not payable on finalproduct in certain specified circumstances. In such cases, credit will beavailable on the inputs i.e., credit will not have to be reversed. Distinctionbetween zero rated sale and exempt sale is that in case of zero rated sale,credit is available on tax paid on inputs, while in case of exempt goods, creditof tax paid on inputs is not available.

2009 - June [8] Answer the following:(ii) Discuss ) (a) Rates of VAT; and (b) Filing of return under VAT (10 marks)(iii) Discuss, with suitable example, various methods for computation of VAT liability.

(10 marks)

Answer:

(ii) (a) Rates of VAT

Under the VAT system five different rates are applicable as follows:1. 0% on natural and unprocessed produces in unorganized sector, goods

having social implications and items which are legally barred fromtaxation (e.g. newspaper and national flag)

2. 1% floor rate for gold and silver ornaments, precious and semi-preciousstones

3. 4% for goods of basic necessities (including medicines and drugs), allindustrial and agricultural inputs, declared goods and capital goods

4. 12.5% revenue neutral rate on other remaining goods other than luxurygoods

5. 20% in the case of luxury goods.

(b) Filing of return under VAT

A registered dealer shall be required to file a return along with the requisitedetails i.e,1. Output tax liability2. Value of input tax credit3. Payment of VAT• Return shall be filed monthly/quarterly/ annually as per the provision of

various state laws• Returns shall be accompanied with the challans evidencing payment of

tax• Every return so furnished is required to be scrutinized expeditiously

within the prescribed time limit from the date of filing the return.


(iii) There are three different modes of computation of VAT:

(a) Addition Method: Under this method identification of value added isestimated by adding values of all the elements of production wages, profits,rent and interest. Under this method, the incidence of tax evasion is greaterbecause it does not require matching of invoices.

(b) Subtraction Method: In this method value added is computed bysubtracting inputs from outputs. This is known as the product approach.

(c) Tax Credit Method: Under this method, VAT payable by a dealer is arrivedat by deducting tax on inputs from the tax on sales. This method is known asthe invoice method. This method is universally used because of theadvantages of computing tax liability under this method. As rate of tax isdifferent in respect of inputs and outputs, the addition method and thesubtraction method are not practicable in the case of a manufacture.

2009 - Dec [8] Attempt the following:(i) How would you take input tax credit when goods purchased are transferred by the

dealer to his branch in any other State ?(ii) “A registered dealer can set-off the amount of input tax against the amount of his

output tax.” Explain.(iii) Explain the procedure of registration under ‘value added tax’ (VAT).(iv) In what purchases input tax credit is not allowed under VAT ?(vi) “Tax credit or invoice method has been adopted universally because of the

inherent advantages in the credit method of calculating tax liability.” Explain.(5 marks each)

Answer:

(i) If the final products are transferred to another state as stock transfer or branchtransfer, input credit availed will have to be reversed on pro-rate basis, which isin excess of 4%. In other words, in case of goods sent on stock transfer/branchtransfer out of State, 4% tax on inputs will become payable. Stock/Consignmenttransfers are exempt from VAT as these were never under the preview of theState Tax Act. The inputs that go in to producing such commodities can be takencredit to the extent of excess of input tax over and above 4%. Thus if the inputused in the commodity that is transferred or the product itself when purchasedwas taxed at say 10% credit can be taken by transferring dealer to the extent of6% against other taxable dispatches.

(ii) “A registered dealer can set off the amount of input tax against the amount of hisoutput tax.” The statement is very true. The input tax credit is to be given for bothmanufactures and traders for purchase of inputs meant for both sales within thestate as well as to other states. The essence of VAT lies in providing set-off fortax paid earlier through the system of input tax credit. For example, suppose


dealer purchases raw materials worth `5 lac and sells his output for ` 8 lakhs.Input tax rate and output tax rate being 12.5%, input tax credit shall be computedas follows:

Input tax paid on raw material = ` 62,500 [` 5,00,000*12.5%]

Output tax collected on sales = `1,00,000 [` 8,00,000 × 12.5%]

VAT payable = ` (1,00,000!62,500)

= ` 37,500

This shows that the assessee has availed input tax credit equal to ` 62,500.However credit for payment of taxes on capital goods may not be immediatelyavailable from output tax as it is available in respect of input tax on raw material.

(iii) A dealer who is required to apply for registration shall make an application forregistration to the commissioner in prescribed form within thirty days from thedate of his becoming liable to pay tax under the VAT and shall pay the filling feesas prescribed in VAT Rules.Following are the documents required for VAT registration1. Deposit receipt of prescribed amount towards fees for registration.2. Copy of constitution document i.e., partnership deed for partnership firm,

MOA and AOA for companies3. Board resolution authorizing the signatory to sign the application in case of

company.4. Proof of identification of authorized signatory5. Proof of principle place of business

Every dealer who is already registered under the sales tax act/works contractor right to use goods act shall be automatically registered under the VAT act andhe is not required to seek fresh registration under the act.

(iv) Credit of tax paid on inputs will be denied in the following cases:1. No credit if final product is exempt: Credit of tax paid on inputs is available

only if tax is paid on final products. Thus when final product is exempt fromtax, credit will not be availed, if availed, it will have to be reversed on pro-ratebasis.

2. No credit if output goods are transferred to another state: If the final productsare transferred to another state as stock transfer or branch transfer, inputcredit availed will have to be reversed on pro-rate basis, which is in excessof 4%. In other words, in case of goods sent on stock transfer/branch transferout of State, 4% tax on inputs will become payable.

3. No input credit in certain cases: In the following cases, the dealer is notentitled to input credit- (a) Input used in exempted final products (b) Finalproduct not sold but given as free sample (c) Input lost/damaged/stolenbefore use. If credit was availed, it will have to be reversed.


4. Zero rated sale: Certain sales are zero rated i.e, tax is not payable on finalproduct in certain specified circumstances. In such cases, credit will beavailable on the inputs i.e., credit will not have to be reversed. Distinctionbetween zero rated sale and exempt sale is that in case of zero rated sale,credit is available on tax paid on inputs, while in case of exempt goods,credit of tax paid on inputs is not available.As per para 2.5 of White Paper on state –Level VAT, export sales are zerorated, i.e., though sales tax is not payable on export sales, credit will beavailable of tax paid on inputs. In respect of sale of EOU/SEZ, there will beeither exemption of input tax or tax paid will be refunded to them within 3months.If supplies to EOU/SEZ are exempt from sales tax, then the question willarise whether these are zero rated or exempt goods.

(vi) “Tax credit or invoice method has been adopted universally because of theinherent advantages in the credit method of calculating tax liability.” Thestatement is very true in all respect. Tax credit method is universally usedbecause of the advantages of computing tax liability under this method. As rateof tax is different in respect of inputs and outputs, the addition method and thesubtraction method are not practicable in the case of a manufacture.The advantages of using tax credit method in estimating VAT liability are:1. Under this method exports are exempted from levy of domestic indirect taxes

as export are taxed zero rate and refund of input taxes paid.2. Under this method, dealers at intermediate stage are indifferent to tax rates

because burden of VAT is dependent upon rate of Tax at the final stage.3. Under this method, cross-checking of tax paid at earlier stages is

comparatively easier because of the fact that dealers are required to specifythe amount of their invoices.

2010 - June [8] Attempt the following:(iii) “VAT liability of a dealer is calculated by deducting input tax credit from tax

collected on sales during the payment period”. Discuss with the help of a suitableillustration. (5 marks)

(iv) Discuss the cases of purchases in respect of which generally no input tax creditis available. (5 marks)

(v) Explain the various methods of computation of VAT liability. (5 marks)

Answer:

(iii) “VAT liability of a dealer is calculated by deducting input tax credit from tax collectedon sales during the payment period”. The given statement is very correct. This can beexplained as under with the help of an example:


Let us calculate the VAT amount payable by Mr.A who purchases goods from a

manufacturer on payment of `2,25,000 (including VAT) and earns 10% profit on salesto retailers. VAT rate on purchase and sale is 12.5%

Payment made to manufacture ` 2,25,000

Less: VAT paid (2,25,000*12.5/112.5) ` 25,000

Purchase price ` 2,00,000

Add: Profit Margin (10% of cost price) ` 20,000

Sales price before VAT ` 2,20,000

Add: [email protected]% on `2,20,000 ` 27,500

Invoice value after 10% profit margin ` 2,47,500

Out put VAT ` 27,500

Less: VAT input credit ` 25,000

VAT payable ` 2,500

(iv) Following are the purchases not eligible for input tax credit:1. Purchasing from unregistered dealers2. Purchases from registered dealer who opt for composition scheme under

the provision of the Act3. Purchase of goods as may be notified by the State Government4. Purchase of goods here invoice does not show the amount of tax separately5. Purchase of goods which are unutilized in the manufacture of exempted

goods6. Purchase of goods used for personal use/ consumption or provided free of

charge7. Goods imported from outside the territory of India or goods purchased

before it reaches the custom frontiers of India8. Goods purchased from other states

(v) Value added tax is a tax on value addition. To calculate the tax component thereare several methods used. However there are three methods, which are mostcommonly used. They are:-1. Addition Method2. Invoice Method3. Subtraction MethodThe subtraction method is again divided into two:-

(a) Direct subtraction method(b) Intermediate subtraction method

Among these methods the most popular and widely used method is the invoicemethod.


Addition Method: This method of computing VAT is used under the incomevariant. Under this method all the payments including profit is aggregated to arriveat the total value addition and on this value addition the rate of tax is applied tocalculate VAT. This is not a popular method, as this method does not facilitate thematching of invoices for detecting the tax evasion.

Invoice Method: This is the most popular and commonly used method. In Indiathis method is being followed both in Central Excise as well as State VAT. Underthis method tax is charged on the sale value, which is reflected on the invoiceissued to the buyer. The tax charged by the seller which is reflected on thepurchase invoice is taken into account for set off thus the net tax payable will betax on sales minus tax on purchases. Any excess tax paid on purchases is allowedto be carried forward for set off against future tax liabilities. This method is alsocalled as Tax Credit Method or Voucher Method. Under the Central Excise Act thismethod is known as Cenvat Credit. Even though tax evasion cannot be ruled outcompletely yet this method ensures that it is kept under check as only on raisingan invoice for sale the tax paid on purchases can be set off.

Subtraction Method: Under this method tax is charged on the value added portionalone at each state of sale of goods. This method does not recognize set off or taxcredit as the total value of goods sold is not taken into account. Under this methodtax is not separately charged. For imposing tax the value added is the differencebetween the total sales and total purchases. Under the Direct Subtraction Method the total value of purchases exclusive of taxis deducted from the total value of sales exclusive of tax.The balance is the valueadded which is to be taxed.Under the Intermediate Subtraction Method the purchase value is taken asinclusive of tax and other parameters are as per the direct subtraction method.

2010 - Dec [8] Attempt the following:(ii) “Input tax credit is generally given for the entire VAT paid within the State on

purchases of taxable goods meant for re-sale or manufacture of taxable goods.”(5 marks)

(iii) Discuss the provisions of registration under VAT. (5 marks)(iv) How would you take input tax credit when goods purchased are transferred by

the dealer to his branch in any other State ? (5 marks)

Answer:

(ii) Input tax credit means setting off the amount of input tax paid by a registereddealer against the amount of his output tax. VAT is based on the value additionto the goods and the VAT liability of a dealer is calculated by deducting input taxcredit from tax collected on sales during the payment period.


Input tax credit is generally given for the entire VAT paid within the state onpurchases of taxable goods meant for resale or manufacture of taxable goods.However, following are the purchases not eligible for input tax credit:(a) Purchasing from unregistered dealers(b) Purchases from registered dealer who opt for composition scheme under

the provision of the Act(c) Purchase of goods as may be notified by the State Government(d) Purchase of goods here invoice does not show the amount of tax separately(e) Purchase of goods which are unutilized in the manufacture of exempted

goods(f) Purchase of goods used for personal use/ consumption or provided free of

charge(g) Goods imported from outside the territory of India or goods purchased

before it reaches the custom frontiers of India(h) Goods purchased from other states If the tax credit exceeds the tax payable on sales in a tax period it shall becarried over to the next tax period. Excess unadjusted input tax credit, if any atthe end of the financial year, shall be eligible for refund. If VAT collected in a taxperiod is lower than input tax credit in respect of local purchases and inter-statepurchases, only the balancing amount is carried forward to the next tax periodand it will be adjusted on the same basis. However, unadjusted tax credit at theend of the financial year is generally refunded.Input tax credit on capital goods is also available for traders and manufacturer.Tax credit on capital goods may be adjusted over a maximum of 36 equalmonthly installments. The state may, in their option, reduce the number ofinstallments.

(iii) Registration of dealers(a) Registration of dealers with gross annual turnover above ` 5 lakhs will be

compulsory(b) There will be provision for voluntary registration for dealers with gross

annual turnover of less than ` 5 lakhs(c) All existing dealers will be automatically registered under the VAT Act

(d) A new dealer will be allowed 30days time from the date of his being liableto get registered.

(e) Small dealers with gross annual turnover not exceeding ̀ 5 lakhs will not beliable to pay VAT

(f) Small dealers with annual gross turnover not exceeding ` 50 lakhs shallhave the option for a composite scheme with payment of tax at a smallpercentage of gross turnovers. The dealers opting for this compositionscheme will not be entitled to input tax credit.


(iv) Input tax credit means setting off the amount of input tax by a registered dealeragainst the amount of his output tax. Input tax credit is available even whengoods purchased are transferred by the dealer to his branch in any other state.In such a case input tax paid in excess of 4% will only be eligible for tax credit.Further, where the goods are exported from a state, other than by way of sale,to a branch of the registered dealer or to a consignment agent; the dealer shallreduce the amount of tax credit originally claimed by the prescribed proportion.It is also to be noted that in some states partial input tax credit is available inrespect of inputs used for manufacture of exempted goods.

2011 - June [8] Attempt the following:(ii) What are the methods of computation of VAT ? (5 marks)(iii) What is input VAT credit ? Will the input VAT credit be available in case of

purchase of capital goods ? (5 marks)

Answer:

(ii) 1. The subtraction method2. The addition method3. Tax credit methodThe subtraction method:- under the method the tax rate is applied to thedifference between the value of output and the cost of input;The addition method:- under this method value added is computed by adding allthe payments that are payable to the factors of production(wages, salaries,interest, tax paid on inputs from tax collected on sales, Indian states opted fortax credit method, which is similar to cenvat.

(iii) It is the credit for tax paid on inputs. Every dealer has to pay output tax on thetaxable sale effected by him. The basic formula of VAT is that every dealer paystax only on the value addition in his hands. In simple words input tax credit is themechanism by which the dealer is enabled to set off against his output tax, theinput tax. Dealers are not eligible for input tax credit on all inputs. There arecertain restrictions and conditions on the eligibility of input tax credit as it isstipulated in the respective State legislation.

2011 - Dec [8] Attempt the following:(ii) Explain the procedure of computation of VAT liability of a dealer. (5 marks)(iv) Explain the audit procedure applicable under the VAT system. (5 marks)(v) “Input tax credit in relation to any period means setting off the amount of input tax

by a registered dealer against the amount of his output tax.” Explain. (5 marks)


Answer:

(ii) The VAT is based on value addition to the goods and the related VAT liability iscalculated as follows:(a) The VAT Liability will be self-assessed by the dealer on the basis of the

records maintained.(b) The liability is determined after deducting input tax credit. Input tax credit is

generally given for the entire VAT paid within the state on purchases oftaxable goods meant for resale/manufacture of taxable goods.

(c) If the tax credit exceeds the amount of tax payable on sales in a tax periodit shall be carried over to the next period. If there is any excess unadjustedinput tax credit at the end of the financial year it shall be eligible for refund.

(d) This input tax credit is given to both manufacturers and traders for purchaseof input/supplies meant for both sales within the state as well as the otherstates irrespective of their date of utilisation or sale.

(e) For all exports made out of the country tax paid within the state will berefunded in full.

(f) Tax paid on inputs procured from other states through interstate sale shallnot be eligible for credit.

(iv) Audit under VAT has been made compulsory by various states. There shall nolonger be compulsory assessment at the end of each year. Correctness of self-assessment shall be checked through a system of Department Audit. A certainpercentage of the dealers shall be taken up for audit every year on a scientificbasis. In case of detection of evasions during the course of audits, the concerneddealer may be taken up for audit for previous periods. This Audit Wing shallremain delinked from tax collection wing to remove any bias. The audit teamshall conduct its work in a time bound manner and audit shall be completedwithin six months and the audit report shall be transparently sent to the dealeras well.

Simultaneously, a cross-checking through computerized system shall bedone on the basis of coordination between the tax authorities of the StateGovernments and the authorities of Central Excise to compare constantly the taxreturns and set-off documents of VAT system of the States and those of CentralExcise. This comprehensive cross-checking system shall help reduction in taxevasions and also lead to significant growth of tax revenue.

(v) VAT is based on the value addition to the goods and the related VAT liability ofthe dealer is computed by setting off the amount of input tax credit from theamount of tax collected on sales during the period of payment. The speciality ofVAT lies in deducting the amount of tax paid earlier through the system of inputtax credit. Thus, it is rightly said that input tax credit in relation to any period


means setting off the amount of input tax by a registered dealer against theamount of his output tax.

Input tax credit is available, generally, for the amount of VAT paid within astate on purchases of taxable goods intended for resale or manufacture oftaxable goods. However, credit is generally not available in respect of thefollowing purchases:(a) Goods purchased from unregistered dealers;(b) Goods purchased from other states/countries;(c) Purchase of goods used in manufacture of exempted goods;(d) Purchased of goods used as fuel in power generation;(e) Purchase of capital goods (in some cases credit is available in instalments);(f) Purchase of goods to be despatched as branch transfers outside states;(g) Purchase of goods in cases where the dealer does not have invoices

showing amounts of tax charged separately by the selling dealer;(h) Purchase from a dealer who has opted for composition scheme;(i) Purchase of non-creditable goods.

2013 - June [8] Attempt the following:(ii) What is meant by ‘exempted goods’ under the VAT? Give at least four examples

of such goods. (5 marks)(iii) What is input VAT credit? Will the input VAT credit be available in case of

purchase of capital goods? Explain. (5 marks)

Answer :

(ii) The goods which are not chargeable to VAT are termed as exempted goods.Under exempted goods category, the Empowered Committee has listed about50 commodities comprising of.(a) Natural Products(b) Unprocessed products(c) Items which are legally barred from taxation and (d) Items which have social implication.Further, a set of maximum 10 commodities out of the commodities listed in theexempted category will flexibly be chosen by individual states which are of localimportance for the individual states without having an interstate implication.

(iii) Tax paid on the inputs is termed as input tax. This amount is adjusted against thetax payable by the purchasing dealer on his sales. This credit availability is calledinput tax credit. Input tax is the tax paid or payable in the course of purchase ofany goods made from a registered dealer of the state.


Input tax credit on capital goods will be available for traders and manufacturers.Tax credit on capital goods may be adjusted over a maximum of 36 equalmonthly instalments. The states may at their option reduce the number ofinstalments. There is a negative list for capital goods which are not eligible forinput tax credit.

2013 - Dec [8] (iii) ‘Zero rating’ is advantageous to the dealer as compared to‘exempting’ of sale transactions. How ? (5 marks)(v) What records should be maintained under VAT system by a registered dealer?

(5 marks)

PRACTICAL QUESTIONS

2008 - Dec [8] Attempt the following:(c) Dinesh purchases raw material from Ram and Shyam for manufacturing goods.

Dinesh sells goods to wholesaler Mohan. Mohan sells goods to Trilok, a retailer,who sells goods to consumers. Calculate the amount of VAT collected by thegovernment from the following particulars based on the fact that Shyam chargesVAT @ 4% and other sellers charge VAT @ 12.5%:

Price without VAT

(`)Raw material supplied:

Ram to Dinesh 5,000Shyam to Dinesh 8,000

Manufactured goods sold:Dinesh to Mohan 18,000Mohan to Trilok 25,000Trilok to consumers 30,000

(5 marks)

Answer:

Computation of Amount of VAT collected by the Government

Particulars of Sales Price without

VAT (`̀̀̀)

Gross VAT

(`̀̀̀)

Net VAT

payable by

dealer (`̀̀̀)

Sales of Raw Material: Ram to Dinesh Ltd. [VAT 12.5%]Shyam to Dinesh Ltd. [VAT 4%]

5,0008,000

625320

625320


Sales of Goods:Dinesh to Mohan [VAT 12.5%]

Less: VAT Credit to Dinesh Ltd. [625+320]

18,000 22,50,945 1,305

Mohan to Trilok [VAT 12.5%] Less: VAT Credit to Mohan Ltd.

25,000 3,12,52,250 875

Trilok to consumers [VAT 12.5%] Less: VAT Credit to Mohan Ltd.

30,000 3,75,,03,125 625

Total VAT collected by theGovernment

3,750

2011 - June [8] Attempt the following:(iv) Compute the VAT liability of Anand for the month of October, 2012 using the

invoice method of computation of VAT:

- Purchases from the local market (including VAT @ 4%): ` 65,000.

- Storage cost incurred: ` 750.

- Transport cost: ` 1,750.Goods sold at a margin of 5% on the cost of such goods. VAT rate of sales is4%. (5 marks)

Answer:

Computation of VAT Liability

Purchases including VAT @ 4% ` 65,000

Less VAT (4/104 of 65000) ` 2,500

Purchases without VAT ` 62,500

Add: Storage and transportation ` 2,500

` 65,000

Margin 5% ` 3,250

Sales ` 68,250

Tax on sales @4% ` 2,730

Less: Tax on Purchases ` 2,500

VAT Liability ` 230

2012 - June [8] (ii) Porwal Traders have provided the following information relating topurchase and sales for the month of July, 2012:

Purchases:

Product “A” total cost ` 1,80,000, rate of VAT 4%.

Product “B” total cost ` 2,60,500, rate of VAT 12.5%.


Sales:

Product “A” total sales ` 2,40,000, rate of VAT 4%.

Product “B” total sales ` 2,10,000, rate of VAT 12.5%.On the basis of above information, compute eligible input tax credit and valueadded tax payable for the month. (5 marks)

(iv) Ramesh, a trader sells entire raw material to a manufacturer of finished productsin the same State. He buys his stock in trade from other States as well as fromthe local markets. Following transactions took place during the financial year2012-13:

`̀̀̀

Cost of materials purchased from other States including centralsales tax @2% 3,06,000Cost of local materials including VAT 6,75,000Other expenditure includes storage, transport, interest, loadingand unloading and profit earned by him 2,62,500Calculate VAT and invoice value charged by him to the manufacturer. Assumethe rate of VAT @ 12.50%. (5 marks)

Answer:

(ii) Calculation of input VAT credit and VAT payable for the month of July 2012

VAT payable on sale of:Product A, 2,40,000 × 4% 9,600Product B 2,10,000 × 12.5% 26,250

Total VAT payable for the month 35,850

Less: Input Tax Credit (eligible) on Purchase:

Product A `. 1,80,000 × 4% 7,200

Product B `. 2,60,000 × 12.5% 32,500

39,763

Net VAT payable Nil

(iv) Calculation of VAT and Invoice Value

Cost of material imported from other state 3,00,000CST on above @ 2% 6,000Cost of local material excluding VAT (6,75,000 × 100/112.5) 6,00,000Other expenditure and profit margin 2,62,500Total 11,68,500Add: VAT @ 12.5% 1,46,063Invoice Value 13,14,563

VAT payable = VAT Liability minus Input Tax Credit i.e., `.71,063

(`.1,46,063 - `.75,000)


2012 - Dec [8] (ii) Tulip Traders, a registered dealer under the local VAT law, havingstock of goods purchased from outside the State, wishes to opt for the compositionscheme. Advise the dealer whether it is possible? Will the VAT chain be broken if thedealer opts for the said scheme? (5 marks)(iii) Ghanshyam is a trader in Delhi who has purchased certain goods from Punjab for

` 4,00,000 and paid central sales tax (CST) @ 2%. He has sold all the goods in

Delhi for ` 6,00,000 plus VAT @ 12.5%.

He has purchased certain goods in Delhi for ` 5,00,000 and paid VAT @ 12.5%and all the goods were sold by him under inter-State sale to some persons in Uttar

Pradesh for ` 7,00,000 plus central sales tax @ 2%. Show the VAT calculations.(5 marks)

(iv) Compute the VAT amount payable by a trader who purchases goods from a

manufacturer on payment of ` 6,75,000 (including VAT) and earns 25% profit onsale to retailers. VAT rate on purchase and sale is 12.5%. (5 marks)

(v) Rohit, a manufacturer in Delhi, purchased raw material ‘A’ from Haryana for

`6,00,000 and paid CST @ 2%. He purchased raw material ‘B’ from Delhi for

`8,00,000 and paid VAT @ 4%. He incurred ` 2,00,000 as manufacturing and

other expenses and earned a profit of ` 1,00,000.60% of the goods were sold in Delhi and VAT charged was 12.5% and remaining40% of the goods were sold to dealer in Maharashtra and CST was charged @2%.Compute the VAT and CST payable. (5 marks)

Answer:

(ii) A registered dealer whose turnover does not exceed ̀ 50 lakhs in the last financialyear is generally entitled to avail the composition scheme. However, the followingare not eligible for this scheme:(i) a manufacturer or a dealer who sells goods in the course of inter-state trade

or commerce.(ii) a dealer who sells goods in the course of import into or export out of the

territory of India.(iii) a dealer transferring goods outside the state otherwise than by way of sale

or for execution of works contract.Tulip trader is not covered under any of the above so; he has the option to avail the

scheme.The VAT chain will be broken if the dealer opts for the scheme, as he will not be

entitled for input tax credit, Likewise, the person who purchases goods from him shallnot get any tax credit for the purchases.


(iii) Computation of VAT Payable

Purchase from Punjab and Sold in Delhi `

Purchase price 4,00,000

Add: CST @ 2% 8,000

4,08,000

Sale 6,00,000

Add: VAT @ 12 1/2 75,000

6,75,000

Purchases from Delhi and sold in U.P. 5,00,000

Purchase price 62,500

Add: VAT @ 12.5% 5,62,500

Sale 7,00,000

Add: CST @ 2% 14,.000

7,14,000

Total output tax 75,000

Less: VAT Credit 62,500

NET VAT PAYABLE 12,500

(iv)

`

Purchase Price 6,75,000

Less: Input tax ( ` 6,75,000 × 12.5 ÷ 112.5) 75,000

6,00,000

Add: Profit @ 25% on sale 2,00,000

Amount to be billed 8,00,000

Add: VAT @ 12.5% 1,00,000

Total invoice value 9,00,000

VAT payable 1,00,000

Less: Input Tax i.e., Tax Credit 75,000

Net VAT payable 25,000

(v)

`

Cost of raw-material ’A’ purchased from Haryana 6,12,000

Including CST @ 2%

Cost of raw-material ‘B’ purchased from Delhi 8,00,000

Input credit available 32,000

Total cost of raw-material 14,12,000


Manufacturing other expenses 2,00,000

Profit 1,00,000

Total 17,12,000

Value of 60% of goods sold in Delhi (17,12,000 × 60/100) 10,27,200

Add: VAT charged @ 12.55 1,28,400

11,55,600

Value of 40% of goods sold to dealer in Maharashtra (17,12,000 × 40/100

6,84,800

Add: CST @ 2% 13,696

6,98,496

Net VAT payable ` 1,28,400 !!!! 32,000 (input tax credit) 96,400

CST payable 13,696

2013 - June [8] Attempt the following:

(iv) Amit, a manufacturer, sold Product X to Bimal of Delhi @ ` 1,000 per unit. He

has charged CST @ 2% on the said product and paid ` 80 as freight. Bimal of

Delhi sold goods to Charan of Delhi @ ` 1,250 per unit and charged VAT

@12.5%. Charan of Delhi sold goods to Deepak, a consumer @ ̀ 1,500 per unitand charged VAT @ 12.5%.Compute the net VAT payable per unit (5 marks)

(v) (a) Compute the invoice value to be charged and amount of tax payable under

VAT by a dealer who had purchased goods for ` 1,20,000 and after adding

for expenses of ` 10,000 and profit of ` 15,000 had sold out the same.The rate of VAT on purchases and sales is 12.5% (3 marks)

Answer :

Computation of Net VAT Payable per unit

`̀̀̀

Cost of product to Bimal

`1000 + ` 20 [CST] + ` 80 [freight] Sale priceVAT Payable @ 12.5% by Bimal

VAT Liability of Charan

Purchase price exclusive of VATVAT credit takenSale priceOutput [email protected]%VAT credit allowed

1,1001,250

156.25

1250156.25

1500187.50156.25

Net VAT Payable 31.25


(v) (a) Computation of VAT Payable

`̀̀̀

Goods purchased for 1,20,000

[VAT @12.5%, ` 15,000]

Add: Expenses 10,000

Add: Profit 15,0001,45,000

Add: VAT @12.5% 18,125Invoice Value 1,63,125

VAT Payable = Output tax – Input tax

= ` 18,125- `15,000

= ` 3,125

2013 - Dec [8] (ii) Manish, a manufacturer, sells goods to Suresh, a distributor for

` 2,40,000 (exclusive of VAT). Suresh sells goods to Trilok, a wholesale dealer for

` 3,00,000. The wholesale dealer sells the goods to a retailer for ` 4,00,000, who

ultimately sells goods to the consumers for ` 5,00,000.Compute the tax liability, input credit availed and tax payable by the manufacturer,distributor, wholesale dealer and retailer under invoice method assuming VAT rate@ 12.5%. (5 marks)



1 Attempt on “Input tax credit is generally given for the entireVAT paid within the State on purchases of taxable goodsmeant for re-sale or manufacture of taxable goods.”

08 - Dec [8] (d), 10 - Dec [8] (ii)

2 Times

2 Attempt on Discuss the provisions of registration underVAT. 09 - Dec [8] (iii), 10 - Dec [8] (iii) 2 Times

3.361

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15 Appointment, Jurisdiction

and Powers of Authorities and

the certifications for Professionals

This Chapter Includes: The VAT System, States in which VAT is implemented,Appointed, jurisdictional and power of the authority, Certification for Professional.




OBJECTIVE QUESTIONS


(c) Punjab was the first State to implement VAT w.e.f. 1st April, 2003.(1 mark)


2009 - Dec [8] Attempt the following:(v) What are the deficiencies in the design of VAT that has been adopted by the

States in India? Give your opinion. (5 marks)

Answer:

Following are the deficiencies in the design of VAT that has been adopted by the statesin India:

1. No Consensus among the State Governments: For easy administration of VAT,first of all State Governments must agree for the concept of VAT. Under the IndianConstitution, States are empowered to levy and collect certain taxes.

2. Diverse Economy: India is a peculiar country where one can find functioning ofvarious categories of industries like small scale industry, cottage industry, tinyindustry, village industry etc. Hence, it is difficult to implement and administer VAT.

3. More number of wholesalers and retailers: The number of retailers andwholesalers is increasing day by day, who want to deal in different types ofcommodities. But they have been following primitive modes of accounting only. Ittakes sufficiently a longer time, to educate and thereby convincing them to followthe latest system.

4. Prevalence of different rates for numerous commodities: India is a uniquecountry where numerous commodities are traded with different rates. Hence,matching of output and input taxes is also the deficiency in the design of VAT.

2010 - June [8] Attempt the following:(ii) Discuss in what respects VAT system as adopted in India is deficient in the

direction of getting maximum benefits of VAT. (5 marks)

[Chapter #### 15] Appointment, Jurisdiction and Powers of .. OOOO 3.363

Answer:

(ii) Under VAT system, tax is charged at each stage of sale on the value added tothe goods. Various advantages of introducing VAT are as under:• Removes the cascading of taxes due to its inherent features of offering

set-off taxes paid already on inputs.• Encourages buyers to demand tax invoices from (to in turn claim input tax

credit, when sold) thereby widening the tax base.• Usually accompanies by a lesser number of rates which makes

administration much easier.• A properly designed system of VAT does not distort trade and production

methods i.e, it does not induce shifting of production bases, verticalintegration or disintegration or changes in constitution of the entity.

• Encourage better compliance due to the availability of set off of taxes paidand thereby less evasion.

• Ensures transparency because the purchases know exactly how much oftaxes are included in the purchase value.

• Improves economic efficiency with its neutrality with respect to forms oforganization, production facilities and location.

• Particularly improves export competitiveness of local industries due to “zerorating” of exports.

• It creates on audit trial due to its inherent nature where the purchase invoiceforms the basis for obtaining credit of tax.

2011 - Dec [8] Attempt the following:(iii) Write a note on certification by professionals under VAT system. (5 marks)

Answer:As we know that the VAT system in India is not unique and every state and unionterritories have its own VAT Act or Rules. Considering this situation in general terms aprofessional including a Company Secretary has to see that all documents to be filedbefore VAT authorities are correct or not specially the tax calculation sheet, TIN or GRNno. etc. Apart from this the professionals has to see that returns to be filed before VATauthorities are made as per the prescribed rules. He should take into consideration theprocedural aspect regarding payment of VAT and related assessment proceedings.

As a professional the Company Secretary has to see that whether the dealer hasmaintained the records and documents required under the Act. He has to advice theconcerned client the provisions relating to appeals and revisions if any matter relatingto VAT proceedings. He should be well versed with the technical aspect in dealing withseizure and confiscation proceedings before Judicial or quasi-judicial bodies.

The professional are authorised to conduct audit of accounts maintained by thedealers under the various VAT States Act.

3.364

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On the basis of Maximum marks from a chapter jj


On the basis of Compulsory questions from a chapter jjjj

16 Objective Questions



(i) Which of the following is not an example of capital receipt!(a) Money received on issue of shares(b) Money received on sale of land(c) Money received on sale of goods(d) None of the above. (2)

(ii) Maximum qualifying limit for deduction under section 80C is !

(a) ` 50,000

(b) ` 1,00,000

(c) ` 1,10,000

(d) ` 1,50,000 (6)(iii) In certain cases, income of other person is included in the income of assessee.

It is called!(a) Clubbing of income(b) Increase in income(c) Addition to income(d) Set-off of income. (6)

(iv) Remuneration for rendering services on a foreign ship is exempt in the case of!(a) A resident(b) A non-resident who is not a citizen of India(c) Not ordinarily resident(d) A citizen of India. (4)

(v) Which of the following is not an asset under section 2(ea) of the Wealth-tax Act,1957!(a) Motor car(b) Boats and aircrafts(c) Guest house(d) Cash at bank. (10)

[Chapter #### 16] Objective Questions OOOO 3.365

(vi) Any rent or revenue derived from land may be treated as agricultural income if!(a) It is derived from land (b) The land is situated in India(c) The land is used for agricultural purpose(d) All the above conditions are satisfied. (1)

(vii) Which of the following is covered under section 80D of the Income-tax Act,1961!(a) Repayment of loan taken for higher education(b) Medical treatment of handicapped dependent(c) Medical insurance premium(d) Reimbursement of medical expenses. (6)

(viii) The incidence of taxation depends on the !(a) Residential status of the assessee(b) Accommodation of the assessee(c) Citizenship of the assessee(d) Marital status of the assessee. (1)

(1 mark each)

Answer:

(i) (c)(ii) (b)(iii) (a)(iv) (b)(v) (d)(vi) (d)(vii) (c)(viii) (a)


(i) Profit and gains arising from the transfer of a capital asset are taxable as______. (5)

(ii) Income accrued and received outside India is taxable in case of a ____. (1)(iii) If an asset is put to use for less than 180 days in the previous year, the

depreciation is charged at _____ of normal rate. (5)(iv) Salary received by a Member of Parliament is taxable under the head ______.

(5)(v) Unabsorbed part of the loss from house property can be carried forward and set-

off within the subsequent _____ years. (6)(vi) Remuneration earned by a member of HUF for the services rendered by him is

_____ income of the member. (7)


(vii) One house or part of house belonging to an individual is ____ under the Wealth-tax Act, 1957. (10)

(1 mark each)

Answer:

(i) Capital Gains(ii) Resident and Ordinarily resident(iii) 50% (iv) Income from other sources(v) Eight(vi) Exempt(vii) Exempt


(i) Sandeep, a trader, purchases standing crops and sells it after harvesting. Hisincome will be treated as agricultural income. (1)

(ii) Suresh receives `10 lakh from statutory provident fund on his retirement. Thisamount is taxable under the head income from salary. (5)

(iii) Sarita paid ` 30,000 as interest @ 30% per annum on loan taken for theconstruction of a house. No deduction shall be allowed for payment of interest,as in the opinion of Assessing Officer, the rate of interest is very high. (5)

(iv) Ashok Exports Ltd. realised surplus of `1,00,000 consequent to change inexchange rate of currency. This surplus is a revenue receipt. (2)

(2 marks each)

Answer:

(i) The statement is incorrect.

For an income to be treated as ‘Agricultural income’, basic and subsequentoperations of agriculturist which include cultivation of the ground, sowing of theseeds, weeding, digging etc. have to be there. In this case, Sandeep, ispurchasing ready crops, hence his income will not be treated as agriculturalincome.

(ii) The statement is incorrect.

The amount received from SPF is exempted from Income-tax.

(iii) The statement is incorrect.

The amount paid as interest on the loan taken for construction of house can beclaimed as deduction u/s 24B of IT Act, 1961 irrespective of the rate of interest.


(iv) The statement is correct.

If by virtue of exchange operations profits be made during the course of businessand in connection with business transactions, the excess receipt on account ofconversion of one currency in to another would be revenue receipts; otherwisethey would be capital receipts.


following:(i) Tax on service is $

(a) A direct tax(b) an indirect tax(c) multipoint tax(d) None of the above. (11)

(ii) Appeal to Customs, Excise and Service Tax Appellate Tribunal can be filedwithin $(a) One month(b) Two months(c) Three months(d) Four months. (11)

(iii) Service tax is administered by the Department of $(a) Central Sales Tax(b) Central Excise(c) Revenue(d) Customs. (11)

(iv) Service tax collected by mistake is required to be deposited under section73A of the Finance Act, 1994 to the $(a) Central Government(b) Account of the person who paid such tax(c) National Defence Fund(d) Chief Minister’s Relief Fund. (12)

(v) Service tax is applicable in the case of $(a) All Company Secretaries(b) Company Secretaries in Practice(c) Company Secretaries below the age of 65 years(d) All services rendered by a Practising Company Secretary other than

representation services before any statutory authority. (11)(1 mark each)


Answer:

(i) (b)(ii) (c)(iii) (b)(iv) (a)(v) (d).

2008 - Dec [7] (e) Re-write the following sentences after filling-up the blank spaces withappropriate word(s)/figure(s):

(i) The Superintendent of Central Excise is bound to grant certificate of registrationfor service tax within ______ days of the receipt of application. (12)

(ii) Taxable services provided to any person by the Reserve Bank of India is ____from service tax. (12)

(iii) Under section 77 of the Finance Act, 1994, a maximum penalty of ` _____ ispayable for late filing of service tax return. (12)

(iv) The threshold limit for service tax exemption applicable in the case of smallservice providers has been increased to _____. (12)

(v) When there is no consideration received for services rendered freely, the servicetax _____ apply. (12)

(1 mark each)

Answer:

(i) 7days (ii) Exempt

(iii) ` 20,000

(iv) ` 10,00,000(v) will not.

2008 - Dec [7] (f) State, with reasons in brief, whether the following statements arecorrect or incorrect:

(i) Service tax is to be paid to the credit of Central Government by the 5th of themonth immediately following the calendar month in which the payments arereceived. (12)

(ii) In case the taxable services are provided from more than one premises/offices,the assessee can opt for registration of only one premises. (12)

(iii) The facility for e-filing of returns is not applicable to service tax. (12)(iv) There is no system of getting advance ruling in respect of service tax matters.

(12)(v) The CENVAT credit rules do not extend its scope to service tax paid in respect

of input services. (12)(1 mark each)


Answer:

(i) Correct: Rule 6 of the Service Tax Rules 1994 provided that any assessee whois providing taxable services shall pay service tax to the credit of CentralGovernment account by the 5th of that month immediately following the monthin which the payments are received.

(ii) Correct: Section 69 of the Finance Act provides that in case the taxable servicesare provided from more than one premises/offices the assessee can opt forregistration for only one premises if there is a system of centralized billingaccounting with permission from department.

(iii) Incorrect: Service tax providers can avail the benefit of e-filing of returnsthrough internet. The assessee can go to the e-filing site ‘Home page’ by typingthe address http://servicetaxfiling.nic.in in the address bar of the browser.Assessees having 15 digit STP code and falling under the categories can availthe facility of e-return.

(iv) Incorrect: Chapter VA has been added to the Finance Act, 1994 by the FinanceAct, 2003 to provide for advance ruling in service tax on the lines of the similarprovisions contained in the Central Excise Act, 1944 and Customs Act, 1962

(v) Incorrect: Under CENVAT Credit Rules, 2004 now credit can be taken forinputs, capital goods as well as for inputs services used in or in relation tomanufacture or production of final products or for providing of any taxableservices.


incorrect:(i) Zero rating transaction is the same as an exempt transaction. (14)(ii) VAT helps in checking tax evasion and in achieving neutrality. (13)(iii) The departmental audit also helps to check tax evasion. (13)(iv) Introduction of VAT has increased the professional development opportunities

for the Company Secretaries. (14)(v) As a result of introduction of VAT, the central sales tax will be phased out in

due course. (13)(1 mark each)

Answer:

(i) Incorrect: Zero rating means that the tax payable on sale of a commodity isfixed at 0%. Though apparently, it looks similar to an exempt transaction, thereis significance difference between two. While in an exempt transaction, the taxpaid on input lapse i.e., it cannot be set-off under the zero rated sales, priorstage tax is set-off against the 0% tax and effectively the entire tax paid onpurchase is eligible for refund.


(ii) Correct: A cross checking through computerized system shall be done on thebasis of coordination between tax authorities of the State Governments and theauthorities of Central excise to compare constantly the tax returns and set-offdocuments of VAT System of States and those of Central Excise. Thiscomprehensive cross checking system help in reduction in tax evasions andleads to significant growth of tax revenue.

(iii) Correct: Departmental Audit is conducted on the basis of sample checking incase of self assessment cases. If some disparities are noted then audit of thosecases is done thoroughly. It helps in checking tax evasion.

(iv) Correct: With the inception of VAT Company Secretaries are now able to actauthorized representative of their clients in some states, through statutoryprovisions provided in the respective VAT Acts.

(v) Correct: With the introduction of VAT in majority of states in our country, CentralSales Tax Act, 1956 will be Phased out by 2010, it become imperative for oureconomy that the VAT system should be implemented all over the country.

2009 - June [1] {C} (a) State, with reasons in brief, whether the following statements

are correct or incorrect. Attempt any five:

(i) Income from vacant plot of land is taxable under the head 'income from othersources'. (5)

(ii) The maximum income of ` 2,50,000 is not chargeable to income-tax in case ofa citizen woman of 60 years age. (6)

(iii) Due date for filing of return of income of an individual is 31st July of the previousyear. (8)

(iv) No deduction is allowable from income from salary. (5)(v) Indexation of cost of acquisition is necessary for short-term capital gain. (5)(vi) Return of income once filed cannot be revised. (8)

(vii) Gift from an unrelated person is tax-free upto ` 50,000. (5)(1 mark each)

Answer:

(i) Correct: Conditions to be satisfied for property income to be taxable under thehead house property– 1. The property should consist of buildings or lands appurtenant thereto.2. The assessee should be the owner of the property.3. The property should not be used by the owner for the purpose of any

business or profession carried on by him, the profits of which are chargeableto income-tax.Here these conditions are not being satisfied, hence the income will becharged under the head ‘Income from other sources’.


(ii) Correct: Maximum exemption limit for senior citizens is ` 2,50,000 for the AY2014-15.

(iii) Incorrect: The due date for filing of return of income of an individual is 31st Julyof the assessment year.

(iv) Incorrect: As per Section 16 of the act, the following deductions are allowablefrom ‘Income from Salary’ – (a) Entertainment Allowance – Section 16 (ii)(b) Tax on Employment – Section 16 (iii)

(v) Incorrect: Indexation of COA is only allowed in case of long term capital gain.(vi) Incorrect: As per section 139 (5) of the Income tax Act, 1961, if an assessee,

after furnishing the return of income, discovers any omission or any wrongstatement in the return filed, he may furnish a revised return before the expiry ofone year from the end of the relevant AY or before the completion of theassessment, whichever is earlier.

(vii) Correct


(i) Income of a business commenced on 1st March, 2014 will be assessed duringthe assessment year._____________. (1)

(ii) Belated return can be filed within __________ from the end of the relevantassessment year. (8)

(iv) Advance tax is payable in___________ instalments by a non-corporate assessee. (9)

(v) Net wealth computed under the Wealth-tax Act, 1957 shall be rounded

off to the multiple of `___________. (10)(1 mark each)

Answer:

(i) 2014 -15 (ii) one year

(iv) Three (v) 100


(i) The maximum penalty for failure to get accounts audited under section44AB or furnish audit report along with return of income is !

(a) ` 10,000

(b) ` 20,000

(c) ` 50,000

(d) ` 1,50,000. (5)


(ii) The amount of education cess and secondary and higher education cessto be collected along with income-tax for assessment year 2014-15shall be!.(a) 1%(b) 2%(c) 3%(d) 4% (6)

(iii) Deduction under section 80C can be claimed for fixed deposit made

in any scheduled bank, if the minimum period of deposit is -(a) 5 years(b) 8 years (c) 10 years (d) 12 years (6)

(iv) X is the owner of a house, the details of which are given below:

Municipal value ` 30,000

Actual rent ` 32,000

Fair rent ` 36,000

Standard rent ` 40,000The gross annual value would be !

(a) ` 36,000

(b) ` 35,000

(c) ` 30,000

(d) ` 40,000. (5)(v) Interest-free loan to an employee, where the amount of loan does not exceed

any one of the following, shall be treated as the tax-free perquisite in all casesunder section 17(2) !

(a) ` 10,000

(b) ` 15,000

(c) ` 20,000

(d) ` 25,000. (5)(vi) The maximum exemption in respect of transport allowance granted to an

employee to meet his expenditure for the purpose of commuting between theplace of his residence and the place of his duty shall be -

(a) ` 600 per month

(b) ` 700 per month

(c) ` 800 per month

(d) ` 900 per month. (5)(1 mark each)


Answer:

(i) (d) ` 1,50,000; (ii) (c) 3%; (iii) (a) 5 years;

(iv) (a) ` 36,000;

(v) (c) ` 20,000;

(vi) (c) ` 800 per month

2009 - June [6] (c) State, with reasons in brief, whether the following are capital orrevenue receipts/expenditure:

(i) ` 20,000 spent in connection with obtaining a licence for running a cinema hall.(5)

(ii) ` 3,00,000 received as compensation for termination of contract of agency.(5)

(iii) Lump sum received as advance rent. (5)(iv) Overhaul expenses of second hand machinery. (5)(v) Payment to an employee to retain him in job. (5)

(1 mark each)

Answer:

(i) Capital expenditure

The benefit from the licensee will be available in future so it is a capitalexpenditure.

(ii) Capital receipt

Compensation for termination of agency is a capital receipts although it istaxable as business income by virtue of the specific provision in Section 28 ofthe Act.

(iii) Revenue receipt

Receipt of lump sum advance rent is a revenue receipts as it is an income fromrent

(iv) Revenue expenditure

overhauling expenses are recurring in nature and hence a revenue expenditure

(v) Revenue expenditure

Any payment made for retaining employees in his/her job is a revenueexpenditure.

2009 - Dec [1] {C} (a) Choose the most appropriate answer from the given options inrespect of the following having regard to the provisions of the relevant direct tax laws :

(i) Income-tax in India is charged at the rate(s) prescribed by –(a) The Finance Act(b) The Income-tax Act


(c) The Central Board of Direct Taxes(d) The Ministry of Finance. (1)

(ii) Under the Income-tax Act, 1961, depreciation on machinery is charged on –(a) Purchase price of the machinery(b) Market price of the machinery(c) Written down value of the machinery (d) All of the above. (5)

(iii) Income accruing in India in previous year is taxable for – (a) Resident (b) Not ordinarily resident(c) Non-resident(d) All of the above. (3)

(iv) Sandeep purchased a house for his residential purpose after taking a loan inJanuary, 2014. During the previous year 2013-14, he paid interest on loan

`1,67,000. While computing income from house property, the deduction isallowable to the extent of –

(a) ` 30,000

(b) ` 1,00,000

(c) ` 1,67,000

(d) ` 1,50,000. (5)(v) Which of the following is an ‘asset’ under section 2(ea) of the Wealth-tax Act,

1957 –(a) Equity shares in a company(b) Balance in provident fund(c) Motor car held as stock-in-trade(d) Jewellery for personal use. (10)

(1 mark each)

Answer:

(i) (a) The Finance Act(ii) (c) WDV of the machinery(iii) (d) All of the above

(iv) (d) ` 1,50,000(v) (d) Jewellery for personal use


(i) Deduction for bad debt is allowed to an assessee carrying on business in the yearin which the debt is ______ as bad. (5)

(ii) Deduction available under section 80GG towards rent paid shall not exceed `______ per month. (6)


(iii) It is obligatory for an assessee to pay advance tax where the amount of tax

payable is `______ or more. (9)(iv) A belated return of income can be filed at any time before the expiry of ______

from the end of relevant assessment year. (8)(v) Wealth-tax is levied on the net wealth of a person as on 31st March, this date is

known as ______ date. (10)(1 mark each)

Answer:

(i) written off(ii) 2,000(iii) 10,000(iv) One year(v) Valuation


(i) Unabsorbed depreciation of any year can be carried forward for set-off for anunlimited period of time. (6)

(ii) An individual is not liable to pay fringe benefit tax. (5)(iii) The entire amount of winning from lotteries is taxable at a special rate of income-

tax. (5)(iv) Income of minor child is included in the income of his parents under the Income-

tax Act, 1961 in all cases. (6)(v) When the prize is given partly in cash and partly in kind, income-tax will be

deducted from cash only. (9)(1 mark each)

Answer:

(i) True

Under Section32 (2) of the Income-tax unabsorbed depreciation of any year canbe set-off against any income (Except income from salary) of the assesseewithout time limit whether the business is carried on or not.

(ii) True

An individual is not liable to pay Fringe Benefit Tax as its application does notcover individual employers.

(iii) True

The entire amount of winning from lotteries without deduction of any expenditureor allowance will be taxable. Winning from lotteries is taxable at a special rate ofincome tax i.e. 30% % Surcharge % cess 3%.


(iv) False

Under Section 64 (1A) of Income Tax Act all incomes which arises or accrues tothe minor child (not being a minor child suffering from any disability) shall beclubbed in the income of his parent whose total income, excluding the minor’sincome is greater. Once the income of the minor child is included in the totalincome of any one parent clubbing of income of minor child with the same parentwill continue in subsequent years also. However, where any income is derived bythe minor from manual work or from any activity involving application of his skill,talent or specialized knowledge and experience, it will not be clubbedin theincome of the parent.

(v) True

Under Section 194 B of the Income Tax Act when the prize is given partly in cashand partly in kind income tax will be deducted from cash prize with reference tothe aggregate amount of the cash price and the value of the price in kind.

2009 - Dec [7] (f) Choose the most appropriate answer from the given options inrespect of the following:

(i) What would be the value of taxable service, if gross amount charged by a

service provider on 5th March, 2014 is ` 9,000 —

(a) ` 8,010

(b) ` 8,160

(c) ` 9,000

(d) ` 8,100. (12)(ii) If Raj has collected any amount of service tax from Brij which is not required to

be collected, Raj shall pay the amount so collected to —(a) Brij(b) The Central Government (c) Keep it with himself(d) None of the above. (12)

(iii) E-payment of service tax is compulsory in the case of an assessee who had paidservice tax in the preceding financial year equal to at least —

(a) ` 10 lakh

(b) ` 40 lakh

(c) ` 50 lakh

(d) ` 1 crore. (12)(iv) Upto what amount, the value of all taxable services provided by a service

provider during a financial year is exempt from payment of service tax —

(a) ` 4 lakh

(b) ` 8 lakh


(c) ` 10 lakh

(d) ` 12 lakh. (12)

(v) If a corporate assessee has paid ` 15,000 as excess service tax during theprevious half-year ending period, this excess amount can be adjusted againstits subsequent tax liability—(a) Equally every month(b) Equally per quarter(c) In one lump-sum(d) Equally on half-yearly basis. (12)

(1 mark each)

Answer:

(i) (a) ` 8,010(ii) (b) The Central Government

(iii) (c) `50 Lakh

(iv) (c) `10 lakh(v) (c) In one lump-sum


(i) Which of the following income is agricultural income—(a) Rent received from agricultural land(b) Income from dairy farm(c) Income from poultry farm(d) Dividend from a company engaged in agriculture. (1)

(ii) The term ‘income includes the following types of incomes—(a) Legal(b) Illegal(c) Legal and illegal both(d) None of the above. (1)

(iii) Every year, the residential status of an assessee—(a) May change(b) Will certainly change(c) Will not change(d) None of the above. (1)

(iv) Sneha is an employee in a private company. In the previous year she received

salary ̀ 1,80,000 and entertainment allowance ̀ 12,000. She spent ` 6,000 onentertainment. Under section 16(ii), she is entitled to deduction of-

(a) `12,000

(b) ` 6,000


(c) ` 5,000(d) Nil (5)

(v) In whose total income, the income of a minor child is included—(a) Father(b) Mother(c) Father and mother both(d) Parent whose total income is greater (6)

(1 mark each)

(b) State, with reasons in brief, whether the following statements are correct orincorrect:

(i) An Indian company is always resident in India no matter where and to whatextent its control and management is situated. (1)

(ii) Rent from house property let-out by an assessee to his employees when suchletting is incidental to his main business, will be chargeable to tax under the head‘income from house property’. (5)

(iii) Income by way of winnings from lotteries in the hands of a dealer as a regularbusiness activity is not chargeable to tax under the head ‘profits and gains ofbusiness or profession’. (5)

(iv) Income from transfer of self-generated goodwill of a profession is not chargeableto tax under the head ‘capital gains’. (5)

(v) Literary awards instituted by the Central Government are exempted fromincome-tax. (4)

(1 mark each)

Answer:

(a) (i) (a) Rent received from agricultural land(ii) (c) Legal and illegal both(iii) (a) May Change(iv) (d) Nil(v) (d) Parent whose total income is greater

(b) (i) Correct According to Section 6(3) of the Income-tax Act, 1961, an Indian company isalways resident in India no matter where and to what extent its control andmanagement is situated.

(ii) Incorrect

The residential quarters let out by the assessee to his employees for thepurpose of his business shall not be chargeable under section 22 of the Actas ‘Income from house property’ same judgement given in CIT v. Delhi Clothand General Mills Ltd. [1966] 59 ITR 152.


(iii) Incorrect

Income by way of winnings from lotteries in hands of a dealer as regularbusiness activity shall be chargeable under the head Income from “Profits andgains of business or Profession” as decided in Director of State Lotteries v.Asstt. IT (2000) 108 Taxmann (Gauhati)

(iv) Incorrect

When it is not possible to ascertain the cost of acquisition and improvementwhich is required to be deducted from the full value of consideration whilecomputing income from capital gains, then income from transfer of such assetis not taxable. This has been so held by the Supreme Court in CIT v. B. C.Srivastava Setty [1981] 5 Taxmann. However, as per the Amendments madein the Act by the Government this judgment is not applicable in the case ofcertain other self-generated assets.

(v) Correct

Under Section 10 (17 A) of the Act, any payments made in cash or kind inpursuance of any award instituted in the public interest by the Government orinstituted by any other body and approved by the Central Government isexempt is exempt from tax.


(i) The maximum exemption limit under the Income-tax Act, 1961 in case of awoman who is less than 60 years of age and who is non-resident in India is

`____________. (4)(ii) The time limit for filing an appeal before the appellate tribunal on receipt of an

appeal order from the Commissioner is _______ days. (8)(iii) Wealth-tax is charged at the rate of ______ % on net wealth in excess of

`_________ lakh under the Wealth-tax Act, 1957. (10)(iv) Business loss relating to illegal business is ________ as deduction. (6)(v) Marriage gift from a non-relative is ________ to tax. (5)

(1 mark each)

Answer:

(a) (i) ` 2,00,000(ii) 30

(iii) 1% and ` 30 lakhs(iv) Available(v) Not liable



(i) Income accruing from agriculture in a foreign country is taxable in the case of anassessee who is —(a) Resident(b) Not-ordinarily resident(c) Non-resident (d) None of the above. (1)

(ii) Foreign income received in India during the previous year is taxable in the caseof —(a) Resident(b) Not-ordinarily resident(c) Non-resident(d) All of the above. (1)

(iii) Manav receives `50,000 as basic salary from the government during the

financial year 2013-14 and receives `9,000 by way of entertainment allowancewhich he spends in full for official purposes. The amount deductible undersection 16(ii) in respect of the allowance will be —

(a) ` 5,000

(b) ` 9,000

(c) ` 10,000(d) None of the above. (5)

(iv) Prakash obtained interest-free loan of `20,000 from his employer company forpurchasing a two-wheeler. The market rate of interest on such loan is 20% perannum. The lending rate of State Bank of India is 15.5% and that of the privatesector banks is 16%. The taxable amount of this perquisite will be computed atthe rate of—(a) 20%(b) 16%(c) 15.5%(d) Nil rate. (5)

(v) Sushil, a non-resident, received ` 18,000 by way of dividend from a foreign

company and the company deducted ` 2,000 by way of tax at source. Theamount includible in income of Sushil will be —

(a) ` 2,000

(b) ` 18,000


(1 mark each)


Answer:

(a) (i) (a) Resident(ii) (d) All of these

(iii) (a) ` 5,000(iv) (d) Nil Rate

(v) (b) ` 18,000


(i) The tax payable or refund due to an assesse is to be rounded off to thenearest________. (9)

(ii) The net annual value of house let-out is ` 1,00,000 and actual amount spent by

the assessee on repairs and insurance premium is ` 20,000, the amount of

deduction allowed under section 24(a) shall be `_________. (5)(iii) The amount of additional depreciation in respect of new building constructed in

financial year 2013-14 at a cost of ` 25 lakh for manufacturing garments will be

`_______. (5)(iv) No deduction of tax at source will be made by a banking company under section

194A with respect to aggregate amount of interest paid or payable on time

deposits during the financial year 2013-14, if it does not exceed `_____. (9)(v) The amount of deduction under section 80DD in respect of maintenance

including medical treatment of a dependent with 60% disability will be

`_________ when no amount is actually spent on treatment by the residentassessee and the handicapped person does not claim any deduction undersection 80U. (6)

(1 mark each)

Answer:

(b)(i) Multiple of Ten Rupees

(ii) ` 30,000(iii) Nil

(iv) `10,000

(v) ` 50,000


(i) An income derived from land situated in India is agricultural income. (1)(ii) Allowances payable to Central Government employees for serving outside India

is fully taxable as salary. (5)(iii) Telephone provided to an employee at his residence is a tax-free perquisite.

(5)


(iv) Net wealth computed under the Wealth-tax Act, 1957 shall be rounded off to the

nearest multiple of ` 100. (10)(v) Tax return preparers are employees of income-tax department. (8)

(2 marks each)

Answer:

(i) False: Income derived from land situated in India and used for agriculturalpurpose is an agricultural income.

(ii) False: Any allowance or perquisite paid or allowed outside India by theGovernment to a citizen of India, for rendering services outside India are exempt.

(iii) True: Expenses on telephone, including mobile phone, actually incurred onbehalf of the employee by the employers shall be exempt.

(iv) True: Under Section 44C, net wealth computed under wealth-tax Act, 1957 shall

be rounded off to the nearest multiple of `100.

(v) False: Tax return preparers are not the employees of Income Tax Department.They are independent professionals.


word(s)/figure(s):(a) The application for registration shall be made within a period of ______of

commencement of business by an input service provider. (12)(b) The registration certificate is issued to a service provider within 7 days by

the _____. (12)(c) Return of service tax is required to be filed by every assessee in Form

No.______. (12)(d) Due date for payment of service tax in the case of individual assessee is

________ immediately following the quarter of the financial year except incase of last quarter. (12)

(e) Service tax is rounded off to the nearest multiple of _____. (12)(1 mark each)

(v) State, with reasons in brief, whether the following statements are true or false:(a) Service tax has been imposed by amending Chapter-VI of the Finance Act,

1994. (11)(b) There are provisions of TDS in respect of service tax. (12)(c) Service tax is applicable on whole India excluding Jammu and Kashmir.

(11)(d) Registration is mandatory under the service tax. (12)(e) No service tax is payable on free services. (11)

(1 mark each)


Answer:

(iv) (a) 30 days(b) Superintendent central excise(c) ST-3(d) 5th day(e) one rupee

(v) (a) False: Service tax has been imposed by amending Chapter V of FinanceAct, 1994 not by Chapter VI of the Finance Act, 1994

(b) True: no TDS shall be deducted on service tax included in the rent

(c) True: as per section 64 of the Chapter V of Finance Act, 1994 theprovisions of service tax extends to the whole of India except the state ofJammu and Kashmir

(d) False: every person liable to pay service tax is liable to seek registration;however section 69(2) empowered the Central Government to specify anyperson or class of person who are required to seek registration. Thereforeit is not mandatory for every person providing services to get registration

(e) True: Service tax is payable on the consideration charged by the serviceprovider from the service recipient. As no consideration charged by theservice provider from the service recipient. As no consideration will bereceived in case of free services therefore the same is not liable to servicetax.


(a) Value added tax (VAT) is levied by the Central Government. (13)(b) VAT is a multi-point tax. (13)(c) VAT system has six broad tax rates. (14)(d) VAT system is followed by all States in India. (14)(e) Registration of dealer is mandatory under VAT. (14)

(1 mark each)

Answer:

(a) False: Value Added Tax is levied and collected by the State Government

(b) True: VAT is a multi stage tax levied as a proportion of the value added at eachstage

(c) False: VAT system has four broad tax rates instead of six broad tax rates. Thebroad rates are 1%, 4%, 20% and 12.5%

(d) True: now VAT is followed by all the states

(e) False: a dealer with turnover below the specified amount (say `5 lac or 10 lac )need not to be registered compulsorily).



(i) The maximum amount of deduction under section 80GG in respect of rent paidis —

(a) ` 2,000

(b) ` 3,000

(c) ` 5,000

(d) ` 10,000. (6)(ii) Mohan Ltd. Purchased goods on credit from Sohan Ltd. on 6th May, 2013 for

` 86,000 which is paid as ` 15,000 in cash on 11th May, 2013; ` 30,000 by a

bearer cheque on 31st May, 2013; and ̀ 41,000 by an account payee cheque on16th May, 2012. The amount of disallowance under section 40A(3) is —

(a) ` 15,000

(b) ` 30,000

(c) ` 41,000

(d) ` 86,000. (5)(iii) Which of the following income is not included in the term ‘income’ under the

Income-tax Act, 1961 —(a) Profit and gains(b) Dividend (c) Profit in lieu of salary(d) Reimbursement of travelling expenses. (4)

(iv) Which of the following income is an agricultural income —(a) Income from brick making (b) Income from agriculture land situated in Pakistan(c) Prize from government on account of higher crop yield(d) Compensation received from insurance company on account of loss of crop

(1)(v) The maximum exemption under section 10(10AA) in case of leave encashment

is —

(a) ` 3,50,000

(b) ` 3,00,000

(c) ` 10,00,000

(d) ` 5,00,000. (4)(1 mark each)

(b) Re-write the following sentences after filling-in the blank spaces with appropriateword(s)figure(s):

(i) Belated return of income may be filed within________from the end of therelevant assessment year. (8)


(ii) A person, carrying on profession, has to get his accounts audited on compulsorybasis if his gross receipts in profession for the previous year relevant to theassessment year 2014-15 exceeds_________. (5)

(iii) The amount of tax payable by the assessee and the amount of refund due, underthe provisions of the Income-tax Act, 1961 shall be rounded-off to the nearest________. (8)

(iv) The balance of income after deductions admissible under section 80C to 80U iscalled ________. (6)

(v) Under section 44AB, specified date means ________ of the assessment year.(5)

(1 mark each)

Answer:

(a) (i) (a) ` 2,000

(ii) (b) ` 30,000(iii) (c) Reimbursement of travelling expenses(iv) (d) Compensation received from insurance company on account of loss of

crop

(v) (e) ` 3,00,000

(b) (i) One year

(ii) ` 25,00,000

(iii) Multiple of `10 (iv) Total income(v) 30th September


(i) Unabsorbed depreciation can be carried forward for a maximum period of eightassessment years. (6)

(ii) Speculation losses may be set-off against non speculative profits. (6)(iii) Expenses of purchasing lottery tickets are deducted out of winnings from lottery

under the head income from other sources. (5)(iv) Zero-coupon bonds shall be treated as ‘short-term capital asset’ if held for more

than 12 months but not more than 36 months. (5)(v) The income of minor child will always be included in the income of his/her

parents. (6)(2 marks each)


Answer:

(i) False: Unabsorbed depreciation can be carried towards indefinitely

(ii) False: Speculation losses cannot be set off against non-speculative gains.However, the loss of non-speculation business can be set-off against the incomefrom speculative business

(iii) False: no deduction is allowed in respect of any expenditure or allowance incomputing the income by way of lotteries crossword puzzles etc

(iv) False: When zero coupon bonds are held for more than 12 months such bondsshall be treated as long term capital assets.

(v) False: Clubbing provisions are not applicable on the income of minor child onaccount of manual work or suffering from any disability of nature specified insection 80U.


word(s)/figure(s): (a) Service tax in India made a humble beginning from __________with only

three services. (11)(b) Currently, the rate of service tax is_________(including education cess

and secondary and higher education cess). (11)(c) Every provider of taxable services whose aggregate value of taxable

services in a financial year exceeds_________,must mandatorily obtainregistration. (12)

(d) The provision of service tax extends to whole of India except__________. (11)

(e) Every assessee shall submit the half yearly return bythe_____________of the month following the particular half-year. (12)

(1 mark each)

Answer:

(a) July 1, 1994(b) 12.36%

(c) ` 9,00,000(d) Jammu & Kashmir(e) 25th of the month


(a) Under zero-rated sales, prior stage tax is set-off against the zero percent taxpaid, and effectively the entire tax paid on purchases is eligible for refund.

(14)


(b) A special VAT rate of 2% is prescribed for precious and semi-preciousmetals. (14)

(c) Tax cannot be evaded under VAT system. (13)(d) There are certain cases of purchases in respect of which generally no input

tax credit is available. (14)(e) Input VAT credit is available on inter-State purchases. (14)

(1 mark each)

Answer:

(a) True: There is a significant difference between the two. While in an exemptedtransaction, the tax paid on input lapses. i.e, it cannot be set off , under the zerorated sales prior stages is set off against the 0% tax paid and effectively the entiretax paid on purchase is eligible for refund.

(b) False: a special VAT rate of 1% instead of 2% is prescribed for precious andsemi-precious metals.

(c) True: the adoption of VAT helps in reducing evasion of tax

(d) True: on certain purchases such as from unregistered dealer, from interstate, froma dealer who opt for composite scheme etc no input credit is available’

(e) False: Input VAT credit is not available on inter state purchases.


(i) Which of the following income is not exempt under section 10 —(a) Share in total income of firm(b) Income from agriculture in Lahore(c) Bonus of life insurance(d) Income from mutual funds. (4)

(ii) Which of the following income is taxable under the head ‘income from salary’ —(a) Salary received by a partner from firm(b) Salary received by a Member of Parliament(c) Salary of a Government Officer(d) None of the above. (5)

(iii) Rate of depreciation chargeable on fully temporary wooden structure for theassessment year 2014-15 is —(a) 5%(b) 10%(c) 100%(d) None of the above. (5)


(iv) When the income of an individual includes ` 20,000 as the income of his minorchild in terms of section 64(1A), taxable income in this respect will be —(a) Nil

(b) ` 20,000


(v) Deduction available to an individual in respect of maintenance including medicaltreatment of a dependent being a person with 80% disability, when amount

incurred in this respect is ` 40,000 will be —

(a) ` 40,000

(b) ` 50,000

(c) ` 1,00,000(d) None of the above. (6)

(1 mark each)


(i) The residential status of an assessee is determined for the relevant ________.(1)

(ii) For the purposes of clubbing of income of the specified person in the income ofthe individual under section 64, the word ‘income’ includes _________. (6)

(iii) Deduction available under section 80QQB in respect of royalty income of authors

shall not exceed ` ___________ in a previous year. (6)(iv) Rent received by original tenant from sub-tenant is taxable under the head

_________. (5)(v) Commissioner of Income-tax is appointed by __________. (8)

(1 mark each)

Answer:

(a) (i) (b) Income from agriculture in Lahore- As per section 2(1A) the Income shouldbe derived from land situated in India and the land should be used foragricultural purpose. Hence, exemption under section 10 shall not beavailable from the income of land which is situated outside India.

(ii) (c) Salary of a Government Officer- There is no difference betweengovernment and private employees for the purpose of calculating theincome and levying of tax. However, salary received by a member ofParliament is not treated as employee of the Government but their incomeare taxable under income under the head other sources as per section 56s

(iii) (c ) 100% - Fully or Pure temporary wooden structure for the assessment year2014-15 falls under the tangible assets i.e, Building


(iv) (c ) ` 18,500, As per section 64(1A), the income of a minor child should beincluded in the total income of that parent whose total income before such

inclusion is higher. As per section 10(32) an exemption of ̀ 1,500 shall be

available hence balance income of ` 18,500 (` 20,000-` 1,500) shall betaxable.

(v) ( c) ` 1,00,000, the persons who are suffering with one disability can claim thisdeduction of income tax. The deduction amount is also vary to each likethe person who is suffering from one disability can get the maximumdeduction of 50000 whereas multiple disability persons can claim adeduction of 100000 of his/her gross income.Before claiming the deduction of section 80U of income tax act, one needsto get the certificates from doctors about their disability. 40% disableperson can get 50000 rupees deduction whereas 80% disable person canget the deduction of 100000. The doctor issue certificates for disability andone need not to enclose these certificates to any income tax returns etc.but it is advisable and must (from the income tax point of view) to get thecertificates before claiming any kind of deduction under the section 80U ofincome tax act.

(b) (i) Previous Year(ii) Loss

(iii) ` 3,00,000In case of lump sum consideration for (a) Assignment or grant of any interestin the copyright of any book or (b) Amount of Royalty or Copyright fees (beinga lump sum consideration in lieu of all rights in the book) — Lower of 100%

of such consideration or ` 3 lakhs.In case of amount of Royalty or Copyright fees not being a lump sumconsideration in lieu of all rights in the book — Lower of (a) Royalty orCopyright Fees (before allowing expenses attributable to such income) notexceeding 15% of gross value of books sold during the previous year or (b)

` 3 lakhs.(iv) Income from other sources(v) Central Government


(i) Prize given to Suresh by the Government of Madhya Pradesh on account ofhigher crop yield is an agricultural income. (1)

(ii) Voluntary contribution received by electoral trust shall be exempt in all cases.(4)


(iii) Sandeep Ltd. is a company registered in Japan. The control and managementof its affairs is wholly situated in India. Sandeep Ltd. is non-resident company inIndia. (1)

(iv) The Commissioner (Appeals) may confirm, reduce or enhance the amount of taxassessed by the Assessing Officer. (8)

(v) A partnership firm incurring loss need not to file return of income. (8)(2 marks each)

Answer:

(i) False: Prize given to Mr.Suresh is not an agricultural Income for him. Since, theprice is not related to basic as well as subsequent operation on land. However,it will be included under the income from other sources

(ii) False: The voluntary contribution received by the electoral trust is exempt onlyif the electoral trust distributes to any political party , registered under section29A of the Representation of the People Act, 1951, during previous year 95% ofthe aggregate donations received by it during the said previous year along withthe surplus, if any brought forward from any earlier previous year; and suchelectoral functions in accordance with the rules made in this regard by theCentral Government.

(iii) False: As the control and management of affairs of Sandeep Ltd. is whollysituated in India therefore Sandeep Ltd. is a resident company in India

(iv) True: As per section 251, In an appeal against an order of assessment he mayconfirm, reduce, enhance or annul the assessment, or he may set aside theassessment and refer the case back to the Assessing Officer for making a freshassessment in accordance with the directions given by the Commissioner(Appeals) and after making such further inquiry as may be necessary, and theAssessing Officer shall thereupon proceed to make such fresh assessment anddetermine, where necessary, the amount of tax payable on the basis of suchfresh assessment.

(v) False: As per section 139(1), it is mandatory obligation on the firm to file returnof income or loss.


word(s)/figure(s):(a) Rate of service tax payable for the financial year 2013-14 is __________ per

cent. (11)

(b) Maximum amount of penalty for late filing of service tax return is ̀ _______.(12)


(c) Under service tax rules, every assessee is required to furnish to ________at the time of filing his return for the first time a list of all accounts maintainedin relation to the service tax. (12)

(d) Service tax in India is levied by ___________. (11)(e) Service tax return can be revised within a period of ___________ from the

date of submission of return. (12)(1 mark each)

(v) State, with reasons in brief, whether the following statements are true or false:(a) Service tax in India is levied under a separate enactment. (11)(b) The Central Excise Officer is empowered to impose penalty under service

tax. (11)(c) The Cental Government has exempted some of the taxable services. (12)(d) Recovery and adjustment of service tax means the same thing. (12)(e) Service tax is administered by service tax department. (11)

(1 mark each)

Answer:

(iv) (a) 12.(b) ` 20,000(c) Superintendent of Central Excise(d) Central Government(e) 90 days

(v) (a) False: service tax in India is not levied under a separate enactment it islevied under Chapter V of Finance Act, 1994.

(b) True: under section 83A of the Finance Act, 1994 the Central Excise Officerhas the power of adjudication conferred by the CBEC.

(c) True: the Central Government by virtue of Notification No. 22/2006-servicetax dated 31.5.2006 exempted some of the taxable services from the wholeof the service tax leviable thereon under section 66 of the Finance Act, 1994.

(d) False: the recovery of service tax is made where the Central Excise Officerserves a notice for the amount of service tax which has not been levied orpaid or has been short levied or short paid or enormously refunded. On theother hand, the adjustment of service tax means the adjustment of excessamount of the service tax paid by assessee against his service tax liability onthe succeeding month or quarter.

(e) False: service tax is administered by Central Board of Excise & Customs(CBEC).



(i) Anand is entitled to get a pension of ` 600 per month from a private company.

He gets three-fifth of the pension commuted and received ` 36,000. He did notreceive gratuity. The taxable portion of commuted value of pension is —

(a) ` 16,000

(b) ` 6,000

(c) ` 18,000

(d) ` 12,000. (5)(ii) Income earned and received outside India but later on remitted to India, is

taxable in the case of —(a) All the assessees(b) Resident and ordinarily resident in India(c) Non-resident(d) None of the above. (1)

(iii) Which one of the following is not an ‘asset’ under section 2(ea) of the Wealth-taxAct, 1957 —(a) Motor car(b) Boat and aircraft(c) Guest house(d) Balance in bank account. (12)

(iv) On 30th December, 2012, Raju gets by gift a commercial flat from the elder

brother of his father-in-law (stamp duty value is ` 25,00,000). The amountchargeable to tax in the hands of Raju is —

(a) ` 25,00,000

(b) ` 24,50,000

(c) ` 20,00,000(d) Nil. (5)

(v) Short-term capital loss can be set-off from —(a) Short-term capital gains(b) Long-term capital gains(c) Both short-term and long-term capital gains(d) Any income of the previous year. (1 mark each) (6)

Answer:

(i) (b) ` 6000/-

(ii) (d) None of above

(iii) (d) Balance in bank account

(iv) (a) ` 25,00,000/-

(v) (c) Both short term and long-term capital gains.



(i) The maximum amount of deduction in respect of rent paid under section 80GGis _________ . (6)

(ii) The maximum amount which can be paid without deduction of tax at source fromwinnings from lotteries is__________ . (9)

(iii) One is required to obtain a Permanent Account Number (PAN) whose total salesturnover or gross receipts are or is likely to exceed _______ in any previousyear. (8)

(iv) Leave encashment received while in service is __________. (5)(v) Net wealth computed under the Wealth-tax Act, 1957 shall be rounded off to the

multiple of _______ . (1 mark each) (10)

Answer:

(i) The maximum amount of deduction in respect of rent paid under section 80GG

is ` 2000/- per month.

(ii) The maximum amount which can be paid without deduction of tax at source from

wining from lotteries is ` 10,000/-

(iii) One is required to obtain a Permanent Account Number (PAN) whose total

sales turnover or gross receipts are or is likely to exceed ` 5,00,000 in anyprevious year.

(iv) Leave encashment received while in service is Taxable.

(v) Net wealth computed under the Wealth-tax Act, 1957 shall be rounded off to the

multiple of ` 100/-.


(i) Loss on account of owning and maintaining race horses can be carried forwardupto 8 years. (6)

(ii) All incomes that accrue to a minor child will be included in the total income ofparent whose total income is greater. (6)

(iii) Family pension is taxable as income from other sources. (5)(iv) Every person is liable to pay advance tax. (9)(v) When the prize is given partly in cash and partly in kind, income-tax will be

deducted from cash only. (1 mark each) (5)

Answer:

(i) False, loss on account of owning and maintaining race horse can be carriedforward upto four years under section 74A

(ii) False, as per section 64 (1A) the clubbing provision is not applicable in followingcases:


(a) Disability of minor as specified under section 80U(b) Income earned on account of manual work done

(c) Income from his skill, talent or specialized knowledge.

(iii) True, Payments received by the legal heirs of deceased employees by way offamily pensions are chargeable under the head of income from other sources.

(iv) False, advance tax shall be payable during a financial year, only when the

amount of such advance tax payable by the assessee during that year is `10,000 or more.

2012 - June [7] Attempt any four of the following:(i) Re-write the following sentences after filling-in the blank spaces with

appropriate word(s)/figure(s):(a) The service tax is administered and collected by _________. (11)(b) Where service is received from outside India, such service shall be taxable

in the hands of __________. (12)(c) Service tax is not payable in the year of commencement of business if the

aggregate value of taxable service does not exceed ___________. (12)(d) If a new taxable service has to be included in the service tax registration

certificate, the service provider has to apply for amendment within__________. (12)

(e) According to the Finance Act, 1994 all services received and consumed onthe territory of _________ are not taxable. (1 mark each) (11)

Answer:

(a) The service tax is administered and collected by Central Board of Excise

and Customs [CBEC]

(b) Where service is received from outside India, such service shall be taxable in

the hands of Recipient of Service.

(c) Service tax is not payable in the year of commencement of business if the

aggregate value of table service does not exceed `̀̀̀ 10,00,000.

(d) If a new taxable service has to be included in the service tax registration

certificate, the service provider has to apply for amendment within 30 Days or

Assistant Commissioner/Deputy Commissioner."

(e) According to the Finance Act, 1994 all services received and consumed on the

territory of Jammu and Kashmir are not taxable.

* Note: Two versions of questions have been printed with the Word "within" or "with",therefore shall be answer can be "30 days" or "Assistant Commissioner/DeputyCommissioner."


2012 - June [8] (i) State, with reasons in brief, whether the following statements are trueor false:(a) Value added tax (VAT) is a multi-point tax. (13)(b) Input VAT credit is available on inter-State purchases. (13)(c) Haryana was the first State to implement VAT in India. (13)(d) Zero-rating is advantageous to the dealer compared to exempting of sale

transactions. (14)(e) Stock/consignment transfers are exempt from VAT. (1 mark each) (1)

Answer:

(a) True: VAT is a state multi-point tax on value additions.

(b) False: input VAT credit is generally given for the entire VAT within the state onpurchases of taxable goods meant for resale/manufacture of taxable goods.

(c) True: Haryana was the first state to implement VAT in India.

(d) True: Zero rating in advantages to the dealer compared to ‘exempting’ of saletransactions. In as exempted transaction, the tax paid on input lapses, but underzero rating, it is eligible for refund.

(e) True: Stock/consignment transfers are exempted from VAT as these were neverunder the purview of State Tax Acts.


(i) On 5th February, 2013 Rajat gets a gift of motor car from a relative Madan. Fair

market value of the car is ` 3,60,000. The amount taxable in the hands of Rajatunder section 56(2)(vii) is—

(a) ` 3,60,000

(b) ` 3,10,000(c) Nil

(d) ` 50,000. (5)(ii) Which of the following may be a ‘not ordinarily resident’ in India—

(a) Partnership firm(b) Joint stock company(c) Association of persons(d) Hindu Undivided Family. (1)

(iii) Salary received in lieu of unavailed leave during service shall be—(a) Fully taxable(b) Fully exempted(c) Partially taxable(d) None of the above. (5)


(iv) The net wealth computed under the provisions of the Wealth-tax Act, 1957 shallbe rounded off to the nearest—

(a) ` 1



(d) Multiple of ` 1,000. (10)(v) A person carrying on profession is required to get his accounts compulsorily

audited by a Chartered Accountant if his gross receipts from profession for theprevious year exceed—

(a) ` 10,00,000

(b) ` 25,00,000

(c) ` 40,00,000

(d) ` 60,00,000 (5)(1 mark each)

Answer:

(i) (c) Nil(ii) (d) Hindu Undivided Family(iii) (a) Fully Taxable

(iv) (c) Multiple of ` 100

(v) (b) ` 25,00,000


(i) Under the Income-tax Act, 1961, the rate of depreciation on intangible assetsis__________. (5)


resident individual, aged 66 years is ` __________. (7)(iii) The aggregate amount of deduction under sections 80C, 80CCC and 80CCD

cannot exceed ` __________. (6)(iv) In case the income of an individual includes any income of his minor child in

terms of section 64(1A), such individual shall be entitled to exemption of the

amount of such income or ` __________, whichever is less. (6)(v) In the case of income in the nature of family pension, the amount deductible is

of such income or ` __________, whichever is less. (5)

(1 mark each)

Answer:

(i) Under the Income-tax Act, 1961, the rate of depreciation on intangible assetsis 25%



resident individual, aged 66 years is ` 2,00,000(iii) The aggregate amount of deduction under sections 80C, 80CCC and 80CCD

cannnot exceed ` 1,00,000.(iv) In case the income of an individual includes any income of his minor child in

terms of section 64 (1A), such individual shall be entitled to exemption of the

amount of such income or ` 1,500, whichever is less.(v) In the case of income in the nature of family pension, the amount deductible is

of such income or ` 15,000 whichever is less.


(i) There is no difference between ‘exemption’ and ‘deduction’. (4)(ii) It is not possible to have negative income under the head ‘income from house

property’. (5)(iii) Loss in speculation as well as non-speculation business can be carried forward

to a maximum of four consecutive assessment years immediately succeedingthe assessment year for which loss was first computed. (6)

(iv) Every person is liable to pay wealth-tax. (10)(v) Allowances paid by any employer outside India would be wholly exempted from

income tax. (5)(1 mark each)

Answer:

(i) False: If an income is exempt from tax, it shall not be included in thecomputation of income, Exemption can never exceed the amount of income.Deduction is generally given from income chargeable to tax. Deduction can beless than or equal to or more than the amount of income.

(ii) False: It is possible to have negative income under the head ‘income from houseproperty’. If municipal tax paid by the landlord is more than the gross annualvalue, then the net annual value itself will be negative. In the case of oneresidential property fully self occupied, the income always lies in the range of (-)

` 1,50,000 to zero. If a property is let out, it can have positive or negativeincome.

(iii) False: Loss in speculation business can be carried forward to a maximum of fourconsecutive assessment year immediately succeeding the assessment year forwhich the loss was first computed. But loss in non-speculation business can becarried forward to a maximum of eight consecutive assessment yearsimmediately succedding the assesment year for which the loss was firstcomputed.


(iv) False: Wealth tax shall not be levied in respect of the net wealth of (a) any socialclub; (b) any mutual fund; (c) any political party; (d) any co-operative society; and(e) any company registered under section 25 of the Companies Act, 1956.

(v) False: According to section 10(7) of the Income Tax Act, allowances orperquisites paid or allowed as such outside India by the Central Government toa citizen of India for his services rendered outside India would be wholly exemptfrom tax.


word(s)/figure(s):(a) Return of service tax is required to be filed by every assessee in Form

No.__________. (12)(b) Every small service provider of taxable services whose aggregate value of

taxable services in a financial year exceeds__________must mandatorilyobtain registration. (12)

(c) From 1st April, 2013, the applicable rate of service tax is__________. (11)(d) In India, service tax was first introduced in the year__________. (11)(e) If a person collects from any person an amount representing it as service

tax when not required to be collected, he shall forthwith deposit the amountso collected to__________. (12)

(1 mark each)Answer:

(a) Return of service tax is required to be filed by every assessee in Form No. ST-3.(b) Every small service provider tof taxable services whose aggregate value of

taxable services in a financial year exceeds ̀ 9,00,000 must mandatorily obtainregistration.

(c) From 1st April,2012, the applicable rate of service tax is 12 percent.(d) IN India, service tax was first introduced in the year 1994.(e) If a person collects from any person an amount representing it as service tax

when not required to be collected, he shall forthwith deposit the amount socollected to Central Government.


(a) No service tax is payable on free services. (11)(b) Service tax is always paid by the service provider. (11)(c) The provisions of service tax extend to whole of India. (11)(d) Services provided to developer of special economic zone are liable for service

tax. (12)

(e) The fee for application for advance ruling of service tax is ` 1,000. (12)(1 mark each)


Answer:

(a) True: No service tax is paid on services, which are provided free of cost.

(b) False: In special cases, service receivers are liable to pay service tax underreverse charge mechanism.

(c) False: Service tax extends to the whole of India except to the state of jammu &Kashmir.

(d) False: Services provided to developer of special economic zone are exemptedfrom payment of service tax subject to the specified conditions vide NotificationNo. 40/2012- Service Tax, dated 20th June 2012.

(e) False: The fee for application for advance ruling is ` 2,500.

2012 - Dec [8] Attempt the following:(i) State, with reasons in brief, whether the following statements are true or false:

(a) As a result of introduction of value added tax (VAT), the central sales taxwill be phased out. (13)

(b) The White Paper specified that registration under the VAT is not compulsory

for the small dealers with gross annual turnover not exceeding ` 10 lakh.(13)

(c) Punjab was the first state to implement VAT w.e.f. 1st April, 2003. (13)(d) The rate of VAT for precious and semi-precious metals is 4%. (14)(e) There are certain cases of purchases in respect of which generally no input

tax credit is available. (14)(1 mark each)

Answer:

(a) True: Presently, CST is continued, though it is proposed to be phased out in duecourse.

(b) False: The White Paper specified that registration under VAT Act shall not be

compulsory for the small dealers with gross annual turnover not exceeding ` 5lakh.

(c) False: Haryana was the first state to implement VAT w.e.f. Aptil, 1, 2003.

(d) False: The rate of VAT for precious and semi-precious metals is 1%.

(e) True: Generally, no credit is available in respect of purchases from unregistereddealers, purchased from other states/ contries, purchase of capital goods, etc.


(i) Past untaxed profit of the financial year 2002-03 brought to India in 2012-13 ischargeable to tax in the assessment year 2013-14 in the hands of —(a) All the assessees(b) Resident and ordinarily resident in India


(c) Non-resident in India(d) None of the above. (3)


(a) ` 2,00,000

(b) ` 5,00,000

(c) ` 10,00,000(d) The actual amount received as compensation. (5)

(iii) The amount of wealth-tax, interest, penalty, fine or any other sum payable, andthe amount of refund due, under the provisions of the Wealth-tax, Act, 1957 shallbe rounded off to the —(a) Nearest rupee(b) Nearest multiple of ten rupees(c) Nearest multiple of one hundred rupees(d) Nearest multiple of one thousand rupees. (10)

(iv) Total income of a person is determined on the basis of his —(a) Residential status in India(b) Citizenship in India(c) Both (a) and (b) above(d) None of the above. (1)

(v) Which of the following taxes are allowed as deduction while computing thebusiness income —(a) Wealth-tax(b) Income-tax(c) Sales tax(d) None of the above. (5)

(1 mark each)


(i) Speculative business losses can be carried forward for ____________assessment years, immediately succeeding the assessment year for which theloss was first computed. (6)

(ii) In case of winnings from horse races, payments exceeding ̀ ____________ aresubject to tax deduction at source at the rate of ____________ %. (9)

(iii) The time limit for rectification of mistakes is a period of ____________ from theend of the financial year in which the order sought to be amended was passed.

(8)


(iv) The maximum amount of standard deduction in case of family pension is____________. (5)

(v) ____________ of advance tax is paid upto 15th September in previous year bya Hindu Undivided Family. (9)

(1 mark each)

Answer :

(a)(i) (d) None of the above

(ii) (b) ` 5,00,000/-(iii) (a) Nearest Rupee(iv) (a) Residential status in India(v) (c) Sales Tax.

(b)(i) 4

(ii) ` 5,000/-, 30%(iii) 4 years.

(iv) ` 15,000/-(v) 30%


(i) Money/property received on the occasion of the marriage of the individual istaxable under the head income from other sources. (5)

(ii) Tax return preparers (TRPs) are employees of income-tax department. (8)(iii) Allowances payable to Central Government employees for serving outside India

are fully taxable as salary. (5)(iv) Assets of personal use are also considered as capital assets. (5)(v) Income from lease of land for grazing of cattle required for agricultural pursuits

is agricultural income. (1 mark each) (1)

Answer :

(i) False, money/property received on the occasion of marriage of the individualshall not be taxable under the head income from other sources.

(ii) False, TRP’s may be an individual other than the person referred under section288(2)(ii),(iii),(iv) who has been authorized to act as TRP under Tax ReturnPrepare Scheme, 2006 and they are not the employee of the Income TaxDepartment.

(iii) False, allowances or perquisites paid or allowed as such outside India by theCentral Government to a citizen of India for his services rendered outside Indiawould be wholly exempt from tax.


(iv) False, capital assets does not include personal effects i.e. assets of personaluse are not considered as capital asset. However, certain personal effects likejewellery, drawings, and paintings, archaeological collections, sculptures or anywork of art are considered as capital asset.

(v) True, income received from lease of land for grazing of cattle required foragricultural pursuits is agricultural income.

2013 - June [8] Attempt any four of the following:(i) State, with reasons in brief, whether the following statements are true or false:

(a) Input VAT credit is available in respect of goods purchased for manufactureof export goods. (14)

(b) Under consumption variant, deduction is allowed for all business purchasesexcluding capital assets. (14)

(c) Introduction of composition scheme will obstruct the flow of audit trail andthis scheme can be mis-utilised by unscrupulous dealers. (14)

(d) If an assessee (who is otherwise required to get registration) fails to obtainregistration under the VAT, he/it may be registered compulsorily by theCommissioner. (14)

(e) A special VAT rate of 2% is applicable only for gold and silver ornaments,etc. (14)

(1 mark each)

Answer :

(a) True : Input VAT is available in respect of goods purchased for manufacture ofexport goods as exports are zero rated.

(b) False: Under consumption variant, deduction is allowed for all business purchasesincluding capital assets.

(c) True: Introduction of composite scheme will obstruct the flow of audit trial and thisscheme can be misutilized by unscrupulous dealer.

(d) True: Such assessees may be registered compulsorily by the commissioner.

(e) False: The rate of VAT for precious and semi-precious metal is 1%.


(i) Which of the following shall not be treated as an ‘asset’ for wealth-taxpurposes —(a) A truck used for transportation of goods(b) A farmhouse which is situated within 8 Kms. of any municipality(c) A motor car used for transportation of employees(d) A residential house given to non-working director. (10)


(ii) The rate of alternate minimum tax including education and higher education cessin case of a limited liability partnership firm is —(a) 18%(b) 18.5%(c) 19.055%(d) None of the above. (7)

(iii) Speculation loss can be carried forward for set-off upto —(a) 4 Years(b) 8 Years(c) 2 Years(d) 10 Years. (6)

(iv) Exemption under section 54EC regarding capital gains on transfer of any long-term capital asset on the basis of investment in certain bonds can be claimedby —(a) Any assessee(b) An individual only(c) An individual and HUF only(d) A corporate assessee only. (5)

(v) Which of the following income is exempted from tax —(a) Agricultural income in Kolkata(b) Interest on government securities(c) Income from salaries(d) Capital gains. (1 mark each) (4)


(i) Tax is not deducted at source, from a resident person if payment/credit does not

exceed ` _________, in the case of bank interest. (9)(ii) The rate of depreciation in the case of intangible assets is ______________ %.

(5)(iii) Deduction in respect of interest on deposits in savings bank accounts under

section 80TTA is available upto ` ________ in aggregate to an individual orHUF. (6)

(iv) The rate of income tax on _________ capital gains covered under section 111Ais 15%. (5)

(v) The maximum deduction under section 80GG shall be ___________ per month. (1 mark each) (6)



(i) Once a person is a resident in a previous year, he shall be deemed to beresident for subsequent previous year also. (1)

(ii) The maximum amount of deduction from family pension received by a widow is

` 18,000. (5)(iii) Any sum paid on account of income tax is fully deductible while computing

income from business and profession. (5)(iv) A partnership firm incurring losses need not file return of income. (8)(v) The unabsorbed depreciation can be carried forward for 8 subsequent

assessment years. (1 mark each) (5)

2013 - Dec [8] Attempt any four of the following:(i) State, with reasons in brief, whether the following statements are true or false :

(a) The value added tax (VAT) had its origin only in United Kingdom. (13)(b) Central sales tax paid on inter-State purchases is eligible for being set-off

against VAT payable in the State. (13)(c) Punjab was the first State to implement VAT w.e.f. 1st April, 2003. (15)(d) No declaration form is prescribed under VAT system. (14)(e) Registration of dealer is mandatory under VAT. (14) (1 mark each)


Year 09J

09D

10J

10D

11J

11D

12J

12D

13J

13D

Objective 10 10 10 10 10 10 10 10 10 10

Total 10 10 10 10 10 10 10 10 10 10

3.405

June - 2012

Tax Laws

Paper 3

Part — A

(Answer Question No. 1 which is compulsoryand any three of the rest from this part.)

1. (a) Write the most appropriate answer from the given options in respect of thefollowing having regard to the provisions of the relevant direct tax laws:

(i) Anand is entitled to get a pension of ` 600 per month from a privatecompany. He gets three-fifth of the pension commuted and received

` 36,000. He did not receive gratuity. The taxable portion of commutedvalue of pension is —

(a) ` 16,000

(b) ` 6,000

(c) ` 18,000

(d) ` 12,000.(ii) Income earned and received outside India but later on remitted to India,

is taxable in the case of —(a) All the assessees(b) Resident and ordinarily resident in India(c) Non-resident(d) None of the above.

(iii) Which one of the following is not an ‘asset’ under section 2(ea) of theWealth-tax Act, 1957 —(a) Motor car(b) Boat and aircraft(c) Guest house(d) Balance in bank account.

(iv) On 30th December, 2011, Raju gets by gift a commercial flat from the

elder brother of his father-in-law (stamp duty value is ` 25,00,000). Theamount chargeable to tax in the hands of Raju is —

(a) ` 25,00,000

(b) ` 24,50,000

(c) ` 20,00,000(d) Nil.

(v) Short-term capital loss can be set-off from —(a) Short-term capital gains(b) Long-term capital gains(c) Both short-term and long-term capital gains(d) Any income of the previous year. (1 mark each)


(b) Re-write the following sentences after filling-in the blank spaces withappropriate word(s)/figure(s):(i) The maximum amount of deduction in respect of rent paid under section

80GG is _________ .(ii) The maximum amount which can be paid without deduction of tax at

source from winnings from lotteries is__________ .(iii) One is required to obtain a Permanent Account Number (PAN) whose

total sales turnover or gross receipts are or is likely to exceed _______ inany previous year.

(iv) Leave encashment received while in service is __________.(v) Net wealth computed under the Wealth-tax Act, 1957 shall be rounded off

to the multiple of _______ . (1 mark each)(c) Sanjeev owns a house property. Following are the details about the property:

Municipal value of house : ` 72,000 per annum.Fair rent of house : ` 66,000 per annum.Standard rent of house : ` 60,000 per annum.The house was let out at ` 6,000 per month but was sold on 1st January,2012.Find out income from house property for the assessment year 2012 - 13.

(5 marks)2. (a) State, with reasons in brief, whether the following statements are true or false:

(i) Loss on account of owning and maintaining race horses can be carriedforward upto 8 years.

(ii) All incomes that accrue to a minor child will be included in the totalincome of parent whose total income is greater.

(iii) Family pension is taxable as income from other sources.(iv) Every person is liable to pay advance tax.(v) When the prize is given partly in cash and partly in kind, income-tax will

be deducted from cash only. (1 mark each)(b) Savita submits the following information regarding her salary income:

Basic salary ... ` 11,000 per month

City compensatory allowance ... ` 150 per month

Children education allowance ... ` 400 per month (for 3 children)

Reimbursement of medical expenses... ` 25,000

She was entitled to house rent allowance of ` 6,000 per month from 1st

April, 2011 to 31st August, 2011. However, she was paying a rent of ` 7,000per month for a house in New Delhi. With effect from 1st September, 2011, shewas provided with an accommodation by the company for which the company

was paying a rent of ` 5,000 per month.Compute her gross salary for the assessment year 2012-13. (5 marks)

Question Papers OOOO 3.407

(c) For the previous year 2011-12, gross total income of Gopal is ` 12,50,700.

During the previous year he has made the following payments: `

(i) Contribution to recognised provident fund 18,000(ii) Donation to Rajiv Gandhi Foundation 50,000(iii) Donation to Prime Minister Drought Relief Fund 30,000(iv) Donation to Prime Minister National Relief Fund 20,000(v) Donation to a government hospital for family planning 1,00,000(vi) Financial assistance to poor students 50,000(vii) Medical insurance premium 20,000

Compute total income of Gopal for the assessment year 2012-13.(5 marks)

3. (a) Kundan sold his properties during the year 2011-12 as under:

(i) Household TV and refrigerator, costing ` 56,000 purchased in January,

2004, sold in February, 2012 for ` 70,000.

(ii) A car sold on 1st December, 2011 for ̀ 2,00,000 which was purchased by

him in January, 2009 for ̀ 3,00,000 and its written down value on 1st April,

2011 was ` 1,72,000. The car is used for business purposes.

(iii) Agricultural land was sold for ` 9,50,000 on 1st February, 2012 and its

purchase price in 1982-83 was ̀ 1,00,000. He purchased new land for his

own cultivation for ` 2,50,000 in May, 2012.

(iv) Gold ornaments acquired in July, 2008 for ` 2,00,000 were sold for

` 2,40,000 in June, 2011.(v) Let out residential house at Indore was inherited by him in 1975. Sale

price on 30th November, 2011: ̀ 16,00,000; fair market value on 1st April,

1981: ` 2,00,000; cost of improvement during 1989-90: ` 40,000; and

expenses on transfer: ` 60,000.Compute his total capital gains for the assessment year 2012-13.Cost inflation indices:1981-82 ... 1001982-83 ... 1091989-90 ... 1722003-04 ... 4632008-09 ... 5822010-11 ... 7112011-12 ... 785 (7 marks)

(b) Kailash furnishes the following particulars of income and losses for the

assessment year 2012-13: `

Short-term capital loss on sale of shares 3,25,200Income from card games (gross) 99,800


Loss from betting 1,02,500Income from lotteries (gross) 3,87,500Expenses on lottery ticket purchased 7,500Long-term capital gains 97,800Long-term capital loss of assessment year 2010-11 1,12,500Short-term capital loss of assessment year 2011-12 97,800Set-off various losses from other income and compute gross total income.Find out the amount which can be carried forward. (5 marks)

(c) What is meant by ‘block of assets’? Explain. (3 marks)4. (a) From the following information, compute the net wealth and tax liability of Lalit

for the assessment year 2012-13 who is a citizen and resident and ordinarily

resident in India: `̀̀̀

Residential house in Delhi 50,00,000Residential house situated outside India 25,00,000Maruti Esteem car for personal use 6,00,000Personal jewellery in India 10,00,000Personal jewellery outside India 5,00,000Bank loan taken to purchase residential house in Delhi 12,50,000Cash in hand 75,000Bank balance 2,50,000Farm house, which is outside 9 kms. of the municipal limits 15,00,000Urban land on which construction is not allowed 13,00,000Equity shares of AB Associates 3,50,000Income-tax liability 50,000

(6 marks)(b) An HUF has estimated the following income for the financial year 2011-12:

`̀̀̀

Rent from house property 1,80,000Income form cloth business (taxable) 4,85,500Interest from savings bank account 9,800Dividend on shares of Reliance Industries Ltd. 6,500

Income of one of the member Kamlesh is taxable. Another member of thefamily Saraswati is disabled and the family spent on her medical treatment

`20,000. A donation of ` 10,600 is also given by the family to NationalChildren’s Fund.

Determine the amount payable as advance tax on prescribed dates during thefinancial year 2011-12. (5 marks)


(c) Write short notes on any two of the following:(i) Persons exempted from wealth-tax(ii) Methods of accounting (iii) Belated return of income under section 139(4) of the Income-tax Act,

1961. (2 marks each)5. (a) Ashok, a resident and ordinarily resident in India, furnishes the following

particulars of his income for the previous year 2011-12. Compute his grosstotal income for the assessment year 2012-13:(i) He took a house on the rent of ` 2,500 per month and let it out again for

` 3,200 per month.(ii) He received from his own house, rent of ` 600 per month.(iii) Dividend from an Indian company ` 5,000.(iv) Income from cloth business ` 18,500.(v) Income from gambling ` 12,800.(vi) Agricultural income in Pakistan which was not brought in India ` 24,500.(vii) Income from agricultural land situated in Mandsaur (Madhya Pradesh)

` 47,500.(viii) Share in profit of a firm ` 6,500.(ix) Dividend from a co-operative society ` 3,000.(x) Income from unexplained sources ` 10,000. (9 marks)

(b) Write short notes on any two of the following:(i) Scientific research expenditure(ii) Capital assets(iii) Agricultural income. (3 marks each)

6. (a) X and Y are two partners (1:2) of XY Enterprise, a firm engaged inmanufacturing chemicals. The profit and loss account of the firm for the yearended on 31st March 2012 is as follows:

`̀̀̀ `̀̀̀

Cost of goods sold 43,00,000 Sales 63,00,000Salary to staff 8,89,800 Long-term capital gains 40,000Depreciation 80,000 Other business receipts 31,000Remuneration to Partners:

X 3,00,000Y 2,40,000 5,40,000

Interest on capital to partners @ 18%X 36,000Y 25,200 61,200

Other expenses 3,70,000Net Profit 1,30,000

63,71,000 63,71,000


Other information:(i) The firm completed all legal formalities to get the status of a ‘firm’.

(ii) The firm has given donation of ̀ 80,000 to a notified public charitable trustwhich is included in other expenses.

(iii) Salary and interest is paid to partners as per the partnership deed.

(iv) Depreciation allowable under section 32 is ` 78,000.(v) Income and investment of X and Y are as follows:

X Y

(`̀̀̀) (`̀̀̀)

Interest on company deposits 64,000 50,800Dividend from foreign companies 7,000 11,000Long-term capital gains 80,000 20,000Short-term capital gains 3,000 (-) 6,000Winnings from lotteries (gross) 4,000 10,000Contribution towards home loan account of the

National Housing Bank 40,000 60,000Find out the net income and tax liability of the firm and partners for the

assessment year 2012-13. (9 marks)

(b) Distinguish between any two the following:(i) ‘Firm’ and ‘association of persons’.(ii) Scope of total income of ‘resident and ordinary resident’ and ‘non-

resident’.(iii) Taxation of voluntary contribution received by a ‘charitable trust’ and

‘corpus donations’. (3 marks each)

PART - B

7. Attempt any four of the following:(i) Re-write the following sentences after filling-in the blank spaces with

appropriate word(s)/figure(s):(a) The service tax is administered and collected by _________.(b) Where service is received from outside India, such service shall be

taxable in the hands of __________.(c) Service tax is not payable in the year of commencement of business if the

aggregate value of taxable service does not exceed ___________.(d) If a new taxable service has to be included in the service tax registration

certificate, the service provider has to apply for amendment within__________.

(e) According to the Finance Act, 1994 all services received and consumedon the territory of _____ are not taxable. (1 mark each)


(ii) An individual furnished following particulars relating to services rendered byhim during half yearly period ended on 30th September, 2011:

— Total bill raised for ` 9,75,000 out of which ` 1,00,000 exempted from

service tax and ` 1,15,000 not paid till 30th September, 2011.

— An advance of ̀ 7,00,000 received from a client on 20th September, 2011to which service to be provided after 30th September, 2011.

You are required to compute tax liability of the service provider.(5 marks)

(iii) Discuss briefly the procedure for registration under the service tax. What is theamount of penalty for non-registration ? (5 marks)

(iv) Name the person who is to apply for registration and pay service tax in thefollowing cases:(a) Service is provided by an insurance agent.(b) Goods transport agency provides taxable service to a specified

consignee/consignor.(c) Service is provided by a distributor to asset management company or

mutual fund.(d) Service is provided by any person from a country other than India.(e) Sponsorship of an event. (5 marks)

(v) State, with reasons in brief, whether the following are liable to service tax:(a) Services rendered to associated enterprise.(b) Services rendered by a sub-contractor.(c) Services provided to a developer of a special economic zone.(d) Services rendered to the Reserve Bank of India.(e) Services provided to a diplomatic mission for their personal use.

(5 marks)

PART - C

8. Attempt any four of the following:(i) State, with reasons in brief, whether the following statements are true or false:

(a) Value added tax (VAT) is a multi-point tax.(b) Input VAT credit is available on inter-State purchases.(c) Haryana was the first State to implement VAT in India.(d) Zero-rating is advantageous to the dealer compared to exempting of sale

transactions.(e) Stock/consignment transfers are exempt from VAT. (1 mark each)


(ii) Porwal Traders have provided the following information relating to purchaseand sales for the month of July, 2011:Purchases:

Product “A” total cost ` 1,80,000, rate of VAT 4%.

Product “B” total cost ` 2,60,500, rate of VAT 12.5%.Sales:

Product “A” total sales ` 2,40,000, rate of VAT 4%.

Product “B” total sales ` 2,10,000, rate of VAT 12.5%.On the basis of above information, compute eligible input tax credit and valueadded tax payable for the month. (5 marks)

(iii) What are the major deficiencies of VAT system in India ? (5 marks)(iv) Ramesh, a trader sells entire raw material to a manufacturer of finished

products in the same State. He buys his stock in trade from other States aswell as from the local markets. Following transactions took place during thefinancial year 2011-12:

`̀̀̀

Cost of materials purchased from other States including centralsales tax @2% 3,06,000Cost of local materials including VAT 6,75,000Other expenditure includes storage, transport, interest, loadingand unloading and profit earned by him 2,62,500Calculate VAT and invoice value charged by him to the manufacturer. Assumethe rate of VAT @ 12.50%. (5 marks)

(v) Distinguish between ‘zero rating’ and ‘exempted transaction’. (5 marks)

Tax Laws

December - 2012

Paper 3

PART—A

Answer Question No. 1 which is compulsory and any three of the rest from this part.

1. (a) Write the most appropriate answer from the given options in respect of thefollowing having regard to the provisions of the relevant direct tax laws:(i) On 5th February, 2012 Rajat gets a gift of motor car from a relative Madan.

Fair market value of the car is ` 3,60,000. The amount taxable in thehands of Rajat under section 56(2)(vii) is—

(a) ` 3,60,000

(b) ` 3,10,000(c) Nil

(d) ` 50,000.


(ii) Which of the following may be a ‘not ordinarily resident’ in India—(a) Partnership firm(b) Joint stock company(c) Association of persons(d) Hindu Undivided Family.

(iii) Salary received in lieu of unavailed leave during service shall be—(a) Fully taxable(b) Fully exempted(c) Partially taxable(d) None of the above.

(iv) The net wealth computed under the provisions of the Wealth-tax Act,1957 shall be rounded off to the nearest—

(a) ` 1



(d) Multiple of ` 1,000.(v) A person carrying on profession is required to get his accounts

compulsorily audited by a Chartered Accountant if his gross receipts fromprofession for the previous year exceed—

(a) ` 10,00,000

(b) ` 15,00,000

(c) ` 40,00,000

(d) ` 60,00,000 (1 mark each)(b) Re-write the following sentences after filling-in the blank spaces with

appropriate word(s)/figure(s):(i) Under the Income-tax Act, 1961, the rate of depreciation on intangible

assets is__________.(ii) For the assessment year 2012-13, the basic exemption limit in case of a

non-resident individual, aged 66 years is ` __________.(iii) The aggregate amount of deduction under sections 80C, 80CCC and

80CCD cannot exceed ` __________.(iv) In case the income of an individual includes any income of his minor child

in terms of section 64(1A), such individual shall be entitled to exemption

of the amount of such income or ` __________, whichever is less.(v) In the case of income in the nature of family pension, the amount

deductible is of such income or ̀ _________, whichever is less.1

33 %3

(1 mark each)


(c) Ramesh, aged 66 years, sold a residential house at Pune for ` 20,00,000 on1st October, 2011. This house was acquired by his father on 1st January, 1979

for ` 1,00,000. On the death of his father, he inherited the house on 5th July,

1986. Fair market value of the house as on 1st April, 1981 was ̀ 1,40,000. Hepaid brokerage @ 1% to the real estate agent at the time of sale. He

purchased a residential house at Baramati on 7th March, 2012 for ` 8,00,000

and on 20th April, 2012 purchased bonds of ` 3,00,000 (redeemable after 3years) of Rural Electrification Corporation Ltd.

His other incomes are ` 50,000. He deposited ` 10,000 in public providentfund.Compute the taxable income and tax liability of Ramesh for the assessmentyear 2012-13.Note: Cost inflation indices—1981-82: 100; 1986-87: 140; and 2011-12: 785. (5 marks)

OR(c) What are the provisions of section 54F in relation to capital gains on transfer

of asset other than a residential house? (5 marks)2. (a) State, with reasons in brief, whether the following statements are true or false:

(i) There is no difference between ‘exemption’ and ‘deduction’.(ii) It is not possible to have negative income under the head ‘income from

house property’.(iii) Loss in speculation as well as non-speculation business can be carried

forward to a maximum of four consecutive assessment years immediatelysucceeding the assessment year for which loss was first computed.

(iv) Every person is liable to pay wealth-tax.(v) Allowances paid by any employer outside India would be wholly

exempted from income tax. (1 mark each)(b) Following is the trading and profit and loss account of Narendra for the year

ended 31st March, 2012:

` `

Opening stock 20,250 Sales 3,83,600

Purchases 1,80,500 Closing stock 23,200

Wages 10,200 Gift from father 10,000

Donation to Prime Minister Income-tax refund 2,500

National Relief Fund 20,000

Building rent 60,000

Repairs of car 5,300

Medical expenses (personal) 8,000


General expenses 4,200

Depreciation on car 12,000

Profit for the year 98,850

4,19,300 4,19,300

Additional information:(i) Opening stock has been undervalued by 10% of cost while closing stock

has been valued at its cost.(ii) One-third of the building rent is related to self-residential house.(iii) The car is used equally for business as well as for personal purposes.

(iv) Wages includes wages of household servant ` 250 per month.From the above information, you are required to determine the taxable incomeof Narendra under the head income from business and profession.

(10 marks)3. (a) Compute the advance tax payable by Rohan from the following estimated

income submitted for the financial year 2011-12: `

(i) Income from salary 5,80,000(ii) Rent from house property (per annum) 3,60,000(iii) Interest on government securities (gross) 25,000(iv) Interest on saving bank deposits 3,000(v) Receipt from horse race (net) 14,000(vi) Agricultural income 90,000(vii) Contribution towards PPF 60,000

Tax deducted at source by the employer on salary is ` 37,080. (7 marks)(b) State, with reasons, in brief, whether the following expenses are admissible

as deduction while computing the ‘income from other sources’:

(i) Interest of ̀ 10,000 paid on money borrowed for purchasing shares to beheld as investment.

(ii) Expenditure of ` 20,000 incurred for purchase of lottery tickets.

(iii) An expenditure of ` 40,000 incurred for the activity of owning andmaintaining race horses. (2 marks each)

(c) For the previous year 2011-12, Ajit did not file the return of income on the duedate. Can he file the return of income after due date? State in brief.

(2 marks)4. (a) Anand owns a house at Delhi. From the following particulars, compute the

income from house property for the assessment year 2012-13: `

Municipal valuation 2,50,000Fair rent 2,80,000

Actual rent (` 25,000 per month) 3,00,000Standard rent 2,60,000


Municipal taxes paid (half of it was borne by the tenant) 25,000Expenses on repairs 5,000Fire insurance premium paid 5,000Ground rent 6,000Unrealised rent 1 monthVacancy period 1 month

He had borrowed a sum of ̀ 20,00,000 @ 10% p.a. from LIC Housing Ltd. on1st August, 2007 and the construction of the house was completed on 1st

January, 2011. Total loan is still unpaid. (5 marks)(b) (i) What is alternate minimum tax? (2 marks)

(ii) Explain the provisions relating to taxation of winnings from lotteries.(3 marks)

(c) “Capital gains arise in the previous year in which the transfer took place.” Arethere any exceptions to this rule? Explain. (5 marks)

5. (a) Lalit submits the following details of his income for the assessment year 2012-

13: `

Income from salary 3,00,000Loss from let-out house property 40,000Income from sugar business 50,000Brought forward loss of iron ore business

(discontinued in financial year 2005-06) 1,20,000Short-term capital loss 60,000Long-term capital gains 40,000Dividend 5,000Income from lottery winnings (gross) 50,000Winnings in card games (gross) 6,000Agricultural income 20,000Long-term capital gains from the shares (STT paid) 10,000Short-term capital loss from shares under section 111A 15,000Bank interest 5,000Calculate gross total income and losses to be carried forward. (5 marks)

(b) Explain the procedure of assessment after partition of a hindu undivided family(HUF). (4 marks)

(c) Describe the different modes of collection and recovery of income-tax.(4 marks)

(d) The power of rectification of mistake lies with the authority who passed theorder. Explain briefly. (2 marks)


6. (a) Write short notes on any two of the following:(i) ‘Best-judgment assessment’ under section 144(ii) ‘Deemed asset’ under the Wealth-tax Act, 1957(iii) Due dates of filing of the return of income under the Income-tax Act, 1961.

(2 marks each)(b) Piyush is engaged in the construction of residential flats. For the valuation

date 31st March, 2012 he furnishes the following data:

` (in lakhs)Land in urban area (construction not permitted

as per Municipal laws in force) 20Motor cars 5Jewellery (investment) 10Cash balance (as per books) 2Bank balance (as per books) 3Guest House (situated in rural area) 4Residential flat occupied by the Manager for residence (annual

salary being `6,00,000) 8Residential house let-out for 100 days in the financial year 7Loans obtained for purchase of motor car 2Loans obtained for purchase of jewellery 2Compute the taxable net wealth and state the reason for inclusion or exclusionof each item in the computation. (5 marks)

(c) Distinguish between any two of the following:(i) ‘Recognised provident fund’ and ‘unrecognised provident fund’.(ii) ‘Normal depreciation’ and ‘additional depreciation’.(iii) ‘Taxation of unrealised rent received’ and ‘taxation of arrears of rent

received’. (3 marks each)

Part — B

7. Attempt any four of the following:(i) Re-write the following sentences after filling-in the blank spaces with

appropriate word(s)/figure(s):(a) Return of service tax is required to be filed by every assessee in Form

No.__________.(b) Every small service provider of taxable services whose aggregate value

of taxable services in a financial year exceeds__________mustmandatorily obtain registration.

(c) From 1st April, 2012, the applicable rate of service tax is__________.(d) In India, service tax was first introduced in the year__________.


(e) If a person collects from any person an amount representing it as servicetax when not required to be collected, he shall forthwith deposit theamount so collected to__________. (1 mark each)

(ii) What general exemptions are available to service providers from payment ofthe whole amount of service tax? Explain in brief. (5 marks)

(iii) X & Co. of Jammu rendered taxable services both within and outside the State

of Jammu & Kashmir. It received ` 53,24,000 for the services rendered inside

the State of Jammu & Kashmir and ` 45,00,000 for the services renderedoutside the State of Jammu & Kashmir.Compute the value of taxable services. (5 marks)

(iv) State, with reasons in brief, whether the following statements are true or false:(a) No service tax is payable on free services.(b) Service tax is always paid by the service provider.(c) The provisions of service tax extend to whole of India.(d) Services provided to developer of special economic zone are liable for

service tax.

(e) The fee for application for advance ruling of service tax is ` 1,000.(1 mark each)

(v) What do you mean by ‘reverse charge’ and under what circumstances theservice receivers are liable to pay service tax? (5 marks)

Part — C


(a) As a result of introduction of value added tax (VAT), the central sales taxwill be phased out.

(b) The White Paper specified that registration under the VAT is notcompulsory for the small dealers with gross annual turnover not

exceeding ` 10 lakh.(c) Punjab was the first state to implement VAT w.e.f. 1st April, 2003.(d) The rate of VAT for precious and semi-precious metals is 4%.(e) There are certain cases of purchases in respect of which generally no

input tax credit is available. (1 mark each)(ii) Tulip Traders, a registered dealer under the local VAT law, having stock of

goods purchased from outside the State, wishes to opt for the compositionscheme. Advise the dealer whether it is possible? Will the VAT chain bebroken if the dealer opts for the said scheme? (5 marks)

(iii) Ghanshyam is a trader in Delhi who has purchased certain goods from Punjab

for ` 4,00,000 and paid central sales tax (CST) @ 2%. He has sold all the

goods in Delhi for ` 6,00,000 plus VAT @ 12.5%.


He has purchased certain goods in Delhi for ̀ 5,00,000 and paid VAT @12.5%and all the goods were sold by him under inter-State sale to some persons in

Uttar Pradesh for ` 7,00,000 plus central sales tax @ 2%. Show the VATcalculations. (5 marks)

(iv) Compute the VAT amount payable by a trader who purchases goods from a

manufacturer on payment of ` 6,75,000 (including VAT) and earns 25% profiton sale to retailers. VAT rate on purchase and sale is 12.5%. (5 marks)

(v) Rohit, a manufacturer in Delhi, purchased raw material ‘A’ from Haryana for

`6,00,000 and paid CST @ 2%. He purchased raw material ‘B’ from Delhi for

` 8,00,000 and paid VAT @ 4%. He incurred ̀ 2,00,000 as manufacturing and

other expenses and earned a profit of ` 1,00,000.60% of the goods were sold in Delhi and VAT charged was 12.5% andremaining 40% of the goods were sold to dealer in Maharashtra and CST wascharged @ 2%.Compute the VAT and CST payable. (5 marks)

Tax Laws

June - 2013

Paper 3

Part — A

(Answer Question No. 1 which is compulsoryand any three of the rest from this part.)

1. (a) Write the most appropriate answer from the given options in respect of thefollowing having regard to the provisions of the relevant direct tax laws:

(i) Past untaxed profit of the financial year 2002-03 brought to India in 2012-13 is chargeable to tax in the assessment year 2013-14 in the hands of–(a) All the assessees(b) Resident and ordinarily resident in India(c) Non-resident in India(d) None of the above.


(a) ` 2,00,000

(b) ` 5,00,000

(c) ` 10,00,000(d) The actual amount received as compensation.

(iii) The amount of wealth-tax, interest, penalty, fine or any other sumpayable, and the amount of refund due, under the provisions of theWealth-tax, Act, 1957 shall be rounded off to the —


(a) Nearest rupee(b) Nearest multiple of ten rupees(c) Nearest multiple of one hundred rupees(d) Nearest multiple of one thousand rupees.

(iv) Total income of a person is determined on the basis of his —(a) Residential status in India(b) Citizenship in India(c) Both (a) and (b) above(d) None of the above.

(v) Which of the following taxes are allowed as deduction while computingthe business income —(a) Wealth-tax(b) Income-tax(c) Sales tax(d) None of the above. (1 mark each)

(b) Re-write the following sentences after filling-in the blank spaces withappropriate word(s)/figure(s):

(i) Speculative business losses can be carried forward for ____________assessment years, immediately succeeding the assessment year forwhich the loss was first computed.

(ii) In case of winnings from horse races, payments exceeding `

____________ are subject to tax deduction at source at the rate of____________ %.

(iii) The time limit for rectification of mistakes is a period of ____________from the end of the financial year in which the order sought to beamended was passed.

(iv) The maximum amount of standard deduction in case of family pensionis ____________.

(v) ____________ of advance tax is paid upto 15th September in previousyear by a Hindu Undivided Family. (1 mark each)

(c) Ram purchases a house property for ̀ 7,600 on 30th June, 1967. The followingexpenses were incurred by him for making addition/alteration to the house

property: `

Cost of construction of first floor in 1975-76 11,000Cost of construction of second floor in 1983-84 34,000Alteration/reconstruction of the property in 1992-93 29,000Fair market value of the property on 1st April, 1981 45,000

The house property is sold by him on 15th June, 2012 for ` 6,95,000

(expenses incurred on transfer ` 5,000).


Compute the amount of capital gains chargeable to tax for the assessmentyear 2013 -14.Cost inflation indices: 1981-82:100; 1983-84:116; 1992-93:223 and 2012-13:852. (5 marks)

2. (a) State, with reasons in brief, whether the following statements are true or false:(i) Money/property received on the occasion of the marriage of the individual

is taxable under the head income from other sources.(ii) Tax return preparers (TRPs) are employees of income-tax department.(iii) Allowances payable to Central Government employees for serving

outside India are fully taxable as salary.(iv) Assets of personal use are also considered as capital assets.(v) Income from lease of land for grazing of cattle required for agricultural

pursuits is agricultural income. (1 mark each)

(b) A partnership firm has two partners X and Y. They have contributed `

6,00,000 each as capital and ` 2,00,000 each as loan. Partnership deedallows payment of interest on loan as well as on capital @16% p.a. and

remuneration of `5,00,000 to each acting partner.If profits of the firm after paying interest but before deducting remuneration of

partners are ` 7,60,000, determine the total income of the firm. (6 marks)(c) Under what circumstances the Assessing Officer is empowered to reopen the

assessment made by him? Give examples. (4 marks)3. (a) Sarita, aged 50 years received the following amounts during the financial year

2012-13: `

Gross salary 5,50,000

Family pension (` 6,000 p.m. × 12) 72,000

She gets a gift of ` 75,000 from her maternal uncle on her birthday. She also

gets gift of ` 60,000 from her office colleagues on the same day. She

deposited ` 50,000 in public provident fund account.Compute her tax liability for the assessment year 2013 - 14. (5 marks)

(b) Explain the deduction in respect of royalty income of authors under section80QQB. (4 marks)

(c) Enlist the deductors for whom the e-filing of the statement of TDS ismandatory. (3 marks)

(d) Write a brief note on deduction under section 80D. (3 marks)4. (a) Smt. Juhi (resident in India and aged 82 years) has estimated the following

taxable incomes for the financial year 2012-13:

`

Income from business 12,00,000Long-term capital gains on 10th October, 2012 80,000


Interest (gross) from a branch of Syndicate Bank (FDR) 20,000Dividend 30,000Interest on savings bank a/c 8,000

13,38,000— She paid life insurance premium on her own life 25,000— She made deposit in public provident fund 70,000— Paid to Prime Minister’s National Relief Fund 30,000— Health insurance premium paid in cash 12,000Determine the amount payable as advance tax on prescribed dates during thefinancial year 2012-13 (assessment year 2013-14). (5 marks)

(b) Deepak, a reputed trader, furnished the following particulars regarding hisbusiness for the financial year 2012-13:

`

Loss from business 8,00,000Loss from specified business 2,80,000Depreciation allowance for the current year 1,60,000Income from house property (computed) 6,00,000Items brought forward from the earlier years:

Business loss for the assessment year 2011-12 2,40,000Depreciation allowance (unabsorbed) for the assessmentyear 2012-13 1,00,000

Compute gross total income of Deepak for the assessment year 2013-14.(4 marks)

(c) Mohit purchased an asset for scientific research in the previous year 2005-06

for ̀ 30,00,000. During the previous year 2012-13 the said asset ceased to beused for scientific research. The following information is also submitted to you:

`

Profit from business before depreciation 10,00,000Written down value of block of assets 15% as on 1st April, 2012 20,00,000The scientific research asset if used for business shall be eligible fordepreciation @15%. The cost inflation index for 2005-06 is 497 and for 2012-13 is 852.

Compute the total income if the scientific research asset is sold for ̀ 60,00,000during 2012-13, assuming that:

(i) It is sold without using for business; and(ii) It is sold after using for business. (6 marks)


5. (a) Dev is an Indian citizen and resident in India. His assets and liabilities as on31st March, 2013 are as follows:

— Self-occupied residential house in Delhi ` 60,00,000.

— Self-occupied residential house in foreign country ` 90,00,000. [For the

construction of this house, he borrowed ̀ 30,00,000 in the foreign countrywhich is due on 31st March, 2013.]

— He has National Savings Certificates VIII issue ` 1,00,000.

— He has jewellery worth ` 60,00,000 out of which ornaments worth

`18,00,000 are meant for daily use by his wife.

— He has motor car for his personal use valued at ` 7,70,000.— In December, 2011 he has transferred his house to his married daughter

without consideration. The value of the house is ` 24,00,000.— The house given to the daughter was purchased in 2010 for which a loan

of `10,00,000 was taken. Out of this loan ` 2,00,000 is outstanding.Compute the net wealth and wealth-tax of Dev. (6 marks)

(b) In each of the following cases what amount will be allowed as expenditure fora business for the assessment year 2013-14. Explain with reasons:

(i) Purchase of raw materials ̀ 2,00,000. It includes a payment of ̀ 24,000which has been made in cash.

(ii) ` 1,42,000 were paid to national laboratory to undertake a scientificresearch for an approved programme. (2 marks each)

(c) Explain the incomes which are deemed to accrue or arise in India.(5 marks)

6. (a) Distinguish between the following. Attempt any two:(i) ‘Belated return of income’ and ‘revised return of income’.(ii) ‘Short-term capital gains’ and ‘long-term capital gains’.(iii) ‘Statutory provident fund’ and ‘recognised provident fund’.

(3 marks each)(b) Explain the procedure regarding refund of excess tax paid by the assessee to

the department. (5 marks)

(c) Write short notes on the following. Attempt any two:(i) Amortisation of telecom licence fee(ii) Income of political parties under section 13A(iii) ‘Pay-as-you-earn’ scheme. (2 marks each)


PART — B

7. Attempt any four of the following:(i) Define the meaning of ‘services’ under the service tax. (5 marks)(ii) Service tax is now levied on all services except the services specified in the

negative list. Enumerate any five services which are covered in the negativelist. (5 marks)

(iii) The Central Government vide Notification No. 25/2012 has exempted certainservices from the whole of service tax leviable thereon. Enumerate any fiveservices which are covered in the mega exemption notification. (5 marks)

(iv) R Ltd., gives the following particulars relating to the services provided by itto its various clients for the month ending 31st July, 2012:

— Total bills raised for ` 17,50,000 out of which bill for ` 1,50,000 was

raised on a Diplomatic Mission and payments of bills for ` 2,00,000were not received until 31st July, 2012. Service tax is separatelycharged on the bills raised.

— Amount of ` 1,12,360 (including service tax) was received as anadvance from XYZ Ltd. on 25th July, 2012 to whom the services wereprovided in August, 2012.

Compute —(a) Value of taxable services(b) Amount of service tax payable(c) Last date of service tax payable. (5 marks)

(v) Every person providing taxable services is liable to pay service tax. Are thereany cases where service tax is to be paid by the service recipient? If yes,give any three such cases. (5 marks)

PART - C


(a) Input VAT credit is available in respect of goods purchased formanufacture of export goods.

(b) Under consumption variant, deduction is allowed for all businesspurchases excluding capital assets.

(c) Introduction of composition scheme will obstruct the flow of audit trail andthis scheme can be mis-utilised by unscrupulous dealers.

(d) If an assessee (who is otherwise required to get registration) fails toobtain registration under the VAT, he/it may be registered compulsorilyby the Commissioner.

(e) A special VAT rate of 2% is applicable only for gold and silverornaments, etc. (1 mark each)


(ii) What is meant by ‘exempted goods’ under the VAT? Give at least fourexamples of such goods. (5 marks)

(iii) What is input VAT credit? Will the input VAT credit be available in case ofpurchase of capital goods? Explain. (5 marks)

(iv) Amit, a manufacturer, sold Product X to Bimal of Delhi @ ̀ 1,000 per unit. He

has charged CST @ 2% on the said product and paid ` 80 as freight. Bimal

of Delhi sold goods to Charan of Delhi @ ` 1,250 per unit and charged VAT

@12.5%. Charan of Delhi sold goods to Deepak, a consumer @ ` 1,500 perunit and charged VAT @ 12.5%.Compute the net VAT payable per unit (5 marks)

(v) (a) Compute the invoice value to be charged and amount of tax payable

under VAT by a dealer who had purchased goods for ` 1,20,000 and

after adding for expenses of ̀ 10,000 and profit of ̀ 15,000 had sold outthe same.The rate of VAT on purchases and sales is 12.5% (3 marks)

(b) “VAT avoids cascading effect”. How? (2 marks)

Tax Laws

December - 2013

Paper 3

PART—A

Answer Question No. 1 which is compulsory and any three of the rest from this part.

1. (a) Write the most appropriate answer from the given options in respect of thefollowing having regard to the provisions of the relevant direct tax laws:(i) Which of the following shall not be treated as an ‘asset’ for wealth-tax

purposes —(a) A truck used for transportation of goods(b) A farmhouse which is situated within 8 Kms. of any municipality(c) A motor car used for transportation of employees(d) A residential house given to non-working director.

(ii) The rate of alternate minimum tax including education and highereducation cess in case of a limited liability partnership firm is —(a) 18%(b) 18.5%(c) 19.055%(d) None of the above.


(iii) Speculation loss can be carried forward for set-off upto —(a) 4 Years(b) 8 Years(c) 2 Years(d) 10 Years.

(iv) Exemption under section 54EC regarding capital gains on transfer of anylong-term capital asset on the basis of investment in certain bonds canbe claimed by —(a) Any assessee(b) An individual only(c) An individual and HUF only(d) A corporate assessee only.

(v) Which of the following income is exempted from tax —(a) Agricultural income in Kolkata(b) Interest on government securities(c) Income from salaries(d) Capital gains. (1 mark each)

(b) Re-write the following sentences after filling-in the blank spaces withappropriate word(s)/figure(s):(i) Tax is not deducted at source, from a resident person if payment/credit

does not exceed ` _________, in the case of bank interest.(ii) The rate of depreciation in the case of intangible assets is

______________ %.(iii) Deduction in respect of interest on deposits in savings bank accounts

under section 80TTA is available upto ` ________ in aggregate to anindividual or HUF.

(iv) The rate of income tax on _________ capital gains covered under section111A is 15%.

(v) The maximum deduction under section 80GG shall be ___________ permonth. (1 mark each)

(c) Following particulars are related to the income of Mrs. Bimla for the previousyear 2012-13:

— Salary (after deducting ̀ 48,000 for income tax at source) ̀ 3,60,000 perannum.

— Dearness allowance (under the terms of employment) ` 42,000 perannum.

— Education allowance (for 3 children) ` 15,700 per annum.

— Medical allowance (actual medical expenditure ` 14,000) ` 37,200 perannum.


— Rent-free house (in Mumbai). The Company paid ̀ 40,000 per month asrent.

The house is furnished and the rent of the furniture is ` 35,000 perannum.

— The company spent ` 18,000 on her refresher course.

— She paid professional tax @ ` 7,000 for three years.Find out taxable income of Mrs. Bimla from salary for the assessment year2013-14. (5 marks)

2. (a) State, with reasons in brief, whether the following statements are true or false:(i) Once a person is a resident in a previous year, he shall be deemed to be

resident for subsequent previous year also.(ii) The maximum amount of deduction from family pension received by a

widow is ` 18,000.(iii) Any sum paid on account of income tax is fully deductible while

computing income from business and profession.(iv) A partnership firm incurring losses need not file return of income.(v) The unabsorbed depreciation can be carried forward for 8 subsequent

assessment years. (1 mark each)2. (b) Smt. Sweta furnishes the following particulars of her income for the financial

year ended 31st March, 2013:

(i) Dividend received in September, 2012 from UTI ` 4,400 (gross).

(ii) Dividend received in July, 2012 from Darjeeling Tea Co. Ltd. ` 14,320(60% of income of the company is agricultural income).

(iii) Long-term capital gains from sale of shares through recognised stock

exchange ` 8,000.(iv) Amount received on 1st December, 2012 in connection with winnings from

lottery ` 1,09,200 (net). Cost of lottery tickets purchased ` 4,000.

(v) She has hired a residential house consisting of 3 rooms for ` 7,200 permonth on 1st October, 2012. One room of this house was sub-let on rent

of ` 3,000 per month from 1st January, 2013.Compute taxable income of Smt. Sweta under the head ‘income from othersources’ for the assessment year 2013-14. Give working notes wherevernecessary. (5 marks)

(c) Under what circumstances, an individual will be considered ‘non-resident’ forincome-tax purposes and on what income he will be liable to be assessed?

(5 marks)


3. (a) Mrs. Chanda owns two houses. The details of these houses are as follows:

House-I House-II

Municipal valuation (`) 3,00,000 2,00,000

Fair rent (`) 3,20,000 2,20,000

Standard rent (`) 2,80,000 2,30,000

Annual rent (`) self-occupied 2,07,600

Vacancy period — 2 months

Municipal taxes paid during

2012-13 (`)

20,000 20,000

She raised a loan of ` 12,00,000 from Punjab National Bank @ 12% perannum interest on 1st June, 2009 for the construction of House-I. Constructionof the house was completed on 1st June, 2012. Date of repayment of loan is1st October, 2012.Half of the municipal taxes in respect of the House-II have been paid by thetenant. During the previous year 2012-13, she was employed in a company

at a monthly salary of ̀ 25,000. Company paid ̀ 2,000 as professional tax onher behalf.Compute her total income and tax liability for the assessment year 2013-14assuming that she does not have any other income. (7 marks)

(b) What is ‘best judgement assessment’ ? Explain the provisions of section 144in this regard. (4 marks)

(c) Distinguish between ‘long-term capital gains’ and ‘short-term capital gains’.(4 marks)

4. (a) Deepak acquired 200 listed debentures of ̀ 100 each on 15th May, 2006. 50%value of each debenture was converted into 4 listed equity shares of the face

value of ` 10 each on 20th August, 2011. Deepak, therefore, received 800

shares of face value of ` 10 each and was left with 200 debentures of ` 50

each. The shares were sold on 15th June, 2012 @ ` 100 per share through

recognised stock exchange and Deepak paid ̀ 800 as securities transactiontax.Compute the income from capital gains to be included in the income ofDeepak for the assessment year 2013-14. (5 marks)


(b) From the following particulars, find out the amount of unabsorbed depreciationto be carried forward:

`

(i) Income from business (before charging depreciation) 1,08,000(ii) Depreciation 2,22,000(iii) Income under the head ‘house property’ 90,000(iv) Income from other sources 9,000

(5 marks)

(c) Ramesh has business income of ` 8,00,000 after debiting depreciation of `80,000 on buildings in his profit and loss account for the year 2012-13. Hebought the following assets during the year:

(i) Building-I bought on 1st March, 2012 for ̀ 3,00,000 and put to use on 31st

March, 2013 (rate of depreciation: 10%).

(ii) Building-II bought on 1st August, 2012 for ` 4,00,000 and put to use on10th March, 2013 (rate of depreciation: 10%).

(iii) Building-III bought on 10th September, 2012 for ̀ 5,00,000 and put to useon 1st June, 2013 (rate of depreciation: 10%).

Compute business income of Ramesh for the assessment year 2013-14assuming that Ramesh has no other building. (5 marks)

5. (a) Compute the tax payable, additional income tax payable and penalty payableunder section 271(1)(c), if any, for the assessment year 2013-14 from thefollowing:

`

Income as per return of income submitted for

assessment year 2013-14 1,80,000

Additions made under section 143(3):

On question of fact 1,00,000

On question of law 30,000

Intangible additions 20,000 1,50,000

Total income assessed 3,30,000

(5 marks)

(b) Kishore an Indian repatriate, came to India on 1st October, 2012. From thefollowing information, determine which assets are exempt under section 5(v)of the Wealth-tax Act, 1957. Also give reasons for their exemption:(i) He purchased a house in Bangaluru in June, 2011. He had remitted the

money to purchase this house from London.


(ii) He brought with him 4 Kgs. gold and ̀ 20 lakh in cash. The balance in his

non-resident external account in India on 30th September, 2012 was ̀ 10lakh.

(iii) He sold 2 Kgs. gold and from the sale proceeds purchased a plot inMarch, 2013 to construct a house. (5 marks)

(c) When does a person become liable to pay advance tax? When does paymentof advance tax become due? (5 marks)

6. (a) Distinguish between the following. Attempt any two:(i) ‘Person’ and ‘assessee’.(ii) Tax liability of ‘resident individual’ and ‘non-resident individual’.(iii) ‘Capital receipts’ and ‘revenue receipts’. (3 marks each)

(b) Discuss the taxation of voluntary contribution received by a ‘charitable trust’and ‘corpus donations’. (5 marks)

(c) Write short notes on the following. Attempt any two:(i) Assessment year(ii) Consequences of failure to deduct tax at source(iii) Taxation of agricultural income. (2 marks each)

PART-B

7. Attempt any four of the following:(i) What are the documents to be attached by a service provider along with an

application for registration under service tax? What is the time-limit for makingsuch an application?

(ii) Vasudha Ltd. has been providing a taxable service for the last three years. For

the month of October, 2012, its gross receipts were ̀ 30,00,000. The break-upof the receipts is given below:

— Services rendered to associate enterprise during the month ̀ 6,00,000 and

amount received during the month ` 2,00,000.

— Services rendered in Jammu & Kashmir ` 6,00,000.— The balance amount received represents services rendered during the

month and realised in full.Compute the amount of service tax payable and the due date for payment, onthe assumption that services rendered to associate enterprise is exclusive ofservice tax and services rendered to others is inclusive of service tax.

(iii) What do you mean by ‘reverse charge’ and under what circumstances theservice receivers are liable to pay service tax? Indicate such cases.


(iv) R Ltd., receives taxable services from G Ltd. of Japan on 28th August, 2012 for

` 6,00,000. G Ltd. raises the invoice on 5th September, 2012. R Ltd. makes thepayment as under:Case-I 6th January, 2013Case-II 28th March, 2013Determine the point of taxation in the above two cases.

(v) PQR Ltd. provides coaching in the field of engineering. One of the students,

Kapil, paid ` 15,000 in cash and a gold chain valuing ` 35,000 (cost to Kapil’s

father who is a jeweller ` 30,000) to PQR Ltd. Compute the amount of servicetax payable by PQR Ltd. thereon @ 12.36%. (5 marks each)

PART-C

8. Attempt any four of the following:(i) State, with reasons in brief, whether the following statements are true or

false :(a) The value added tax (VAT) had its origin only in United Kingdom.(b) Central sales tax paid on inter-State purchases is eligible for being set-off

against VAT payable in the State.(c) Punjab was the first State to implement VAT w.e.f. 1st April, 2003.(d) No declaration form is prescribed under VAT system.(e) Registration of dealer is mandatory under VAT. (1 mark each)

(ii) Manish, a manufacturer, sells goods to Suresh, a distributor for ` 2,40,000(exclusive of VAT). Suresh sells goods to Trilok, a wholesale dealer for

` 3,00,000. The wholesale dealer sells the goods to a retailer for ` 4,00,000,

who ultimately sells goods to the consumers for ` 5,00,000.Compute the tax liability, input credit availed and tax payable by themanufacturer, distributor, wholesale dealer and retailer under invoice methodassuming VAT rate @ 12.5%. (5 marks)

(iii) ‘Zero rating’ is advantageous to the dealer as compared to ‘exempting’ of saletransactions. How ? (5 marks)

(iv) State any two benefits and any two drawbacks for a dealer who opts forcomposition scheme under VAT as per White Paper. (5 marks)

(v) What records should be maintained under VAT system by a registereddealer? (5 marks)

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Paper 3 Tax Laws - Sauda.Com · 14. Assessment, levy, collection and payment of service tax, exemptions, CENVAT Credit for service tax, returns, appeals, revisions, advance rulings,