thu cs tax

TAX LAWS

DEC 2008

This Paper has 64 answerable questions with 0 answered.

Roll No…………Time allowed : 3 hours Maximum marks : 100Total number of questions : 8 Total number of printed pages : 4

Note: All references to sections mentioned in Part–A of the Question Paper relate to theIncome–tax Act, 1961 and the relevant Assessment Year 2008–09

unless stated otherwise.

PART — A

(Answer Question No. 1 which is COMPULSORYand any three of the rest from this part)

1. (a) Choose the most appropriate answer from the given options in respect of the following :

(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.

(0)

(ii) Maximum qualifying limit for deduction under section 80C is – (a) Rs.50,000 (b) Rs.1,00,000 (c) Rs.1,10,000 (d) Rs.1,50,000.

(0)

(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.

(0)

(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.

(0)

(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.

(0)

(vi) Any rent or revenue derived from land may be treated as agricultural income if – (a) It is derived from land

(0)

(b) The land is situated in India (c) The land is used for agricultural purpose (d) All the above conditions are satisfied.

(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.

(0)

(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.

(0)

(1 mark each)

(b) Mrs. Vidya received the following amounts during the financial year 2007–08:Rs.

Gross salaryFamily pension @ Rs.1,500 p.m.Income of a minor childAccumulated balance in provident fund ofher husband after his deathGratuity received after the death of her husband

6,00,00018,0006,000

1,00,00080,000

Calculate taxable income of Mrs. Vidya for the assessment year 2008–09.

(0)

(4 marks)

(c) What is meant by ‘pay–as–you–earn‘ scheme ? (0)

(3 marks)

2. (a) Re–write the following sentences after filling–up the blank spaces with appropriate word(s)/figure(s):

(i) Profit and gains arising from the transfer of a capital asset are taxable as _____________. (0)

(ii) Income accrued and received outside India is taxable in case of a _______________. (0)

(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. (0)

(iv) Salary received by a Member of Parliament is taxable under the head _____________. (0)

(v) Unabsorbed part of the loss from house property can be carried forward and set–off within the

subsequent _____ years. (0)

(vi) Remuneration earned by a member of HUF for the services rendered by him is _________

income of the member. (0)

(vii) One house or part of house belonging to an individual is __________ under the Wealth–tax Act,

1957. (0)

(1 mark each)

(b) State, with reasons in brief, whether the following statements are correct or incorrect :

(i) Sandeep, a trader, purchases standing crops and sells it after harvesting. His income will be

treated as agricultural income. (0)

(ii) Suresh receives Rs.10 lakh from statutory provident fund on his retirement. This amount is

taxable under the head income from salary. (0)

(iii) Sarita paid Rs.30,000 as interest @ 30% per annum on loan taken for the construction 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.

(0)

(iv) Ashok Exports Ltd. realised surplus of Rs.1,00,000 consequent to change in exchange rate of

currency. This surplus is a revenue receipt. (0)

(2 marks each)

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 . (0)

(ii) "Expenditure on scientific research is allowed as deduction even if contribution is made to other

institutions for scientific research." Explain the statement. (0)

(iii) A person receives money from an insurer on account of damagee to a capital asset resulting from

accidental fire. Whether such money shall be taxable as capital gains ? Explain. (0)

(3 marks each)

(b) Distinguish between any two of the following :

(i) ‘House rent allowance’ and ‘rent free house’. (0)

(ii) ‘Cost of acquisition’ and ‘cost of improvement’. (0)

(iii) ‘Fair rent’ and ‘annual rent’. (0)

(3 marks each)

4. (a) Ram, who is 28 years of age, is a businessman in Delhi. On the basis of the following profit and loss account for the financial year 2007-08, compute his taxable income:

Rs. Rs.Opening stockPurchasesHousehold expensesIncome–tax for thefinancial year 2007–08Interest on capitalDepreciation on furnitureReserve for bad debtsSalaries and wagesRent and ratesNet profit

20,70010,00,000

10,000

30,0008,400

12,0001,200

60,00025,000

3,57,900

SalesClosing stock

15,00,00025,200

15,25,200 15,25,200

(0)

Other relevant particulars are as follows :

(i)Opening stock and closing stock have consistently been valued at 10% below cost price.(ii)Household expenses include a contribution of Rs.1,500 towards public provident fund.(iii

)Amount of depreciation on furniture as per income-tax provisions is Rs.10,000.

(b) Write short notes on any three of the following :

(i) The activities of a co–operative society which are eligible for deduction under section 80P. (0)

(ii) Essential conditions for claiming exemption under section 11 in the case of a charitable trust. (0)

(iii) Liability to pay fringe benefit tax. (0)

(iv) Banking cash transaction tax. (0)

(3 marks each)

5. (a) Gulshan submits the following information relevant for the financial year 2007–08 :Profit (Rs.) Loss (Rs.)

Salary income Income from house property :House–AHouse–BProfits and gains of business or profession :Business–ABusiness–BBusiness–C (Speculative)Business–D (Speculative)Capital gains :Short term capital gainsShort term capital lossLong–term capital gains on sale of buildingIncome form other sources :Loss on maintenance of race horses

8,00,000

25,000–

12,000–

22,000–

10,000–

16,000

–

–

–30,000

–20,000

–35,000

–30,000

–

15,000Determine the net income of Gulshan for the assessment year 2008–09.

(0)

(7 marks)

(b) Suresh is the owner of a house. The actual rent of this house is Rs.9,000 per month and municipal valuation of this house is Rs.7,500 per month. Other informations about the house are –

(i)Municipal taxes are Rs.10,000 out of which the tenant has paid Rs.6,000.(ii)Suresh has accepted a deposit of Rs.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 Rs.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 house under the provisions of the Wealth–tax Act, 1957 for the assessment year 2008–09.

(0)

(8 marks)

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, 2008 shows a net profit of Rs.42,300 after debiting the following items:

(i)Salary of Rs.24,000 each to Nikhil and Gagan.(ii)Bonus to Suman Rs.18,000.(iii

)Commission of Rs.9,000, Rs.10,000 and Rs.15,000 to Nikhil, Gagan and Suman respectively.

(iv) Interest on capital @ 15% amounting to Rs.4,500, Rs.6,000 and Rs.15,000 paid to Nikhil, Gagan and Suman respectively.

Assuming that all partners are working partners and the firm fulfills the conditions of section 184, compute the total income of the firm and taxable income of the partners in the firm.

(0)

(8 marks)

(b) Indicate the amount of deduction available to an assessee from his gross total income under section

80GG in respect of rent paid. Point out the circumstances when the deduction will be denied. (0)

(7 marks)

PART — B

7. Attempt any four of the following :

(a) What do you mean by ‘taxable services’ in the context of service tax ? How is the value of taxable

services determined ? (0)

(5 marks)

(b) Explain the procedure of registration for paying service tax. (0)

(5 marks)

(c) Under certain circumstances, the service receivers are liable to pay service tax. Indicate such cases. (0)

(5 marks)

(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.

(0)

(ii) Appeal to Customs, Excise and Service Tax Appellate Tribunal can be filed within –

(a) One month

(b) Two months

(c) Three months

(0)

(d) Four months.

(iii) Service tax is administered by the Department of –

(a) Central Sales Tax

(b)

Central Excise

(c) Revenue

(d)

Customs.

(0)

(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.

(0)

(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.

(0)

(1 mark each)

(e) Re–write the following sentences after filling–up the blank spaces with appropriate word(s)/figure(s):

(i) The Superintendent of Central Excise is bound to grant certificate of registration for service tax

within ________ days of the receipt of application. (0)

(ii) Taxable services provided to any person by the Reserve Bank of India is ____________ from

service tax. (0)

(iii) Under section 77 of the Finance Act, 1994, a maximum penalty of Rs.________ is payable for late

filing of service tax return. (0)

(iv) The threshold limit for service tax exemption applicable in the case of small service providers has

been increased to _________. (0)

(v) When there is no consideration received for services rendered freely, the service tax ________

apply. (0)

(1 mark each)

(f) State, with reasons in brief, whether the following statements are correct or incorrect :

(i) Service tax is to be paid to the credit of Central Government by the 5th of the month immediately

following the calendar month in which the payments are received. (0)

(ii) In case the taxable services are provided from more than one premises/offices, the assessee can opt

for registration of only one premises. (0)

(iii) The facility for e–filing of returns is not applicable to service tax. (0)

(iv) There is no system of getting advance ruling in respect of service tax matters. (0)

(v) The CENVAT credit rules do not extend its scope to service tax paid in respect of input services. (0)

(1 mark each)

PART — C


(a) What are the different modes of computation of value added tax (VAT) and what are the advantages of

adoption of tax credit method ? (0)

(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 light of this statement, explain how VAT is an improvement over the old sales tax structure.

(0)

(5 marks)

(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 the government from the following particulars based on the fact that Shyam charges VAT @ 4% and other sellers charge VAT @ 12.5% :

Price without VAT(Rs.)

Raw material supplied :Ram to DineshShyam to DineshManufactured goods sold :Dinesh to MohanMohan to TrilokTrilok to consumers

5,0008,000

18,00025,00030,000

(0)

(5 marks)

(d) "Input tax credit is generally given for the entire VAT paid within the State on purchases of taxable

goods meant for resale or manufacture of taxable goods". In the light of this statement, enumerate the cases of purchases of goods in respect of which tax credit is not available.

(0)

(5 marks)

(e) Write a brief note on rates of VAT. (0)

(5 marks)

(f) State, with reasons in brief, whether the following statements are correct or incorrect :

(i) Zero rating transaction is the same as an exempt transaction. (0)

(ii) VAT helps in checking tax evasion and in achieving neutrality. (0)

(iii) The departmental audit also helps to check tax evasion. (0)

(iv) Introduction of VAT has increased the professional development opportunities for the Company

Secretaries. (0)

(v) As a result of introduction of VAT, the central sales tax will be phased out in due course. (0)

(1 mark each)

TAX LAWS

JUNE 2009


Roll No………Time allowed : 3 hours Maximum marks : 100Total number of questions : 8 Total number of printed pages : 4

Note: All references to sections mentioned in Part – A of the Question Paper relate to theIncome – tax Act , 1961 and the relevant Assessment Year 2008 – 09

unless stated otherwise.PART — A


1. (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 other sources’. (0)

(ii) The maximum income of Rs.2,25,000 is not chargeable to income–tax in case of a citizen woman

of 65 years age. (0)

(iii) Due date for filing of return of income of an individual is 31st July of the previous year. (0)

(iv) No deduction is allowable from income from salary. (0)

(v) Indexation of cost of acquisition is necessary for short–term capital gain. (0)

(vi) Return of income once filed cannot be revised. (0)

(vii) Gift from an unrelated person is tax–free upto Rs.50,000. (0)

(1 mark each)

(b) Re–write the following sentences after filling–in the blank spaces with appropriate word(s)/figure(s) :

(i) Income of a business commenced on 1st March, 2009 will be assessed during the assessment year

___________. (0)

(ii) Belated return can be filed within ___________ from the end of the relevant assessment year. (0)

(iii) Fringe benefit tax is charged at the rate of ___________. (0)

(iv) Advance tax is payable in ___________ installments by a non–corporate assessee. (0)

(v) Net wealth computed under the Wealth–tax Act, 1957 shall be rounded off to the multiple of Rs.

___________ . (0)

(1 mark each)

(c) Robbert, a US national came to India for the first time on 1st November, 2008 for a period of six months. He declared following incomes during the previous year ending 31st March, 2009 :

(i)Salary received in India for four months at the rate of Rs.75,000 per month.(ii) Interest on fixed deposit in a bank in India : Rs.50,000.(iii

)Income from agriculture in USA : Rs.10,00,000.

(0)

(iv) Income from a business in Nepal being controlled from India : Rs.2,00,000.(v)Salary earned in USA brought into India in the previous year : Rs.5,00,000.

You are required to compute Robbert’s taxable income and tax liability for the assessment year 2009–10.

(5 marks)

2. (a) Choose the most appropriate answer from the given options in respect 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 or furnish audit report along with return of income is —(a) Rs.10,000(b) Rs.20,000(c) Rs.50,000(d) Rs.1,00,000.

(0)

(ii) The amount of education cess and secondary and higher education cess to be collected along with income–tax for assessment year 2009–10 shall be —(a) 1%(b) 2%(c) 3%(d) 4%.

(0)

(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.

(0)

(iv) X is the owner of a house, the details of which are given below :Municipal valueActual rentFair rentStandard rent

Rs.30,000Rs.32,000Rs.36,000Rs.40,000.

The gross annual value would be —

(a) Rs.36,000(b)

Rs.35,000

(c) Rs.30,000(d)

Rs.40,000.

(0)

(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 cases under section 17(2) –(a) Rs.10,000

(0)

(b)

Rs.15,000

(c) Rs.20,000(d)

Rs.25,000.

(vi) The maximum exemption in respect of transport allowance granted to an employee to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty shall be —(a) Rs. 600 per month(b) Rs. 700 per month(c) Rs. 800 per month(d) Rs. 900 per month.

(0)

(1 mark each)

(b) John, Jack and Jill are partners sharing profits and losses in the ratio of 2:1:1 respectively. Their summarised profit and loss account for the year ending 31st March, 2009 is appended below :

Rs. Rs.Office salariesBad debts reserveTelephoneSalary to JackCollection charges of interest on securitiesInterest on loan from JohnMunicipal taxes (let out property)

17,0403,0006,0009,000

1506,0003,000

Gross profitInterest onsecuritiesRent received

1,81,710

12,00018,000

Commission to partners :JohnJackJill

12,00015,00018,000 45,000

Net profit to partners :JohnJackJill

61,26030,63030,630 1,22,520

2,11,710 2,11,710Compute total income of the firm for the assessment year 2009-10 and tax liability thereon. Interest paid to John has been calculated at the rate of 20% per annum simple.

(0)

(7 marks)

(c) Yash, a minor, who is a physically handicapped (suffering from disability of the nature specified in

section 80U), earns bank interest of Rs.50,000 and Rs.60,000 from making bags manually by himself. State whether income of Yash should be clubbed with the income of his parents as per section 64(1A).

(0)

3. (a) Distinguish between the following :

(i) ‘Scrutiny assessment’ and ‘best judgement assessment’. (0)

(ii) ‘Long–term capital gain’ and ‘short-term capital gain’ (0)

(iii) ‘Exempted incomes under section 10’ and ‘deductions under section 80’. (0)

(iv) ‘Previous year’ and ‘assessment year’. (0)

(v) ‘Assets’ and ‘deemed assets’ under the Wealth–tax Act, 1957. (0)

(2 marks each)

(b) Compute the net wealth and tax liability of assessment year 2009–10 of Sona Jewels which is engaged in jewellary business. Following are the particulars of assets on 31st March, 2009 :

Rs.Factory building (W.D.V)Bank balanceUnaccounted cashSilver wareGold jewelleryCar (W.D.V)Farm house within municipal limitGuest house in Britain

80,00,00015,00,0005,20,00056,00,00054,00,00010,00,00025,00,00090,00,000

The market value of car is Rs.15 lakh. The assessee has raised a loan of Rs.50 lakh from a bank by mortgaging guest house. The loan was utilised to construct factory building.

(0)

(5 marks)

4. (a) Who is liable to pay advance income–tax? On what dates the installments of advance tax are payable and what amount is to be paid under each installment?

(0)

(4 marks)

(b) What are the provisions regarding deduction of tax at source from the following incomes :

(i) Winnings from lottery (0)

(ii) Payment to a resident contractor (0)

(iii) Commission and brokerage (0)

(iv) Payment of rent. (0)

(2 marks each)

(c) Discuss the items which are disallowed as deduction under section 40(b) while computing firm’s

income from business and profession. (0)

(3 marks)

5. (a) Karan made a gift to Sujata during their engagement which took place on 15th May, 2008. After their marriage which was held on 15th June, 2008, they decided to live apart owing to some reasons and they obtained a legal divorce on 15th September, 2008. Whether transfer made on 15th May, 2008 be included for wealth–tax purposes in the hands of Karan ?

(0)

(3 marks)

(b) Discuss the taxability or otherwise of the following gifts received by Madhuri, a lady, during the financial year 2008–09:

(i)Rs.30,000 from her elder sister.(ii)Rs.50,000 from the daughter of her elder sister.

(0)

(iii)Wrist watch valued at Rs.6,000 from her friend.

(3 marks)

(c) Gaurav, aged 50 years, is an individual, whose gross total income before deduction under section 80C

is Rs.1,90,000 and his total income after deduction under section 80C is Rs.95,000. Whether he is required to file return?

(0)

(3 marks)

(d) Kundan submits the following information for the assessment year 2009–10:Income from businessProperty income House–A

Rs.

Rs.20,000House–A

Rs.Municipal valuationMunicipal taxes paid by tenantLand revenue paidRent receivedInsurance premium paidRepairs paid by tenantInterest on borrowed capital for payment ofmunicipal tax of house property

17,5001,5001,000

19,000250250

100

40,0002,0008,000

34,0001,0009,000

200Nature of occupation Let out for

residenceLet out forbusiness

Date of completion of construction 1.4.1993 1.4.1991Determine the taxable income of Kundan for the assessment year 2009–10.

(0)

(6 marks)

6. (a) Discuss the provisions relating to incidence of wealth–tax. (0)

(5 marks)

(b) What are deemed fringe benefits ? (0)

(5 marks)

(c) State, with reasons in brief, whether the following are capital or revenue receipts /expenditure:

(i) Rs.20,000 spent in connection with obtaining a licence for running a cinema hall. (0)

(ii) Rs.3,00,000 received as compensation for termination of contract of agency. (0)

(iii) Lump sum received as advance rent. (0)

(iv) Overhaul expenses of second hand machinery. (0)

(v) Payment to an employee to retain him in job. (0)

(1 mark each)

PART — B


(i) Briefly state the provisions of service tax regarding following :

(a) Liability to registration (0)

(b) Procedure for registration (0)

(c) Issue of registration certificate (0)

(d) Time limit for registration (0)

(e) Surrender of certificate of registration. (0)

(1 mark each)

(ii) What is general rule regarding valuation of taxable service ? Indicate the position where the gross

amount charged by a service provider includes service tax payable. (0)

(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 ? (0)

(5 marks)

(iv) Discuss ‘advance ruling in service tax’. (0)

(5 marks)

(v) Explain the provisions regarding service tax on Company Secretaries. (0)

(5 marks)

PART — C

8. Attempt any two of the following :

(i) Who is liable to pay VAT ? Discuss the advantages of introduction of VAT in India. (0)

(10 marks)

(ii) Discuss – (a) Rates of VAT; and (b) Filing of return under VAT. (0)

(10 marks)

(iii) Discuss, with suitable example, various methods for computation of VAT liability. (0)

(10 marks)

(iv) Write notes on – (a) Registration under VAT; and (b) Zero rating. (0)

(10 marks)

TAX LAWS

DEC 2009



Note: All references to sections mentioned in Part – A of the Question Paper relate to theIncome – tax Act, 1961 and the relevant Assessment Year 2008 – 09



1. (a) Choose the most appropriate answer from the given options in respect 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.

(0)

(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.

(0)

(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.

(0)

(iv) Sandeep purchased a house for his residential purpose after taking a loan in January, 2007. During the previous year 2008-09, he paid interest on loan Rs.1,67,000. While computing income from house property, the deduction is allowable to the extent of —(a) Rs.30,000(b) Rs.1,00,000(c) Rs.1,67,000(d) Rs.1,50,000.

(0)

(v) Which of the following is an ‘asset’ under section 2(ea) of the Wealth–tax Act, 1957 —(a) Equity shares in a company

(0)

(b) Balance in provident fund(c) Motor car held as stock–in–trade(d) Jewellery for personal use.

(1 mark each)

(b) Re–write the following sentences after filling–in the blank spaces with appropriate word(s)/figure(s):

(i) Deduction for bad debt is allowed to an assessee carrying on business in the year in which the debt

is ______ as bad. (0)

(ii) Deduction available under section 80GG towards rent paid shall not exceed Rs.___________ per

month. (0)

(iii) It is obligatory for an assessee to pay advance tax where the amount of tax payable is Rs.________

or more. (0)

(iv) A belated return of income can be filed at any time before the expiry of ___________ from the end

of relevant assessment year. (0)

(v) Wealth-tax is levied on the net wealth of a person as on 31st March, this date is known as

__________ date. (0)

(1 mark each)

(c) Rajan is an employee of a private limited company and gets the following emoluments during the previous year ended on 31st March, 2009 : Salary : Rs.96,000; Salary in lieu of leave : Rs.6,000; Entertainment allowance: Rs.10,000; and Commission : Rs.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 Rs.22,000 per year, but the company charges Rs.4,000 from Rajan. Salary of a domestic servant provided to Rajan by the company is Rs.6,000 and the same is paid by the company. The company purchases a computer on 1st April, 2008 for Rs.50,000 which is given to Rajan for office and private use. The company purchases a refrigerator for Rs.20,000 on 30th June, 2008 for personal use of Rajan. Rajan and the company both contribute Rs.12,000 towards recognised provident fund. Rajan deposits Rs.40,000 towards public provident fund. Rajan earns Rs.1,00,000 by way of rent from a vacant plot of land. Compute the taxable income and tax liability of Rajan for the assessment year 2009–10.

(0)

(5 marks)

2. (a) From the following profit and loss account of Vinay for the year ended 31st March, 2009, compute his total income and tax liability for the assessment year 2009–10 :

Rs. Rs.

Interest on capitalInsuranceBad debtsDepreciationAdvance tax

12,0002,000

30,00034,00025,000

Gross profitBrokerageBad debts recovered(earlier allowed asdeduction)

5,10,00030,00015,000

(0)

General expensesAdvertisementSalary (including salaryto Vinay Rs.20,000)Interest on loanNet profit

12,0005,000

85,0008,000

4,00,000

Sundry receiptsInterest on debentures(gross) [TDS Rs.4,120]

18,000

40,000

6,13,000 6,13,000Additional information :

(i)The amount of depreciation allowable as per income-tax rules is Rs.42,000.(ii)General expenses include Rs.5,000 given as contribution to a political party.

(iii)Vinay pays Rs.5,200 as premium on his own life insurance policy of Rs.50,000.(iv)Loan was obtained for payment of income-tax.

(4 marks)

(b) Write short notes on any two of the following:

(i) Taxation of zero coupon bonds (0)

(ii) Share of profit from partnership firm (0)

(iii) Exemption of income of newly established units in special economic zone. (0)

(3 marks each)

(c) State, with reasons in brief, whether the following statements are correct or incorrect:

(i) Unabsorbed depreciation of any year can be carried forward for set–off for an unlimited period of

time. (0)

(ii) An individual is not liable to pay fringe benefit tax. (0)

(iii) The entire amount of winning from lotteries is taxable at a special rate of income–tax. (0)

(iv) Income of minor child is included in the income of his parents under the Income–tax Act, 1961 in

all cases. (0)

(v) When the prize is given partly in cash and partly in kind, income–tax will be deducted from cash

only. (0)

(1 mark each)

3. (a) Distinguish between any three of the following :

(i) ‘Gross total income’ and ‘total income’. (0)

(ii) ‘Recognised provident fund’ and ‘statutory provident fund’. (0)

(iii) ‘Compulsory best judgment assessment’ and ‘discretionary best judgment assessment’. (0)

(iv) ‘Exemptions’ and ‘deductions’. (0)

(4 marks each)

(b) What is the time–limit for deposit of ‘tax deducted at source’ (TDS) to the credit of Central

Government? (0)

(3 marks)

4. (a) What are the special provisions for computing profits and gains of retail business? (0)

(5 marks)

(b) What are the provisions relating to clubbing of income arising to spouse from the assets transferred? (0)

(5 marks)

(c) Alka is carrying on textile business. Compute her net wealth from the following details of her assets and also determine her wealth–tax liability for the assessment year 2009–10:

Market ValueRs.

(i)Land in rural area (it lies within 8 kms. from amunicipality 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 2001) 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 exceedRs.5,00,000 in a year) 30,00,000

(viii)Residential house given to general manager (whose annualsalary is Rs.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 Rs.22 lakh; one is let-out for 250 days

during the financial year 2008-09).Alka has taken a loan of Rs.24,00,000 for acquiring the aircraft; Rs.5,50,000 for urban land; and Rs.4,00,000 for residential house given to general manager.

(0)

(5 marks)

5. (a) Anurag sells a plot of land on 8th July, 2008 for Rs.40 lakh and paid brokerage on its sale @1%. He purchased this plot on 19th December, 1986 for Rs.4,20,000. On 1st February, 2009, he purchased a residential house for Rs.15 lakh. He owns one residential house on 8th July, 2008. The cost inflation index for 1986–87 was 140 and for 2008–09 is 582. Find out the amount of capital gains chargeable to tax for the assessment year 2009–10. Suppose Anurag sells the new residential house before 1st February, 2012, what will be the taxable amount of capital gains and in which year it will be charged to tax ? If Anurag purchases any other residential house before 1st February, 2011, what will be the taxable amount of capital gains and in which year it will be charged to tax?

(0)

(5 marks)

(b) Danny has the following investments in the previous year ended 31st March, 2009:(i)Rs.7,160 received as interest on securities of Karnataka government.

(ii)Rs.9,000 received as interest on securities of a listed paper manufacturing company.(iii)Rs.7,200 received as interest on the unlisted securities of a sugar company.

(0)

(iv)Rs.30,000, 11% securities (unlisted) of a textile company.(v)Rs.20,000, 10% Tamil Nadu government loan.

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

Danny also received Rs.15,000 as director’s fee from a company. His other incomes are –– winnings from horse race : Rs.25,000 (gross); and interest on post office savings bank account : Rs.6,000.

Find out taxable income of Danny from other sources for the assessment year 2009–10.

(5 marks)

(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 forward for being set–off, it can only be set–off from income under the same head." Explain.

(0)

(5 marks)

6. (a) Rohit is the owner of a house property, its municipal valuation is Rs.80,000. It has been let-out for Rs.1,20,000 per annum. The local taxes payable by the owner amount to Rs.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, bears the following expenses on tenant’s amenities:

Rs.

Extension of water connectionWater chargesLift maintenanceSalary of gardenerLighting of stairsMaintenance of swimming poolThe landlord claims the following deductions :Repairs and collection chargesLand revenue paid

3,0001,5001,5001,8001,200

750

7,5001,500

Compute the taxable income of Rohit from the house property for the assessment year 2009–10.

(0)

(10 marks)

(b) What are ‘capital assets’? What items are not included in capital assets? (0)

(5 marks)

PART — B


(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. (0)

(5 marks)

(b) What are the due dates for payment of service tax by different assessees? (0)

(5 marks)

(c) Indicate the amount of interest payable for late payment of service tax and the amount of penalty

payable for late filing of return of service tax. (0)

(5 marks)

(d) Explain the provisions regarding submission of return under service tax. (0)

(5 marks)

(e) What is the basis of calculation of service tax payable? Explain the provisions governing valuation of

taxable services. (0)

(5 marks)

(f) Choose the most appropriate answer from the given options in respect of the following :

(i) What would be the value of taxable service, if gross amount charged by a service provider on 5th March, 2009 is Rs.9,000 ––(a) Rs.8,010(b)

Rs.8,160

(c) Rs.9,000(d)

Rs.8,100.

(0)

(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.

(0)

(iii) E–payment of service tax is compulsory in the case of an assessee who had paid service tax in the preceding financial year equal to at least ––(a) Rs.10 lakh(b)

Rs.40 lakh

(c) Rs.50 lakh(d)

Rs.1 crore.

(0)

(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) Rs.4 lakh(b) Rs.8 lakh(c) Rs.10 lakh(d) Rs.12 lakh.

(0)

(v) If a corporate assessee has paid Rs.15,000 as excess service tax during the previous half-year ending period, this excess amount can be adjusted against its subsequent tax liability ––

(0)

(a) Equally every month(b)

Equally per quarter

(c) In one lump–sum(d)

Equally on half–yearly basis.

(1 mark each)

PART — C

8. Attempt any four of 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? (0)

(ii) "A registered dealer can set–off the amount of input tax against the amount of his output tax." Explain. (0)

(iii) Explain the procedure of registration under ‘value added tax’ (VAT). (0)

(iv) In what purchases input tax credit is not allowed under VAT? (0)

(v) What are the deficiencies in the design of VAT that has been adopted by the States in India? Give your

opinion. (0)

(vi) "Tax credit or invoice method has been adopted universally because of the inherent advantages in the

credit method of calculating tax liability." Explain. (0)

(5 marks each)

TAX LAWS

JUNE 2010



Note: All references to sections mentioned in Part – A of the Question Paper relate to theIncome – tax Act, 1961 and the relevant Assessment Year 2010 – 11



1. (a) Choose the most appropriate answer from the given options in respect 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 dairy farm

(d)

Dividend from a company engaged in agriculture.

(0)

(ii) The term ‘income’ includes the following types of incomes —

(a) Legal

(b) Illegal

(c) Legal and illegal both

(d) None of the above.

(0)

(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.

(0)

(iv) Sneha is an employee in a private company . In the previous year she received salary Rs.1,80,000 and entertainment allowance Rs.12,000. She spent Rs.6,000 on entertainment. Under section 16(ii),

(0)

she is entitled to deduction of —

(a) Rs.12,000

(b)

Rs.6,000

(c) Rs.5,000

(d)

Nill

(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.

(0)

(1 mark each)

(b) State, with reasons in brief, whether the following statements are correct or incorrect :

(i) An Indian company is always resident in India no matter where and to what extent its control and

management is situated. (0)

(ii) Rent from house property let-out by an assessee to his employees when such letting is incidental to

his main business, will be chargeable to tax under the head ‘income from house property’. (0)

(iii) Income by way of winnings from lotteries in the hands of a dealer as a regular business activity is

not chargeable to tax under the head ‘profits and gains of business or profession’. (0)

(iv) Income from transfer of self-generated goodwill of a profession is not chargeable to tax under the

head ‘capital gains’. (0)

(v) Literary awards instituted by the Central Government are exempted from income-tax. (0)

(1 mark each)

(c) Particulars of income received by Mrs. Sarita for the year ended 31st March, 2010 are as follows :

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

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

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

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

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

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

(vii)

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

From the above information, compute income from other sources of Mrs. Sarita for the assessment year 2010-11.

(0)

(5 marks)

2. (a) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s) :

(i) The maximum exemption limit under the Income-tax Act, 1961 in case of a woman who is less

than 65 years of age and who is non-resident in India is Rs.______________. (0)

(ii) The time limit for filing an appeal before the appellate tribunal on receipt of an appeal order from

the Commissioner is _________ days. (0)

(iii) Wealth-tax is charged at the rate of _________ % on net wealth in excess of Rs. _________ lakh

under the Wealth-tax Act, 1957. (0)

(iv) Business loss relating to illegal business is _________ as deduction. (0)

(v) Marriage gift from a non-relative is _________ to tax. (0)

(1 mark each)

(b) Write short notes on any two of the following :

(i) Belated return (0)

(ii) Taxation of zero coupon bonds (0)

(iii) Profit in lieu of salary. (0)

(3 marks each)

(c) Discuss the procedure for rectification of mistakes under the Income-tax Act, 1961. (0)

(4 marks)

3. (a) An asset is transferred by a person to another person under a partly revocable transfer whereby a part of the asset will revert back to the transferor. Who shall be liable to pay tax in respect of income from the asset transferred as per section 61 ?

(0)

(2 marks)

(b) Distinguish between any three of the following :

(i) ‘Mercantile system of accounting’ and ‘cash system of accounting’. (0)

(ii) ‘Free trade zone’ and ‘special economic zone’. (0)

(iii) ‘Exemption to capital gains under section 54G’ and ‘exemption to capital gains under section

54GA’. (0)

(iv) ‘Intra-head adjustment’ and ‘inter-head adjustment’. (0)

(2 marks each)

(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 ratio of 2:3. The profit and loss account of the firm for the year ended 31st March, 2010 is as follows :

Liabilities Rs.Cost of goods sold 10,00,000Depreciation 50,000Salary to staff 1,00,000Remuneration to partners :

(0)

Ram Rs.2,50,000Shyam Rs.1,20,000 3,70,000Interest on capital @15% :Ram Rs.45,000Shyam Rs.67,500 1,12,500Sundry expenses 1,00,500Net profit 7,35,200

24,68,200AssetsSales 23,00,000Dividends 28,200Winnings from lotteries (Rs.2,00,000) 1,40,000

24,68,200Additional information :

(i) The firm donated Rs.30,000 to National Defence Fund and this amount is included in sundry expenses.

(ii) Depreciation admissible under the income-tax rules is Rs.68,000.

(iii)

The firm is evidenced by partnership deed.

Compute the taxable income and amount of tax liability of the firm for the assessment year 2010-11.

(7 marks)

4. (a) Raman has following assets and liabilities as on 31st March, 2010. Compute his net wealth and wealth-tax liability for the assessment year 2010-11 :

Market Value(Rs.)

(i) Cash in hand 75,000(ii) Cash at bank 10,00,000

(iii) Residential house (Loan taken to purchase this house Rs.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 Rs.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 Rs.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 Rs.2,00,000) 20,00,000

(0)

(5 marks)

(b) State the provisions regarding deduction of tax at source in respect of 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.

(0)

(2 marks each)

(c) Discuss the cases in which payment by way of loan/advance to the extent of accumulated profits by a

closely held company is treated as dividend under section 2(22)(e). (0)

(4 marks)

5. (a) Amit is a cloth merchant in Ghaziabad. From the following profit and loss account for the year ended 31st March, 2010, compute his taxable income and tax payable for the assessment year 2010-11 :

Rs. Rs.Opening stock 1,00,000 Sales 40,00,000Purchases 25,00,000 Closing stock 3,00,000Reserve for bad debts 10,000 Gift form friend 70,000

Household expenses 20,000Gift from brother

80,000

Advertisement 40,000Depreciation 20,000Salaries and wages 1,20,000Reserve for future losses 20,000Travelling expenses 15,000Expenditure on scientific research

50,000

Net profit 15,55,0004,50,000 4,50,000

Additional information :

(i) Household expenses include an amount of Rs.5,000 paid for premium on life insurance policy of Amit.

(ii) Depreciation admissible as per the income-tax rules is Rs.30,000.

(iii)

Advertisement costing Rs.10,000 appeared in a newspaper owned by a political party 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 Rs.10,000 is included in travelling expenses. The sales manager is otherwise entitled for a second class AC train where the expenditure would be Rs.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 to undertake in future.

(0)

(7 marks)

(b) Explain with the help of suitable illustration how capital gains are computed under section 45(2) in case

of conversion of capital asset into stock-in-trade. (0)

(4 marks)

(c) Describe the powers of Central Board of Direct Taxes (CBDT) under the Income tax Act, 1961. (0)

(4 marks)

6. (a) Naveen owns a house at Indore. Its municipal valuation is Rs.24,000. He incurred the following expenses in respect of the house property :

Municipal tax @ 20%, fire insurance premium Rs.2,000 and land revenue Rs.2,400.He took a loan of Rs.25,000 @16% per annum on 1st April, 2006. The whole amount is still unpaid. The house was completed on 1st April 2009. Find out the income from house property for the assessment year 2010-11 in respect of the following options :

(i) If the house is used by the assessee throughout the previous year for his residential purpose; and

(ii)

If the house is let-out for residential purposes on monthly rent of Rs.2,000 from 1st April, 2009 to 31st January, 2010 and self-occupied for the remaining period.

(0)

(6 marks)

(b) What are the due dates of payment of advance tax in the case of corporate and non-corporate

assessees ? (0)

(3 marks)

(c) How is the liability to advance tax computed as per provisions of section 210 ? (0)

(3 marks)

(d) Explain the deductions which are available to an assessee under section 57 while computing taxable

income chargeable under the head ‘income from other sources’. (0)

(3 marks)

PART — B


(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.

(0)

(b) (i) Which category of persons must mandatorily obtain registration under Chapter V of the Finance

Act, 1994 ? (0)

(3 marks)

(ii) What are the time limits for making application for registration and granting registration for

service tax under Chapter V of the Finance Act, 1994 ? (0)

(2 marks)

(c) (i) When is an assessee registered under service tax required to surrender the registration certificate ? (0)

(ii) On which amount — amount of bill raised on the client or amount actually received from the

client, service tax is payable ? (0)

(iii) If an assessee pays service tax on the billed amount but he gets less amount from his customers,

can he get refund from the government ? (0)

(iv) If the service provider fails to recover service tax on a bill of Rs.12,000 where service tax is not

shown separately in the invoice, what will be the amount of service tax ? (0)

(v) When will the small service provider claiming exemption from paying service tax apply for

registration under service tax ? (0)

(1 mark each)

(d) Comment on the following statements —

(i) “Service tax is payable as soon as advance is received even if the service is provided later.” (0)

(2 marks)

(ii) “Excess service tax collected is to be paid to the Central Government.” (0)

(3 marks)

(e) Discuss the exemption available to small service providers from paying service tax. (0)

(5 marks)

PART — C


(i) “As a result of introduction of value added tax (VAT), the central sales tax will be phased out.”

Explain the statement. (0)

(ii) Discuss in what respects VAT system as adopted in India is deficient in the direction of getting

maximum benefits of VAT. (0)

(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 suitable illustration. (0)

(iv) Discuss the cases of purchases in respect of which generally no input tax credit is available. (0)

(v) Explain the various methods of computation of VAT liability. (0)

(5 marks each)

thu cs tax

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