161-0405

Question Paper Economic Legislation – I (161): April 2005 ·

Answer all questions. ·

Marks are indicated against each question.

1. Under which of the following circumstances, is a company deemed to be the subsidiary of another company? I. That other company controls the composition of its Board of directors. II. The other company holds more than half of the nominal value of its equity share capital. III. That this company is subsidiary of any company, which is that other’s subsidiary. IV. The other company holds half of the paid up capital of this company. (a) Both (I) and (IV) above (c) Both (III) and (IV) above (e) (I), (II) and (III) above.

(b) (I) (III) and (IV) above (d) Both (II) and (III) above

(1 mark) < Answer >

2. Which of the following are the disadvantages of legal justice? I. It is always not possible to adjust to the changing needs of the society. II. It represents the collective wisdom of community by ignoring the individual wisdom. III. The justice follows the formality and technicality, for every disputed matter, there is a specified form technically formulated. IV. It is more rigid, it follows what has been laid down in precedents. V. Uniformity and certainty in the administration of justice. (a) Both (I) and (II) above (IV) above (c) (II) (III) and (V) above (IV) and) above (e) All (I), (II), (III) (IV) and (V) above. (2 marks) < Answer >

3.

(b) (I) (III) and (d) (II), (III),

Under which of the following situations, will a requisition (u/s169 for calling extraordinary general meeting) sent by the members holding one tenth of the capital carrying voting rights be considered as invalid? (a) Upon submission of a valid requisition, some of the members withdrew their consent (b) Upon submission of a valid requisition, some of the members have ceased to be the members of the company (c) The requisition made by the persons holding shares, on which calls are due (d) The requisition does not contain explanatory statement (e) The requisition was signed by only one of the joint holders of shares. (2 marks) < Answer >

4. “Ubi jus ibi remedium” means (a) Where there is a right there is a remedy (b) A deal in the name of another person (c) A plea that an agreement mentioned in the pleading was not the act of the defendant (d) An injury is not done to one who knows (e) Where there is a right there need not be a remedy. (1 mark) < Answer >

5. Which of the following is not the content of the director’s report? (a) Material changes which have occurred between the end of the year and the date of the report, affecting the financial position of the company (b) The amount if any, recommended to be paid by way of dividend (c) The conservation of energy, technology absorption and foreign exchange earnings and outgo (d) State of company’s affairs and any amount proposed to be transferred to any reserves (e) Statement of holding company’s interest in the subsidiary at the end of the financial year. (1 mark) < Answer >

6. The term “liquidated damages” refers to (a) The amount payable in cash (b) The amount payable based on the actual damage sustained (c) The amount named by the parties as payable in the event of breach (d) The amount determined by the court as

damages on a suit where the contract is silent (e) The amount agreed upon as damages between the parties subsequent to breach. (1 mark) < Answer >

7. A certified copy of the order of the Central Government confirming the alteration of memorandum of association (pertaining to the shifting of registered office of the company from one State to another State) is required to be registered with the Registrar of Companies within a period of (a) One month from the date of the order confirming alteration (b) Two months from the date of the order confirming alteration (c) Three months from the date of the order confirming alteration (d) Six months from the date of the order confirming alteration (e) Twelve months from the date of the order confirming alteration. (1 mark) < Answer >

8. In case of creation of charge, who among the following persons can file the particulars of charge with the Registrar of Companies? (a) The company itself or charge holder (c) The legal advisor of the company the company (e) Auditors of the company.

(b) The company (d) Members of

(1 mark) < Answer >

9. Pari passu charge means (a) Holding equal rights in realization of asset(s) in proportion to the amount outstanding (b) Creating a charge for the purpose of securing any issue of debentures (c) The holder of charge intervenes by getting receiver appointed (d) Charge may crystallize on happening of an event that may be specified in the charging

deed (e) Holding a preferential right in realization of asset(s) in proportion to the amount outstanding. (1 mark) < Answer >

10. Which of the following is/are the exception(s) to agreements in ‘restraint of trade’? I. Agreement between the manufacturer and the trader not to carry on the business for ever. II. Agreement by the principal with his agent not to carry on similar business under the agency. III. Agreement by the manufacturer with his trader not to deal with other’s products permanently. IV. Agree to transfer the goodwill and which restrains carrying on similar business in specified limits. (a) Only (I) above (III) above (d) Both (I) and (II)

(b) Only (II) above

(c) Only

(e) Both (II) and (IV) above.

(1 mark) < Answer >

11. Buy-back of shares of a company cannot be made (a) From the existing shareholders on a proportionate basis (b) From the open market (c) From odd lot shares (d) Through an investment company (e) By purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity. (1 mark) < Answer >

12. Who among the following persons is the ‘mercantile agent’ under the Sale of Goods Act, 1930? (a) The one who has authority in the customary course of business either to sell goods or to consign goods for the purpose of sale or to buy goods or to raise money on the security of goods (b) The one who is entrusted with the possession of goods for the purpose of selling them (c) The one who is employed to buy and sell goods or transact business generally for other persons receiving for his labor and trouble, a money payment

(d) The one who in consideration of an extra commission, guarantees his principal that the persons with whom he enters into a contract on behalf of the principal shall perform their obligations (e) The one who is appointed by a seller to sell his goods by public auction for a reward generally in the form of commission. (1 mark) < Answer >

13. ABC Limited entered into a contract with XYZ Limited (for the sale of raw material for cash at prices prevailing in the market) in which Mr. A, who is a director of ABC Limited, is interested. The director did not disclose his interest at the time of the approval of the contract in the Board meeting. What is the position of the director in the company? (a) Mr. A, the director has to pay penalty for non-disclosure of his interest (b) Mr. A, the director has to vacate his office as director (c) Mr. A, the director has to undergo imprisonment for non-disclosure of his nature of interest (d) Mr. A need not disclose his nature of interest and he can continue as director (e) Mr. A can continue as director only with the permission of the members. (1 mark) < Answer >

14. A agreed to sell 200 kgs of rice to B @ Rs.25 per kg on a certain date. B contracted with C to sell 100 kg rice @ Rs.30 per kg. thinking that he will buy the rice from A and sell it to C. A could not deliver the rice. Hence B considers that he suffered a loss of Rs.5 per kg. Can he recover this loss from A? (a) No, B cannot recover, as this loss amounts to special damages (b) No, B cannot recover as this loss amounts to general damages (c) Yes, B can recover the actual loss suffered (d) Yes, B can recover the loss, as this amounts to compensatory damages (e) Yes, B can recover the loss, as this amounts to vindictive damages. (1 mark) < Answer >

15.

Which of the following are the disqualifications of a person to become a director? (a) A person who is already a director of a public company, which has not filed the annual accounts for a continuous period of five financial years (b) A person who is already a director of a public company, which has not filed the annual accounts and annual return for a continuous period of three financial years (c) A person who is already a director of a public company, which has failed to repay its deposits before the due date (d) A person who is already a director of a public company, which has failed to redeem debentures before the due date (e) A person who is already a director of a public company, which has failed to pay interest on deposits or on debentures before the due date. (1 mark) < Answer >

16. Which of the following is/are the difference(s) between warranty and condition? I. Warranty is collateral to the contract, whereas condition serves the purpose of the contract. II. The aggrieved party can claim only damages, but he cannot rescind the contract whereas in the case of a condition the aggrieved party can even repudiate the contract. III. Breach of warranty amounts to breach of condition, whereas breach of condition does not amount to breach of warranty. (a) Only (I) above and (III) above (d) Both (I) and (II) above

(b) Only (II) above

(c) Both (I)

(e) All (I), (II) and (III) above.

(1 mark) < Answer >

17. Under which of the following situations, chairman shall adjourn the meeting? (a) When the proxies do not attend the meeting (b) When the quorum is not present within half an hour from the time appointed for the meeting (c) When there is a tie in any resolution and unable to decide the matter (d) When the Board of directors are not present at the meeting (e) When the managing director is not present at the meeting. (1 mark) < Answer >

18. Doctrine of ejusdem generis states that (a) It is not the business of a court to fill up the gaps in the statute (b) The expression of one person or thing implies the exclusion of other persons or things of the same class which are not mentioned (c) A general term shall be read as if it belongs to the same kind as the specific terms preceding to it (d) A specific provision will override a general provision (e) The statute should be construed in a manner so as to further the intention of the legislature. (1 mark) < Answer >

19. Ram had 1,000 shares of XYZ Limited. He went to New York to see his son. Balu had stolen the share certificates of Ram and got the shares transferred in his favor by forging the signature of Ram. Balu sold the shares to Lakshman at market price and Lakshman got the shares transferred in his favor and received dividends. Ram, after his return from New York, complained to company that the share certificates were stolen and forged, and hence the company is required to cancel the transfer of shares to Laxman. Under the above circumstances, which of the following is true? (a) The company need not cancel the transfer, since the shares are already transferred to Lakshman (b) Ram cannot claim the shares, as Lakshman acquired the shares by paying adequate consideration to Balu (c) Once shares are transferred, it cannot be questioned on whatever may be the reason (d) Lakshman is required to return the share certificate and repay all the dividends (e) Sale of shares by Balu is valid. (1 mark) < Answer >

20. When a consent to a contract is obtained by virtue of misrepresentation, the aggrieved party can I. Rescind the contract. for damages. (a) Only (I) above above (d) Both (I) and (II) above

II. Sue for restitution. (b) Both (I) and (III) above (e) All (I), (II) and (III) above.

III. Claim (c) Both (II) and (III)

(1 mark) < Answer >

21. A company may convert all or any of its fully paid up shares into stock (a) By passing an ordinary resolution (b) By passing special resolution (c) With the permission of the Tribunal (d) With the permission of the Central Government (e) With the permission of the Registrar of Companies. (1 mark) < Answer >

22. Which of the following statements is false? (a) A person selling goods is under the obligation to disclose the defects in the goods (b) A person selling goods is under no obligation to disclose the defects in the goods (c) Under certain circumstances silence itself is equivalent to speech (d) When there is duty to speak, keeping silent will amount to fraud (e) There are certain contracts which law imposes a special duty to act with the utmost good faith to disclose all material facts. (1 mark) < Answer >

23. Which of the following matters require passing of ordinary resolution? (a) To convert a private limited into a public limited company (b) To convert public limited company into a private limited company (c) To approve variation of share holders rights (d) To create reserve capital (e) To adopt annual accounts along with auditor’s report and director’s report. (1 mark) < Answer >

24.

The Transfer of Property Act, 1882 deals with (a) Transfer of both movable as well as immovable property (b) Only movable property (c) Only land (d) All types of immovable property (e) Intellectual property rights. (1 mark) < Answer >

25. Board of directors of a private company, with a paid up capital of Rs.15 crore (which is not subsidiary of a public company), appointed a person as managing director for eight years with out the permission of the Central Government. In the above situation which of the following is true? (a) Appointment is not valid since the company has not been accorded the permission of the Central Government (b) Appointment is valid (c) Appointment is not valid since it is for eight years (d) Appointment is not valid as it is made by the Board of directors (e) Appointment is not valid, as the private company shall not appoint managing director. (1 mark) < Answer >

26. Which of the following agreements is/are opposed to public policy? I. Agreements, which interfere with the ordinary process of justice. II. Agreement to help a person in making a reasonable claim arising out of a contract and then to have a fair share in the profit. III. Agreement, which is not extortionate against the party to whom assistance is provided. (a) Only (I) above and (III) above (d) Both (I) and (II) above

(b) Only (II) above

(c) Both (II)

(e) Both (I) and (III) above.

(1 mark) < Answer >

27. Disclaimer of onerous property means (a) A fraudulent preference of a person interested in property mortgaged (b) The property of the company which is troublesome to the

company (c) Property disposed by the company to its directors (d) Property disposed by the company to its real owners (e) Property disposed by the company to the managing director. (1 mark) < Answer >

28. Every instrument not being a bill of exchange or promissory note leviable with duty, executed out of India must be stamped within a period of (a) (b) (c) (d) (e)

1 month after it has been first received in India 2 months after it has been first received in India 3 months after it has been first received in India 4 months after it has been first received in India 5 months after it has been first received in India.

(1 mark) < Answer >

29. A company can close its register of members in a year for an aggregate period of not exceeding (a) 21 days (e) 90 days.

(b) 30 days

(c) 45 days

(d) 60 days

(1 mark) < Answer >

30. Which of the following is not one of the duties of an auditor? (a) To check whether the loans and advances made by the company have been shown as deposits (b) To check whether the transactions of the company which are represented merely by book entries are not prejudicial to the interest of the company (c) To check whether any personal expenses of the promoters have been charged to company accounts (d) To have access to

books of accounts (e) To check whether personal expenses of directors are charged to profit and loss account. (2 marks) < Answer >

31. Which of the following would be the rights of an individual director? (a) To summon Board meetings budgets (c) To authorize new capital investment (d) To give approval of periodic reports to share holders Board policies.

(b) To approve (e) To formulate

(2 marks) < Answer >

32. All instruments, which are not inland, are deemed to be foreign. Which of the following is not a foreign bill? I. A bill drawn in Lucknow on a merchant in Rome payable or accepted payable in London. II. A bill drawn in Lucknow on a merchant of Patna who was on business tour to America and payable or accepted payable in Bombay. III. A bill drawn in Paris but payable in Calcutta. IV. A bill drawn in London and payable in Rome. (a) Only (I) above above (c) Both (II) and (III) above (II) above (e) All (I), (II), (III) and (IV) above. (2 marks) < Answer >

33.

(b) Only (II) (d) Both (I) and

Which of the following entities can become member of a company? I. registered under the Indian Trust Act. II. A Hindu Undivided Family partnership firm IV. A registered trade union V. A lunatic.

A trust

(a) Only (I) above above (c) Both (I) and (IV) above above (e) All (I), (II), (III),(IV) and (V) above.

(b) Only (III)

III. A

(d) (II), (III) (IV)

(1 mark) < Answer >

34. A cheque was issued by Mr. X payable to Mr. Y or bearer and crossed “Not Negotiable”. The cheque was stolen and came into possession of Mr. Z who deposited the cheque into his bank and received the payment of the same. Which of the following circumstances would follow? (a) The paying bank is liable to pay the loss to Mr. X (b) The collecting bank is liable to pay the loss to Mr. X (c) The paying bank is liable to pay the loss to Mr. Y (d) The collecting bank is liable to pay the loss to Mr. Y (e) Mr. Z is liable to refund the money to Mr. Y as the cheque is crossed “Not Negotiable”. (2 marks) < Answer >

35. The floating charge created by a company on its assets, as a security to borrow, includes (a) Assets available at the present (c) Assets of the present and future (e) Assets of the past and future.

(b) Assets of the present and past (d) Assets to be acquired in future

(1 mark) < Answer >

36. Which of the following contracts cannot be assigned to others? (a) An actionable claim which is bought by an instrument (b) Obligations which involve personal skills and talent (c) The rights and liabilities of an adjudicated insolvent (d) The obligations of

the deceased party to a contract (e) The rights and liabilities of a person with unsound mind. (1 mark) < Answer >

37. Scoopy Limited is engaged in the business of construction. A, B and C, directors of Scoopy Limited are holding 75% of the capital of this company. The company passed a resolution at its general meeting that it would not be interested in a particular contract for construction of a bridge. Subsequently, A, B and C obtained the same contract on their own names and obtained profits from the contract. In the above situation, which of the following statements is true? (a) The profits belongs to Scoopy Limited but not to the three directors since this amounts to breach of trust (b) The company rejected the contract, hence it is not breach of trust (c) This will not fall under breach of duties of directors because the company passed resolution at its general meeting and hence the profits can be used by the directors personally (d) Directors are different from the company and hence they can enjoy their profits out of the corporate opportunity (e) Directors entered into the contract in their own names and no loss has caused to the company, hence the directors are not liable for breach of trust. (1 mark) < Answer >

38. ABC Limited is not holding any shares in MDJ Limited. Similarly MDJ Limited is not holding any shares in ABC Limited. But director ‘A’ of ABC Limited singly holds 1% of the paid up share capital of MDJ Limited. Board of directors of ABC Limited entered into a contract (for purchase of land) with MDJ Limited and director ‘A’ did not disclose his interest in MDJ Limited. What is the legal position of the director ‘A’ and the contract? (a) Director ‘A’ can continue his office and also the contract is valid (b) Director ‘A’ has to disclose his nature of interest in the Board meeting, otherwise the contract becomes void (c) Director ‘A’ has violated the provisions of the Companies Act hence he has to vacate the office and the contract is voidable at the option of ABC Limited (d) Director need not vacate but contract is invalid (e) Director ‘A’ has to vacate his office but the contract is valid and enforceable. (1 mark) < Answer >

39. Which of the following instances is false? (a) A bill is drawn payable to A or order. A endorses it to B but the endorsement does not contain the words “or order”. B may further negotiate the instrument (b) A bill is drawn payable to A or order for Rs.10,000/-. A endorses it to B for a sum of Rs.5,000 (c) A bill is drawn payable to A or order and due to mature on 30th May, 2004. The bill was presented by A for payment on 30th May, 2004 and was paid (d) A drew a bill on B payable to himself. He further endorses it to C (e) A drew a bill on B payable to C. C endorses it to A who further endorses it to D. (1 mark) < Answer >

40. Mr. Prasad issued a cheque favoring Mr. Pankaj for a sum of Rs.10,000/- Mr. Pankaj presented the cheque to the banker. The banker returned the cheque. Mr. Pankaj gave a notice to Mr. Prasad on 20th day of the notice of dishonor of cheque. Under which of the following conditions section 138 of the Negotiable Instruments Act would be applicable? (a) The cheque is returned for the reason “Refer to Drawer” (b) The cheque is returned for the reason “Signature of the Drawer differs” (c) The cheque is returned for the reason “Irregular endorsement” (d) The cheque is returned for the reason “Funds Insufficient” (e) The cheque is returned for the reason “Not drawn on us”. (1 mark) < Answer >

41. Acceptance of a bill of exchange subject to the happening of an uncertain event is called (a) General acceptance (c) Conditional acceptance (e) Invalid acceptance. (1 mark) < Answer >

(b) Qualified acceptance (d) Contingent acceptance

42. Wonderful Company Limited, intended to conduct its 25th annual general meeting on 31.12.2004 for the year 2004, whereas, the audit of accounts were not ready by that date. The chairman received suggestions for five different courses of actions, each from the company secretary, finance director, the chief accountants officer, internal auditor and his wife. They are given below. Which of the following advices is correct in the best interest of the company? (a) The AGM can be postponed to 31.3.2005 and the accounts can be placed thereat (b) The accounts can be adopted as it is and filed with the Registrar but it should be titled as “unaudited balance sheet” (c) The accounts can be placed at 26th annual general meeting (d) The AGM can be held as scheduled but the meeting can be adjourned for adoption of accounts to a later date at which the accounts will be ready (e) Condonation of delay can be obtained from the Central Government. (1 mark) < Answer >

43. How many directors must retire at the first annual general meeting of a private company, which is subsidiary of a public company? (a) Not less than one third of the total strength of the Board of directors (b) Not less than one half of the total strength of the Board of directors (c) Not less than three directors of the company (d) Unless articles provide higher number, not less than two thirds must be the retiring category, out of them one third must retire at every annual general meeting (e) Nil, because directors are not required to retire in private company. (1 mark) < Answer >

44. A bill of exchange was presented for acceptance and the drawee of the bill does not accept the bill even after 60 hours. As regards the acceptance of bill of exchange, which of the following statements is true? (a) The bill will be dishonored for non-acceptance if the drawee does not accept the bill within12 hours from the time of presentment (b) The bill will be dishonored for non-acceptance if the drawee does not accept the bill within 18 hours from the time of presentment (c) The bill will be dishonored for nonacceptance if the drawee does not accept the bill within 24 hours from the time of presentment (d) The bill will be dishonored for non-acceptance if the drawee does not accept the bill within 36 hours from the time of presentment (e) The bill will be dishonored for non-acceptance if the drawee does not accept the bill within 48 hours from the time of presentment.

(1 mark) < Answer >

45. Which of the following directors can be appointed by passing circular resolution? I. Appointment of director in casual vacancy. II. Appointment of director as additional director. III. Appointment of director as alternate director. IV. Appointment of nominee director. V. Appointment of managing director. (a) Only (I) above above (c) Only (III) above (III) above (e) All (I), (II), (III), (IV) and (V) above.

(b) Only (II) (d) Both (II) and

(1 mark) < Answer >

46. Under which of the following situations an agent is different (from a servant)? I. An agent can transact business in his own name and still bind the principal. II. An agent is bound to carry out work with normal skill and diligence. III. An agent is bound to conduct the business of his principal according to the directions of his principal. IV. An agent is not subject to direct control and supervision of principal. (a) Only (I) above (III) above (d) Both (I) and (III) above

(b) Only (II) above

(c) Only

(e) Both (I) and (IV) above.

(1 mark) < Answer >

47. Which of the following matters do NOT require special resolution? (a) Alteration of Articles of association (b) Removal of a director before the expiry of his tenure of office (c) Making of a loan to another body corporate (d) Empowering the Board of directors

to issue shares to the persons other than the existing share holders (e) situation clause in the Memorandum of Association.

Changing the

(1 mark) < Answer >

48. Proposal to supply certain commodity for a certain price up to a certain period is called (a) Cross offer Invitation to offer (d) Standing offer

(b) Counter offer

(c)

(e) Definite offer.

(1 mark) < Answer >

49. Mr. X, who is not a member of a company, desires to inspect the register of members. The Board of directors refused to allow Mr. X for such inspection. In the above situation, which of the following statements is/are true? (a) The register of members shall not be kept open for inspection, by the members as well as non- members (b) The register shall be kept open for inspection, by the non-members on payment of rupee one for each inspection and for the members free of cost (c) The register of members shall be kept open for inspection, by the members of the company only (d) The register of members shall be kept open for inspection, by the non-members free of cost (e) The register of members can be kept open for inspection for members, only when there is a provision in the articles of association of the company. (1 mark) < Answer >

50. Which of the following statements is false? (a) All void agreements are not illegal (b) Acceptance can be made even without the knowledge of the offer (c) A minor cannot enter into a contract (d) Partnership is an extension of principle of agency (e) A private company cannot accept deposits from the public.

(1 mark) < Answer >

51. Ravishankar is a director in 20 companies as on 31st March 2005. The composition of his directorships is as detailed below: i. Alternative director in 2 public limited companies; ii. Director in 14 public limited companies; iii. Director in 3 private companies which are neither subsidiaries nor holding of other public companies; and iv. Director in one foreign company (registered outside India). Wise Limited, a Private company that is not subsidiary of a public company wants to induct Ravishankar as a director in its Board. Which of the following would decide, whether Ravishankar can be appointed as director in Wise Ltd. in terms of section 275 of the Companies Act, 1956? I. Wise Limited can appoint Ravishankar as a director on its Board. II. Wise Limited has to obtain the permission of Tribunal for appointing Ravi Shankar as director, since he already holds directorships in other companies. III. Wise Limited has to obtain the Central Government’s permission for appointing Ravishankar as director, since he already holds 15 directorships in other public companies. IV. Ravishankar cannot be appointed as director in Wise Limited. (a) Only (I) above (III) above (d) Both (I) and (III) above

(b) Only (II) above

(c) Only

(e) Both (I) and (II) above.

(1 mark) < Answer >

52. Every depository and participant is required to be registered with (a) A Stock Exchange (c) The Registrar of Companies India (e) The State Government. (1 mark) < Answer >

(b) The Central Government (d) The Securities and Exchange Board of

53. Mr. Ram a member of Gambling Company Limited made an application to the National Company Law Tribunal on behalf of one hundred members seeking relief against the oppressive acts of the company on 1.3.2005 by obtaining their consent in writing. Subsequently on 10.3.2005, out of one hundred members, twenty-five members withdrew their consent. In these circumstances, which of the following is true as regards the validity of the application? (a) The application is not valid, as it was not made by the requisite number of members of the company (b) The validity of application will not be affected in any way, just because certain members withdrew their consent after giving the same (c) The application is valid only if members approve by passing special resolution with 3/4th majority (d) The application is valid subject to the approval of National Company Law Tribunal (e) The application is valid subject to the approval of the Central Government. (2 marks) < Answer >

54. Explanatory statement under section 173 is required to be given for all (a) Ordinary business matters (b) Special business matters (c) Matters which require ordinary resolutions (d) Matters which require special resolutions (e) Matters that require special notice under section 190 of the Companies Act, 1956. (1 mark) < Answer >

55. Which of the following companies shall appoint whole time company secretary? (a) A company having paid up capital of rupees fifty lakhs or more (b) A company having authorized capital of rupees two crore or more (c) A company having subscribed capital of less than rupees two crore (d) A company having paid up capital of rupees two crore and above (e) A company having issued capital of more than rupees two crore. (1 mark) < Answer >

56.

A draws a bill on B made payable to C. C endorses it to D and delivers the instrument to D. Under these circumstances which of the following statements is false? (a) A is known as drawer (c) C known as acceptor (e) D is known as holder. (1 mark) < Answer >

(b) B is known as drawee (d) D is known as endorsee

57. Which of the following amounts to ‘certification of transfer of shares’? (a) Jumbling the names of joint holders of shares (b) Endorsement on the instrument of transfer by an officer of the company that the share certificate relating to the shares to be transferred has been lodged with the company (c) Filling of Form-7B for transfer of shares (d) Handing over the share certificate to the transferee along with the allotment letter (e) Entering the name of a legal representative of the deceased member. (1 mark) < Answer >

58. M/s. Shyam Prasad & Co., has Cash Credit limits of Rs.10,00,000/- with Bangalore Bank Limited against the guarantee of Mr. Suresh, Mr. Mahesh and Mr. Kishore. After a period of one year M/s. Shyam Prasad & Co., approached the Bank for enhancement of limits to Rs.12 lacs.which the bank readily agreed, and M/s. Shyam Prasad & Co., executed the documents (Without the knowledge of the guarantors). After one year M/s. Shyam Prasad & Co., became bankrupt and a suit was filed for recovery of advance on Shyam Prasad & Co., and sureties. In the above circumstances, which of the following statements is false? (a) Mr. Suresh will not be liable as the surety (b) Mr. Mahesh will not be liable as the surety (c) M/s. Shyam Prasad & Co., alone will not be liable on the loan account (d) Mr. Kishore will not be liable as the surety (e) M/s. Shyam Prasad & Co., alone will be liable on the loan account. (1 mark) < Answer >

59. A resolution shall be a special resolution when (a) The votes cast in favor of the resolution are two thirds of the votes cast against the resolution (b) The votes cast in

favor of the resolution are not less than four times compared to the votes cast against the resolution (c) The votes cast in favor of the resolution are not less than three times compared to the votes cast against the resolution (d) The votes cast in favor of the resolution are in excess of the votes cast against the resolution (e) The votes cast in favor of the resolution are five times compared to the votes cast against the resolution. (1 mark) < Answer >

60. Which of the following is not a contract of bailment? (a) Deposit of fixed deposit receipts with a bank for safe custody (b) Deposit of valuables with bank (c) Acceptance of articles by post office as V.P.P (d) Acceptance of goods by a transport company (e) Deposit of money with a bank. (1 mark) < Answer >

61. XYZ Limited with paid-up capital of Rs. 18.8 crore and free reserves of Rs. 4.8 crore as on March 31, 2005 (took a term loan of Rs. 10 crore from the State Bank of India and failed to repay the principle as well as interest amount for a period of one and half year which is subsisting) has investments of Rs.12 crore in ABC Private Limited. In addition to the existing investments, company made the following further investments: · 50,000 equity shares of Rs. 10 each at Rs. 390 per share in PQR Limited. · Investment of Rs. 1,25,000 in 11% debentures of Albert Pharma Limited · 50,000 units of US-64 issued by the UTI at Rs. 14.50 each · 25000 equity shares of Rs. 10 each at Rs. 50 in Moony Limited. State Bank of India objected to this and stated that the company has violated the provisions of the Companies Act, 1956. In the above situation which of the following is true as regards section 372A of the Companies Act I. The company has not violated Section 372A of the Act. II. The company has violated Section 372A of the Act. III. The company should take prior permission from the public financial institution for further investments. IV. The company should pass a special resolution in general meeting in addition to the passing of unanimous resolution in Board meeting. V. The company should obtain Central Governments permission before making investments. (a) Only (I) above (III) above

(b) Only (II) above

(c) Both (II) and

(d) (II) (III) and (IV) above

(e) (II), and (IV) above.

(2 marks) < Answer >

62. Which of the following alternatives is false, as regards the consideration? (a) Natural love and affection is good consideration and may support a contract if it is in writing and registered under law (b) Past consideration is valid and will support a subsequent promise (c) Consideration can be from promisee or any other person even a stranger (d) Consideration must move at the behest of the promisor (e) Past consideration will be treated as good consideration for a contract of guarantee. (1 mark) < Answer >

63. Karthikeya Limited has preference capital of Rs. 2 crores and LIC holds 5% of the same. The company issued notice on 15th December 2004 by calling its annual general meeting on 26th January 2005 inter alia proposing the appointment of an auditor. On 30th December 2004 the company allotted 30,000 preference shares of Rs.150 (paid up is Rs.100 each) each to ICICI Bank Limited as private placement. Karthikeya Limited advertised closure of its register of members in newspapers on 7th January 2005 stating that effective from 15th January 2005 the register of members shall remain closed until 26th January 2005. In the annual general meeting held on 26th January 2005, the auditor was appointed by passing an ordinary resolution. The Registrar of Companies raised an objection that the company violated the provisions of the Companies Act and the resolutions passed at such meeting were inoperative. The chairman sought the advice of the company secretary, who advised that at the time of issue of the notice, the ICICI Bank Limited was not holding any shares and hence ordinary resolution was valid. He further stated that the shares allotted to ICICI Bank and LIC were not equity shares but only preference shares and not to be counted for the purpose of section 224A of the Companies Act. In the context of the above situation which of the following is/are TRUE? I. The objection of the Registrar of Companies is valid. II. The objection of the Registrar of Companies is invalid. III. Preference shares by private placement cannot be allotted to ICICI Bank Limited. IV. The register of members cannot be closed after dispatching the notice of the annual general meeting. V. The appointment of the auditor in this company must be made by a special resolution.

(a) Only (I) above above (d) Both (I) and (V) above

(b) Only (II) above

(c) Only (V)

(e) (I), (III) and (V) above.

(2 marks) < Answer >

64. On 11th July 2004 at 10.00 a.m. A makes an offer to B to sell his scooter and promised to keep it open on the same day till 5.00 p.m. On the same day, A sold the scooter to C at 4.00 p.m. But B accepts to buy the scooter at 5.00 p.m. Which of the following course of actions are available to B? (a) B can file a suit for compensation and damages against A for breach of promise (b) B has no remedy against A or C (c) B can proceed against C for recovery of the scooter (d) B can proceed against A for recovery of the Scooter (e) B can proceed against C for damages. (1 mark) < Answer >

65. Little Company Limited holds share in Big Company Limited. Big Company Limited convenes its annual general meeting on 18.2.2005. Little company Limited authorized its managing director Mr.Getwell on 14.2.2005 to represent the company at that annual general meeting. Mr.Getwell was hospitalized due to ill health. In this situation, which of the following is correct? (a) Any one of the directors of Little company may attend the meeting (b) Mr.Getwell can appoint a proxy (c) The legal representatives of Mr.Getwell shall attend the meeting (d) All the directors of Little company limited have to attend on behalf of Mr.Getwell (e) Little company Limited can request the Big company Limited to adjourn the meeting. (1 mark) < Answer >

66. Under which of the following circumstances the banker is entitled to refuse the payment of the cheque? I. A cheque dated 20th May 2004 was presented for payment on 20th April 2004. II. A cheque crossed “Account Payee” and payable to Mr. X was presented

for payment for cash across the counter. III. A cheque crossed specially “Allahabad Bank” was presented for payment through “Andhra Bank”. (a) Only (III) above (c) Both (II) and (III)) above (e) (I), (II) and (III) above.

(b) Both (I) and (II) above (d) Both (I) and (III) above

(1 mark) < Answer >

67. A notice of the general meeting is required to be sent to the members not less than twenty-one clear days. In this context, the word ‘clear days’ means (a) Inclusive of the date of service of the notice (b) Exclusive of date of meeting (c) Inclusive of date of service of notice and date of meeting (d) Exclusive of national holidays (e) Exclusive of date of service of notice and date of meeting. (1 mark) < Answer >

68. X, the seller of a mica mine, made some exaggerating statements about the earning capacity of the mine. However, the buyer got an independent evaluation done and proceeded ahead with the purchase, based on that evaluation. Later, the buyer came to know that there was no mica and he wants to proceed against the seller for committing fraud in selling the mine to him. Which of the following statements is true? (a) Buyer of the mica mine can recover the amount paid to the seller (b) Seller of the mica mine is held liable for fraud (c) Buyer of the mica mine can cancel the contract (d) Seller of the mica mine cannot be held liable for fraud (e) Seller is liable to pay damages as he induced the buyer to purchase the mica mine by making exaggerating statements. (1 mark) < Answer >

69. A prospectus issued by any financial institution or bank for one or more issues of the securities or class of securities specified in that prospectus is called

(a) A red herring prospectus (c) Information memorandum (e) Statement in lieu of prospectus.

(b) Shelf prospectus (d) Deemed prospectus

(1 mark) < Answer >

70. A pledge is (a) A general contract of promise (c) A contract of indemnity of guarantee (e) A special type of contract of bailment.

(b) A contract of agency (d) A special type of contract

(1 mark) < Answer >

71. Securities premium account of a company can be utilized for (a) Payment of dividends movable property (c) Purchase of immovable property securities (e) Discharge of any current liabilities.

(b) Purchase of (d) Buy-back of

(1 mark) < Answer >

72. A, a minor broke his right leg in a football match. He engaged B, a doctor, for the treatment. Does the doctor have a valid claim for his services? (a) The doctor has valid claim for his services from the minor himself (b) The Doctor can claim for his services from the estate of the minor (c) It is the choice of the doctor to opt his claim from the minor or from his estate (d) The doctor has no valid claim for his services (e) The

doctor has claim only from the guardian of the minor, who is appointed by the competent court. (1 mark) < Answer >

73. Section 197A of the Companies Act, 1956 provides for prohibition of simultaneous appointment of different categories of managerial personnel. Accordingly the category of persons are (a) Manager and whole time director (c) Manager and a director director (e) Manager and a secretary.

(b) Manager and managing director (d) Managing director and a whole time

(1 mark) < Answer >

74. Mr. Suresh borrowed a sum of Rs 10,00,000 from Karnataka Bank as housing loan. For the purpose of security he delivered the documents of his house to the bank. This process is known as (a) Hypothecation of title deeds (c) Simple mortgage mortgage. (1 mark) < Answer >

(b) Pledge of title goods (d) Equitable mortgage

(e) English

75. The rights of the members of a company can be classified into (a) Statutory rights and moral rights (b) Moral rights and ownership rights (c) Ownership rights and statutory rights (d) Statutory rights and contractual rights (e) Contractual rights and ownership rights. (1 mark)

< Answer >

76. Every transfer of immovable property made with intent to defeat or delay the creditors of the transferor is voidable at the option of the creditor so defeated or delayed. This is known as (a) Doctrine of election (b) Doctrine of fraudulent transfer (c) Marshalling by subsequent purchaser (d) Doctrine of lispendens or lite pendente (e) Doctrine of caveat emptor. (1 mark) < Answer >

77. Additional directors of a company are appointed by (a) Board of directors (c) Central Government institution.

(b) Members of the company (d) Preferential shareholders (e) Financial

(1 mark) < Answer >

78. According to section 21 of the Transfer of Property Act, 1882, the interest created in favour of a person to take effect only on the happening of a specified event is known as (a) Determined interest interest (d) Special interest (1 mark) < Answer >

79.

(b) Contingent interest (e) Equitable interest.

(c) Specified

Contracts executed by a public company after the incorporation and before obtaining the certificate of commencement of business are called as (a) Pre-incorporation contracts contracts (d) Contingent contracts

(b) Provisional contracts

(c) Quasi

(e) Uberrimae Fidei contracts.

(1 mark) < Answer >

80. ‘A’ agreed to sell to ‘B’ 3,000 tins of canned fruit, each case to contain 30 tins. ‘A’ delivered half of the goods packed in the cases containing 24 tins. In this situation, which of the following statements is true? (a) ‘B’ must accept the goods delivered, as the total value was not affected (b) ‘B’ must accept the whole 3000 tins as per the contract, otherwise amounts to breach of contract (c) The contract becomes void as there is violation in the original terms (d) ‘B’ may accept the goods so delivered, if so he shall pay for them at the contract rate (e) ‘B’ can claim the cost of repacking the goods from ‘A’. (1 mark) < Answer >

81. Who can become the director of a company? I. A company. III. A corporation. V. A Hindu undivided family. (a) Only (II) above above (c) (I), (II) and (III) above (V) above (e) All (I), (II), (III), (IV) and (V) above. (1 mark) < Answer >

II. A firm. IV. An individual. (b) Only (IV) (d) Both (II) and

82. Inchoate instrument is one (a) That is ambiguous (b) That is incomplete with respect to the signature of the person liable on the instrument (c) That is a signed instrument which is either wholly blank or incomplete (d) That is forged (e) That is invalid or unenforceable. (1 mark) < Answer >

83 Prospectus issued by a company is (a) An acceptance (c) An offer promise.

(b) An agreement (d) An invitation to offer

(e) A

(1 mark) < Answer >

84. Giving bribe to the Government servant to get some approval is (a) A valid contract (b) A voidable contract (c) Against public policy and hence void (d) Enforceable with the permission of the Government (e) Enforceable with the permission of the Tribunal. (1 mark) < Answer >

85. An auditor appointed at the annual general meeting shall hold office (a) Up to the next annual general meeting (b) For a period of five years (c) From the conclusion of that meeting to the conclusion of the next annual general meeting (d) Up to the finalization of the accounts and submitting their report (e) As per the terms of the resolution at the time of his/her appointment. (1 mark) < Answer >

86. A Demand Draft is a: (a) Promissory Note (d) Banker’s Cheque

(b) Bill of Exchange (e) Money Transfer.

(c) Cheque

(1 mark) < Answer >

87. Which of the following is not the privilege of holder in due course? (a) If the negotiable instrument is lost, the defenses on the part of a person liable on a negotiable instrument cannot be set up against a holder in due course (b) Once a negotiable instrument passes through the hands of a holder in due course, it gets cleansed of all the defects even though the holder in due course is party to the fraud (c) Until the instrument is duly satisfied or discharged, every prior party to a negotiable instrument is liable to a holder in due course (d) The validity of the instrument as originally made or drawn cannot be denied by the maker/ drawer/acceptor for honour in a suit initiated by a holder in due course (e) The endorser of a negotiable instrument cannot, in a suit thereon by a subsequent holder, deny the signature or capacity to contract of any prior party to the instrument. (1 mark) < Answer >

88. Mr. Kunal draws a cheque on ABC Bank, Khairatabad Branch favouring Mr. Suresh Rao or order and sends the same through his agent Mr. Balu for handing over the cheque. But instead of handing over the cheque to Mr. Suresh Rao, Mr. Balu forges the signature of Mr. Suresh Rao and encashes the cheque through his banker, BCD Bank, Basheerbagh. Which of the following statements is true? (a) ABC Bank has to compensate the drawer Mr. Kunal for encashment of the cheque fraudulently (b) BCD Bank has to compensate the drawer Mr. Kunal for encashment of the cheque fraudulently

(c) Paying Bank should have verified the signature of payee (d) Mr. Kunal the drawer of the cheque can claim the amount of cheque from both paying and collecting banker for negligence (e)

Paying banker is discharged by payment in due course.

(2 marks) < Answer >

89. The audit of accounts is mandatory in case of (a) All companies (b) Private companies only (c) Public companies only (d) Companies where paid-up capital exceeds Rs.5 crores (e) Companies whose paid-up capital exceeds Rs.100 crores. (1 mark) < Answer >

90. Which of the following transactions is considered as ‘rematerialisation of shares’? (a) Conversion of physical form of shares into electronic form (b) Conversion of physical form of shares into stock (c) Converting shares into a debt instrument (d) Converting shares into a mutual fund (e) Converting electronic share holdings back into physical form of share certificates. (1 mark) < Answer >

Suggested Answers Economic Legislation – I (161): April 2005

1. Answer : (e) Reason : Under section 4 of the companies Act, in the following circumstances, a company is treated as subsidiary of another company: - a. That other company controls the composition of its Board of directors; b. The other company holds more than half in nominal value of its equity share capital; c. If it is subsidiary of a third company which itself is subsidiary of the controlling company < TOP > 2. Answer : (b) Reason : The following are the disadvantages of legal justice: I. II. It is always not possible to adjust to the changing needs of the society iii The justice follows the formality and technicality, for every disputed matter, there is a specified form technically formulated iv It is more rigid, it follows what has been laid down in precedents < TOP > 3. Answer : (c) Reason : The persons who made requisition-holding shares on which calls are due will not have voting rights and any requisition made by them will be considered invalid. < TOP > 4. Answer : (a) Reason : Ubi jus ibi remedium means Where there is a right there is a remedy < TOP > 5. Answer : (e) Reason : The director’s report do not contain a statement of holding companies interest in the subsidiary as specified under section 212 (3) of the companies Act. All other options like Material changes which have occurred between the end of the year and the date of the report, affecting the financial position of the company, Any amount recommended to be paid buy way of dividend, Conservation of energy, technology absorption and foreign exchange outgo and Statement of affairs, and any amount proposed to carry to the reserves are the contents of the director’s report. < TOP > 6. Answer : (c) Reason : This amount should be named in the contract as payable in the event of breach. The court will award reasonable compensation not exceeding this amount. Actual damage need not be proved. < TOP >

7. Answer : (c) Reason : A certified copy of the order of the Central Government confirming the alteration of the Memorandum of Association is to be registered with the Registrar of Companies within three months from the date of the order confirming alteration. < TOP > 8. Answer : (b) Reason : In case of creation of charge the particulars of such charge can be filed either by the company or the lender in whose favour the charge is created. < TOP > 9. Answer : (a) Reason : Holding equal rights in realization of asset in proportion to the amount outstanding. is a paripassu charge < TOP > 10. Answer : (e) Reason : The following are the exceptions to restraint of trade: II. Agreement by the principal with his agent not to carry on similar business under the agency IV. Agreements that transfer the goodwill and which restrains carrying on of similar business in specified limits are some of the restriction under the general rule that the restraint of trade is void. < TOP > 11. Answer : (d) Reason : Buy back its shares is permitted form the following methods, u/s 77A of the companies Act, From the existing shares on a proportionate basis through the tender offer, From the open market through either by book building or stock exchange or From odd lot shares and by purchasing the secutities sissued to employees of the companypursuant to a scheme of stock option or sweat equity but it cannot be made through a negotiated deal through spot transaction or through a private arrangement or through an investment company. < TOP > 12. Answer : (a) Reason : The mercantile agent under the Sale of Goods Act, 1930 who has authority in the customary course of business either to sell goods or to consign goods for the purpose of sale or to buy goods or to raise money on the security of the goods. < TOP > 13.

Answer : (d) Reason : When a contract is between two public companies, section 297 is not attracted and that to the contract for a price prevailing in the market which is also exempted under the section. Hence Mr. A need not disclose his nature of interest and approval of the board is not required. Hence he can continue as director. < TOP > 14. Answer : (a) Reason : No, B cannot recover, as this loss amounts to special damages since, A was not aware of the B’s plan of resale, he is not liable for compensating this loss. < TOP > 15. Answer : (b) Reason : A person who is already director of a public company which has not filed the annual accounts and annual return for a continuous period of three financial years is only the disqualification of a person to become director of a company and all others are not disqualifications . < TOP > 16. Answer : (d) Reason : A condition is essential to the main purpose of the contract, but a warranty is collateral to the contract, in the case breach of a condition, the aggrieved party can repudiate the contract or claim for damages or both whereas in the case breach of a warranty, the aggrieved party can claim only for damages but he cannot repudiate the contract. The breach of conditions may be treated as breach of warranty whereas breach of warranty cannot be treated as breach of condition. Hence option (d) is correct. < TOP > 17. Answer : (b) Reason : Chairman shall adjourn the meeting, when the quorum is not present within half an hour from the time appointed for the meeting < TOP > 18. Answer : (c) Reason : The doctrine of Ejusdem Generics is a general term shall be read as if it belongs to the same kind as the specific terms proceeding it. < TOP > 19. Answer : (d) Reason : Yes, Ram will get his shares from Lakshman. The company is bound to restore the name of the rightful owner in the register of members on becoming aware of the fact of forgery. Lakshman is required to surrender the share certificate to the company and repay all the dividends, benefits received by him. A person who becomes a

holder of shares under a forged transfer does not acquire a good title and is bound to return the shares to the rightful owner. < TOP > 20. Answer : (d) Reason : In the case of contract entered by virtue of misrepresentation, the aggrieved party can rescind the contract or sue for restitution but he cannot claim for damages. (Only in case of fraud the aggrieved party can claim for damages). < TOP > 21. Answer : (a) Reason : A company may convert all or any of its fully paid up shares into stock by passing an ordinary resolution < TOP > 22. Answer : (a) Reason : A person selling the goods has no obligation to disclose the defects in the goods. However if he makes false statements as to the quality of goods, it would be fraud. Mere silence would not amount to fraud. < TOP > 23. Answer : (e) Reason : To adopt annual accounts along with auditor’s report and director’s report only requires passing of ordinary resolution but all other require passing of special resolution . < TOP > 24. Answer : (d) Reason : The Transfer of Property Act, 1882 deals with all types of immovable property. < TOP > 25. Answer : (b) Reason : The appointment is valid since the provisions of section 269 and schedule XIII is not applicable to private companies which are not subsidiary of any public companies. It can appoint as per its own articles of association but in the interest of the company .A private company can have any amount of capital. < TOP > 26. Answer : (e) Reason : The following agreements are opposed to public policy: I. Agreements which interferes with the ordinary process of justice III. Agreement which is not

extortionate against the party to whom assistance is provided agreements are opposed to public policy < TOP > 27. Answer : (b) Reason : Disclaimer of onerous Property means the property of the company which is trouble some to the company. The liquidator may with the sanction of the court disclaim in writing any onerous property belonging to the company to safeguard in full, the interests of the body of creditors and shareholders of the Company. The property may be in the form of land of any tenure, burdened with covenants; shares or stocks in companies; any other nonsaleable or not readily saleable property; and unprofitable contracts (Section 535). The disclaimer shall be made within twelve months of commencement of winding up. The period of twelve months would however begin from the date when the liquidator came to know of such property if it is after one month of commencement of winding up. The National company Law Tribunal (NCLT) may before grant of disclaimer require notices to be sent to persons interested in the property. To proceed with disclaimer, the liquidator shall give notice of his intention to apply to the NCLT for disclaimer, within 28 days of receipt of an application from an interested party seeking to know about the disclaimer. < TOP > 28. Answer : (c) Reason : Every instrument not being a bill exchange or promissory note chargeable with duty, executed out of India is to be stamped within of period of 3 months after it has been first received in India. < TOP > 29. Answer : (c) Reason : A company can close its register of members in a year for an aggregate period of not exceeding 45 days < TOP > 30. Answer : (d) Reason : To have access to books of accounts is not the duty of an auditor and is a right of an auditor. But all others are duties of an auditor. < TOP > 31. Answer : (a) Reason : To summon Board meetings is one of the rights of an individual director but all others are collective rights of the Board of directors. < TOP > 32. Answer : (b)

Reason : A bill drawn in Lucknow on a merchant of Patna who was on a business tour to America and payable or accepted payable in Bombay is not a foreign bill. < TOP > 33. Answer : (c) Reason : A registered trade union and a trust registered under the Indian trust act can become member of a company, but all others cannot become members of the company. < TOP > 34. Answer : (e) Reason : As the cheque is payable to Y or bearer but with a “Not Negotiable” crossing Mr. Z is liable to refund the money to Mr. Y The correct answer is (e). < TOP > 35. Answer : (c) Reason : In Indus Film corporation Limited, the borrowing of money by a film company on the ground that all its assets (both present and future) would be subject to a lien until the loan borrowed is repaid was held to be a floating charge by the Court. Hence, a company can create a floating charge on the assets of the present and future. < TOP > 36. Answer : (b) Reason : Any contract which involves personal skill or talent or volition cannot be assigned to others, even to the legal heirs or representations .ex; - singing, acting, playing etc. < TOP > 37. Answer : (a) Reason : The query raised is identical to the facts of the case of Cook v. Deeks (1916) I & C 554 CA. In that case, three directors of a company held 75% of the issued capital. The company carried on business as railway construction contractors. The three directors by their vote as holders of 75% majority resolved at a meeting of the company that the company had no interest in the contract. The directors then obtained the contract in their own names. It was held that the contract having been obtained under circumstances, which amounted to breach of trust by the directors, the benefit of the contract belonged to the company. On this analogy, any profits derived by the three directors viz. A, B and C from the contract in this contract would belong to the Scooby Limited and would not accrue to the three directors. Further, it has been held in Globe Motors Limited v. Mehta Teja Singh & Co. (1984) 55 Com. Cases 445 (Del.) that an action can be brought against directors who are in control of the company to compel such directors to account to the company for profits made by

appropriating for themselves a business opportunity which the company would otherwise have enjoyed. < TOP > 38. Answer : (a) Reason : Disclosure of interest in contract or arrangement — A director must disclose his interest or concern in any contract or arrangement or any proposed contract or arrangement by or on behalf of the company. Such interest should be disclosed to Board of directors. [section 299(1)]. If the contract or arrangement is between companies, i.e., the company in which the person is director and the other company, the director is deemed to be interested in the contract only if he singly, or along with other directors, hold 2% or more shares in other company. [section 299(6)]. While calculating the 2% shares in other company, only investment of directors is considered. Investment of his relatives is not to be considered. [This seems to be a loophole]. Hence, director ‘A’ in the instant case did not violate any of the provisions of the Companies Act and the contract is valid. < TOP > 39. Answer : (b) Reason : A bill cannot be endorsed for part payment. As such the condition given in option (b) is false. Correct answer is (b). < TOP > 40. Answer : (d) Reason : Section 138of Negotiable Instrument Act, is applicable only when the cheque is returned by the drawee bank for the reason “Funds Insufficient”. As such the correct answer is (d) The correct answer is (d) < TOP > 41. Answer : (c) Reason : Acceptance of a bill of exchange subject to the happening of an uncertain event is called conditional acceptance. < TOP > 42. Answer : (d) Reason : As per section 220, a company shall file with the ROC. 3 copies of balance sheet, profit and loss account, and all the documents, which are required to be annexed or attached to the balance sheet. All such documents shall be filed within 30 days from the date on which the balance sheet and profit and loss account were laid at AGM. If the AGM of the company is adjourned without adopting the balance sheet, the company shall nevertheless file all such documents with the registrar. Additionally, it shall prepare a statement of the fact of adjournment of AGM without adopting the balance sheet and of the reasons therefor. Such statement shall be annexed to the documents filed with the registrar. < TOP >

43. Answer : (d) Reason : In terms of Section 255(1) of the Companies Act, 1956 one-third of the total number of directors can be determined as non-retiring directors in the case of a public company and a private company which is a subsidiary, of a public company. In view thereof the mandatory requirement is that not less than two-thirds of the total number of directors of the aforesaid companies have only to be directors liable to retire by rotation. In the case of private companies simply even all the directors can be treated as non-retiring directors. In view of the aforesaid legal position, it is not necessary that all the directors of a newly incorporated company must retire at the first annual general meeting held after the incorporation thereof. The requisite prescribed number of nonretiring directors need not therefore retire. All other first directors including the subscribers to the memorandum of association should retire at the first annual general meeting. < TOP > 44. Answer : (e) Reason : According to sec.(91) of NI Act, A bill of exchange is dishonored by non-acceptance. If the drawee does not accept the bill within forty-eight hours from the time of presentment though it is duly presented for acceptance. The correct answer is (e). < TOP > 45. Answer : (d) Reason : A person appointed as additional director and appointment of director as alternate director can be made by passing circular resolution. < TOP > 46. Answer : (e) Reason : The clear differences between an agent and an employee are I. An agent can transact business on his own name and still binds the principal while servant can transact the business only on the name of the master and within the authority granted by him , IV. An agent is not subject to direct control and supervision of principal ,while the servant acts under direct supervision of the master and is bound to follow all reasonable orders given to him in the course of employment. < TOP > 47. Answer : (b) Reason : Removal of a director before the expiry of his tenure of office does not require special resolution. < TOP > 48. Answer : (d) Reason : Where goods are required over a certain period, tenders may be invited as a standing offer which is a continuing offer, this is also called standing offer.

< TOP > 49. Answer : (b) Reason : The register of members to be kept open for inspection of members as well as non-members and the register can be inspected by the non-members on payment of rupee one for each inspection and for the members on free of cost. < TOP > 50. Answer : (b) Reason : Section 2(b) of the Contract Act, provides that when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. It is one of the essentials of a valid acceptance that the acceptor must be aware of the proposal at the time of the offer. Acceptance can be made even without the knowledge of the offer is a false statement. < TOP > 51. Answer: (a) Reason: Since Wise Private Limited is a Private Company, Section 275 of the Companies Act, 1956 is not applicable. A person cannot hold office at the same time as director in more than 15 companies. However Section 278 provides that certain directorships are to be excluded for the purpose of ascertaining the ceiling of directorships. While ascertaining the ceiling, the following directorships are required to be excluded: Alternate Directorship: In the instant case 5 directorships are to be excluded. Directorship in private companies which are neither subsidiary or holding companies of public companies: In the instant case 5 directorships in private companies are to be excluded presuming that none of such companies is a subsidiary or holding company of a public company, Director in foreign companies: In the instant case 1 directorship is to be excluded. Foreign company is not a company for the purpose of Companies Act, 1956. In nutshell, a total of 11 directorships are to be excluded leaving a balance of 9 directorships. The permissible number is 15. But of all the said and done Wise Private Limited can appoint Ravi Shankar as a director on its Board. Since Sec. 275 is not applicable to private companies.. < TOP > 52. Answer : (d) Reason : Every depository and participant is required to be registered with SEBI. < TOP > 53. Answer : (b) Reason : It was observed in Rajahmundry Electric Supply Corporation Vs. Nageswara Rao, that the validity of an application made under section 397 will not be

affected in any way just because certain members withdrew their consent after giving the same. < TOP > 54. Answer : (b) Reason: Explanatory statement under section 173 of the Companies Act, 1956 is required to be given to all special business matters. < TOP > 55. Answer : (d) Reason : Companies which are required to appoint whole time company secretary is a company having paid up capital of rupees two crore or more < TOP > 56. Answer : (c) Reason : In the instant bill, C is the payee of the instrument. As such option (c) is false. Correct answer is (c). < TOP > 57. Answer : (b) Reason : Certification of transfer means endorsement on the instrument of transfer by an officer of the company that the share certificate relating to the shares to be transferred has been lodged with the company. < TOP > 58. Answer : (c) Reason : The surety is discharged by novation where a fresh loan account was created and no new contract were entered with the creditor, the surety is absolved of the liability. The correct answer is (c). < TOP > 59. Answer : (c) Reason : In order to pass a special resolution the votes cast in favour of the resolution should be, Three times the number of votes cast against, if any. Refer to Section 189 of the Companies Act, 1956. < TOP > 60. Answer : (e) Reason : All the alternatives of (a) to (d) are contracts of bailment as the articles are deposited by owner for safe custody and delivery as per bailor’s instructions. Alternative (e) money deposited in a bank is not a contract of bailment. < TOP > 61.

Answer : (a) Reason : According to Section 372A(1), no company shall directly or indirectly make any loan to or give guarantee or provide security or make investment in other body corporate exceeding 60% of its paid up share capital and free reserves, or one hundred percent of its free reserves, whichever is more, except by a special resolution passed at a general meeting. In the instant case, the XYZ Limited has paid-up capital of Rs. 18.8 crore and free reserves of Rs. 4.8 crore as on 31st March, 2005, the 60% of which comes out to be Rs. 14.16 crores. Therefore, the Board can make investment upto 14.16 crores without any approval of the shareholders. The statement of investments Company allowed to make up 14,16,00,000 (i.e. 60% of paid-up capital + free reserves or 100% of free reserves which ever is higher) (in Rupees) Existing investment 12,00,00,000 Further investment:(i) 50,000 equity shares ´ at Rs. 390 per share 1,95,00,000 (ii) 11% Debentures of Albert Pharma Limited [The debentures are specifically included in explanation for ‘Loan’ under Section 372A(10)]. 1,25,000 (iii) 50,000 units of US-64 @ Rs. 14.50 each. 7,25,000 (iv) 25,000 equity shares of Rs. 10 each @ Rs. 50 each in concord securities whose principal business is acquisition of bonds. 12,50,000 Total Investment 14,16,00,000 14,16,00,000 (-)

14,16,00,000 -

The aggregate of the existing and further investments are not exceeding the limits specified above. Therefore the company has not violated sec 372A of the Companies Act, 1956.

< TOP > 62. Answer : (e) Reason : Past consideration will not be treated as good consideration for a contract of guarantee hence, the statement under alternative (e) is false. The statements in other alternatives with regard to consideration are true from (a) to (d). < TOP > 63. Answer : (d) Reason : Section 224A of the Companies Act, 1956 requires a company to appoint an auditor by passing special resolution where 25% or more of the subscribed capital of the company is held by public financial institution, government companies’ etc. or a combination of them. However, said Section does not specify the date on which 25% of the subscribed share capital must be held by the specified bodies/institutions i.e. whether the date of notice of meeting or date of passing the special resolution shall be effective date. The Department of company Affairs has clarified that the material date is the date of annual general meeting at which the special resolution is required to be passed. In the Instant case ICICI holds preference shares in the Kartikeya Ltd. As the ICICI is not a Government company, the holding shares in ICICI is not considered for the purpose of section 224A. But the Annual General Meeting is conduct on 26th January 2005, which is not permitted and hence it is a clear violation under the Act. Hence the objection of ROC is valid. < TOP > 64. Answer : (b) Reason : The sale by A to C before B’s acceptance constitutes an implied revocation of A’s offer. Therefore, B’s subsequent acceptance would not be binding upon A. Therefore, B cannot take any legal action against A. Proceeding against A for breach of promise or against C for recovery of damages is also consequently ruled out. < TOP > 65. Answer : (b) Reason : A company is a separate legal entity. It can become member of another company. It can attend the meeting of other company by appointing a representative. If that representative is unable to attend the meeting, he can appoint a proxy. < TOP > 66. Answer : (e) Reason : In all the cases mentioned in the problem the banker is entitled to refuse the payment. In option (a) it is a post-dated cheque (b) it is not negotiable crossing endorsed favouring Mr. Y (c) a crossed cheque cannot be paid in cash (d) a specially crossed cheque favouring one bank cannot be paid to another bank. As such the correct answer is (e).

< TOP > 67. Answer : (e) Reason : A general meeting requires twenty-one days’ notice in writing. “Clear days” means exclusive of the date of service of the notice and the date of the meeting. < TOP > 68. Answer : (d) Reason : If a person being induced by a false statement enters into a contract which he would not have done otherwise, there is fraud. But if inspite of the false statement, he was not misled or did not enter into the contract based on the statement, then there is no fraud. In the given case buyer of the mica mine got an independent evaluation done and based on that report he purchased the mica mine. Hence, seller of the mica mine cannot be held liable for fraud. < TOP > 69. Answer : (b) Reason : A prospectus issued by any financial institution or bank for one or more issues of the securities or class of securities specified in that prospectus is called Shelf prospectus. < TOP > 70. Answer : (e) Reason : A pledge is a special type of contract of bailment. < TOP > 71. Answer : (d) Reason : Securities premium account can be utilized only for the purposes mentioned u/s 78 of the Companies Act, 1956. But according to the Companies (Amendment) Act, 1999,with effect from 31-10-1998, the securities premium account can be utilized for the buy-back of securities also. The securities premium account cannot be utilized for any other purpose other than the purposes mentioned under section 78 of the Act. Hence, payment of dividend, purchase of movable or immovable property or discharge of current liabilities of the company are not permitted under the Act. Therefore, option (d) is correct, and all other options are wrong. Hence, securities premium account of a company can be utilized for buy-back of securities. < TOP > 72. Answer : (b) Reason : Yes, the doctor has a valid claim for his services. As per Section 68 of the Indian Contract Act, when another person supplies to a person, who is minor,

with necessaries suited to his condition in life, the supplier is entitled to be reimbursed from the estate of the minor. As necessaries also include medical expenses, the doctor can claim for his services from the property of the minor. The right of the doctor is, however, known as quasi contractual right. Hence the doctor has a valid claim. < TOP > 73. Answer : (b) Reason : Under section 197A of the Companies Act, 1956, a company shall not appoint a manager u/s 2(24) and a managing director u/s2 (26) simultaneously. But company can appoint a managing director and a whole time director, a managing director and a director, manager and a whole time director. Hence option (b) is the correct answer and all other options are not correct. < TOP > 74. Answer : (d) Reason : Where the borrowing party deposits the title goods as a security, with the bank it is known as equitable mortgage. The correct answer is (d). < TOP > 75. Answer: (d) Reason: The rights of a shareholder can be classified into Statutory rights and Contractual rights. The Statutory rights are available under the Companies Act, and the Contractual rights are available under the Memorandum of Association of the company < TOP > 76. Answer : (b) Reason : Every transfer of immovable property made with intent to defeat or delay the creditors of the transferor is voidable at the option of the creditor so defeated or delayed. Further, every transfer of immovable property made without consideration with intent to defraud a subsequent transferee is voidable at the option of such transferee. This is known as Doctrine of Fraudulent Transfer. < TOP > 77. Answer: (a) Reason: Under section 260 of the Companies Act, 1956 additional directors of the company shall be appointed by the board of directors (subject to articles of association of the company). The power to appoint additional directors cannot be exercised by any others except the BOD. This provision is made under appointment of directors by directors. Hence option (a) is the correct answer, whereas all other options are not. < TOP > 78.

Answer : (b) Reason : It is contingent since the interest is created subject to happening of an event. < TOP > 79. Answer : (b) Reason : Contracts executed by a public company after the incorporation and before obtaining the certificate of commencement of business are known as Provisional contracts. The contracts entered before the incorporation of the company are Pre-incorporation contracts. A contract even though there is no offer, no acceptance, no consensus ad idem, etc. Such type of contract where there is no element of contract but which still is considered as contract is referred as quasi- contract. The contracts on which the law imposes a special duty to act with the utmost good faith to disclose all material information. Such type of contracts are known as Uberrimae Fidae Contracts. Contingent contract is a contract which kinds the parties depend upon happening or not happening of an event which may or may not happen. < TOP > 80. Answer : (d) Reason : Refer to Moore & Co. Vs. Landanar & Co. in conjunction with Section 37 of the Sale of Goods Act, 1930 explain where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them, but if the buyer accepts the goods so delivered he shall pay for them at the contract rate. Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer may accept the goods included in the contract and reject the rest, or he may reject the whole. If the buyer accepts the whole of the goods so delivered, he shall pay for them at the contract rate. < TOP > 81. Answer : (b) Reason : Only an individual can become director of a company according to the provisions of section 253 of the Companies Act. < TOP > 82. Answer : (c) Reason : An Inchoate instrument is one where one person signs and delivers to another a stamped instrument which is either wholly blank or incomplete, he thereby gives a prima facie authority to the holder thereof to make or complete, as the case may be, upon it a negotiable instrument, for any amount specified therein, and not exceeding the amount covered by the stamp. Such an instrument is called an Inchoate instrument..

The statement given in option (b) implies an unsigned instrument that cannot create any rights. (a), (d) and (e) are wrong. An inchoate instrument is not ambiguous or forged and is perfectly valid and enforceable. Hence, correct answer is (c). < TOP > 83. Answer : (d) Reason : Prospectus issued by a company is an invitation to offer. < TOP > 84. Answer : (c) Reason : Giving bribe to the Government servant to get some approval is against public policy and hence void < TOP > 85. Answer: (c) Reason: An auditor appointed at the Annual general meeting will hold office from the conclusion of that meeting to the conclusion of the next annual general meeting. Unlike directors who cease to hold office if the annual general meeting is not held in accordance with section 166, an auditor appointed under section 224 will not vacate his office if the annual general meeting is not held on time .He will continue to hold office until the next annual general meeting is actually held and concluded and he cannot be deemed to have vacated his office on the last date on which the meeting ought to have been held. Similarly, where a meeting is held but is adjourned for want of quorum or any other reason to a later date, he will hold office till the conclusion of the adjourned meeting. Hence all other options are not correct < TOP > 86. Answer : (b) Reason : A demand draft is a bill of exchange drawn by one branch of a bank on other branch of the same bank. For example, Karnataka Bank, Hyderabad issues a demand draft on its New Delhi Branch. In this case, the Hyderabad branch is a drawer and New Delhi branch is the drawee. Accordingly the correct answer is (b). < TOP > 87. Answer : (b) Reason : Until the instrument is duly satisfied, every prior party to a negotiable instrument is liable thereon to a holder in due course. The defense on the part of a person liable on a negotiable instrument cannot be set up against a holder in due course if that negotiable instrument has been lost, or obtained from such person by means of an offense or fraud for which he is not party to the fraud or unlawful consideration. Hence answer is (b). All other statements given in the question are privileges of a holder in due course. < TOP > 88.

Answer : (e) Reason : According to Section 85 of NI Act if a cheque payable to order purports to be indorsed by or on behalf of the payee, the drawee (the paying banker) is discharged by Payment in Due Course. In the instant case, the banker is not expected to know the signature of each and every person who is not the customer of the Bank. Accordingly answer (e) is correct. Correct answer is (e). < TOP > 89. Answer : (a) Reason : The audit of accounts is mandatory in case of All companies. < TOP > 90. Answer: (e) Reason: ‘Rematerialisation’ is the term used for converting electronic holdings back into physical form of share certificate. physical share certificates. < TOP >

< TOP OF THE DOCUMENT >

Question Paper Economic Legislation – II (162) : April 2005 ·

Answer all questions. ·

Marks are indicated against each question.

1. An appeal with CEGAT can be refused to be admitted, if the fine or penalty under contest does not exceed (a) Rs.10,000 (d) Rs.50,000 (1 mark) < Answer >

(b) Rs.25,000 (e) Rs.1,00,000.

(c) Rs.30,000

2. As per the provisions of the Income Tax Act, under which of the following situations, is clubbing of agricultural income with non-agricultural income not applicable? I. Where the non-agricultural income does not exceed Rs.50,000 during the relevant previous year. II. Where the agricultural income does not exceed Rs.5,000 for the relevant previous year. III. Where the assessee is a firm. IV. Where the assessee is a cooperative society. (a) Only (I) above (c) (I), (II) and (IV) above (e) (I), (II), (III) and (IV) above.

(b) (I), (III) and (IV) above (d) Both (I) and (II) above

(1 mark) < Answer > 3. Mrs. Lalitha has a residential property, which could not be occupied by her owing to her job requirements during the previous year 2004-05. The same was neither let out nor any benefit has accrued to her from the said property during the previous year 2004-05. The annual value of the house for the assessment year 2005-06 is taken to be (a) The fair rental value (b) The municipal value (c) The standard rent (d) Nil (e) Either fair rental value or municipal value, whichever is higher. (1 mark) < Answer > 4. Mr.Raj converts his capital asset to stock-in-trade in the month of March, 1984. The cost of the asset, which was acquired during the year 1981 was Rs.96,000 and its fair market value on the date of conversion was Rs.1,20,000. The stock-in-trade was sold in the month of December, 2004 for an amount of Rs.3,75,000. Compute the capital gains chargeable to tax in the hands of Mr.Raj for the assessment year 2005-06? Cost of inflation index: 1981-82 100 1983-84 116 2002-03 447 2003-04 463 2004-05 480 (a) Rs.2,55,000 (c) Rs.1,03,966 (loss) (2 marks) < Answer >

(b) Rs.2,79,000 (d) Rs.8,172 (loss)

(e) Rs.Nil.

5. Mrs.Malati, who was born on August 10, 1958, furnishes the following particulars of her income for the previous year 2004-05: Particulars Rs. Income from salaries (net) 80,000 Winnings from the lotteries (gross) 20,000 Profits from the poultry farming business 12,000 Interest on fixed deposits with banks 15,000 Income from the long term capital gains 25,000 What is the tax rebate Mrs.Malati can claim for the assessment year 2005-06 under the Income Tax Act? (a) Rs.5,000 (e) Rs.Nil.

(b) Rs.20,000

(c) Rs.25,000

(d) Rs.12,000

(2 marks) < Answer > 6. Under the provisions of the Income Tax Act, 1961, for the purpose of the clubbing of income, the definition of a ‘relative’ of an individual includes I. Spouse. II. Brother and sister. III. Any lineal ascendant or descendant of the individual. (a) Only (I) above (b) Only (II) above (c) Only (III) above (d) Both (I) and (II) above (e) (I), (II) and (III) above. (1 mark) < Answer > 7. Which of the following places is/are considered as ‘place of business’ as per section 2(dd) of the Central Sales Tax Act, 1956? I. The place of business of an agent, where a dealer carries on his business through an agent. II. The place from where a dealer carries on his business. III. Any place where a dealer stores his goods. IV. The place where a dealer keeps his books of account. (a) Only (II) above (c) Both (II) and (III) above (e) (I), (II), (III), and (IV) above. (1 mark) < Answer > 8.

(b) Both (I) and (II) above (d) Both (II) and (IV) above

Mr.Varma has furnished the following particulars in respect of his house property situated in the city of Hyderabad for the previous year 2004-05: Particulars Amount (Rs.) Municipal value 45,000 Fair rent 42,000 Self occupied portion 4/5 Let out portion (@ Rs.1,000 per month) 1/5 Municipal taxes paid 3,500 Insurance premium paid 2,000 Ground rent paid 1,500 Interest on the capital borrowed 3,000 What is the income from house property (let out), taxable in the hands of Mr.Varma for the assessment year 2005- 06? (a) Rs.7,310 (e) Rs.4,910.

(b) Rs.7,910

(c) Rs.11,300

(d) Rs.9,000

(2 marks) < Answer > 9. Ms.Radha holds 1000 shares in Zee Ltd., acquired in the year 1982-83 at a cost of Rs.20,000. She has been offered right shares by the company in the month of August, 2004 at Rs.40 per share, in the ratio of 2 for every 5 held. She retains 50% of the rights and sells the balance to Ms.Lata for an amount of Rs.12,000. What are the capital gains taxable in the hands of Ms.Radha for the assessment year 2005-06?

(a) Rs.8,000 (short term gain) (c) Rs.3,714 (short term gain) (e) Rs.Nil.

(b) Rs.12,000 (short term gain) (d) Rs.4,000 (short term loss)

(2 marks) < Answer > 10. Consider the following information pertaining to Mr. Robin, an employee of M/s Hood Ltd., for the previous year 2004-05: · The company provided a housing loan of Rs.6,00,000 at an interest of 3% per annum on October 01, 2004 (repayable in 60 monthly instalments starting from April 2005). · Mr. Robin owns a mobile phone and the expenses amounting to Rs.10,000 for the previous year 2004- 05 were reimbursed by his employer. · The company purchased a computer for Rs.75,000 on April 01, 2003 and subsequently gave it to Mr. Robin on June 30, 2004. The value of perquisites taxable in the hands of Mr. Robin for the assessment year 200506 is (a) Rs.1,03,000 (d) Rs.Nil

(b) Rs.68,500 (e) Rs.58,500.

(c) Rs.51,000

(2 marks) < Answer > 11. Income from business, set up outside India but controlled wholly or partly from India, is (a) Taxable in the hands of the Resident (both ordinarily and not ordinarily) (b) Taxable only in the hands of the Resident but not ordinarily resident (c) Taxable in the hands of the Non-resident (d) Not taxable as the business is set up outside India (e) Taxable only in the hands of a resident and ordinarily resident. (1 mark) < Answer > 12. The percentage of the depreciation allowed on the land is respect of profits & gains of business or profession under the Income Tax Act is (a) 10 percent (b) 15 percent (c) 25 percent (d) Nil (e) 5 percent. (1 mark)

< Answer > 13. Mr.Nagaraj is the owner of two house properties, both of which are occupied by him for residential purposes. The following particulars are furnished in respect of the said properties for the previous year 2004-05: Particulars Property I (Rs.) Property II (Rs.) Fair rent 75,000 86,000 Municipal value 78,000 89,000 Standard rent 77,000 90,000 Municipal taxes 9,360 10,680 Interest on the property loan borrowed during the year 2000-01 46,000 35,000 What is the total income from the properties taxable in the hands of Mr.Nagaraj for the assessment year 2005-06? (a) Rs.33,652 (Loss) (c) Rs.33,652

(b) Rs.26,176 (loss) (d) Rs.26,176

(e) Rs.19,324.

(2 marks) < Answer > 14. Who among the following is treated as a ‘manufacturer’ for the purposes of the Central Excise Act? (a) Raw material supplier (b) Independent contractor, in cases where the manufacture is carried out in the premises of the raw material supplier (c) Loan licensee (d) Contractor supplying the labour in the premises of the manufacturer (e) Brand owner. (1 mark) < Answer > 15. Mr.Lal, an individual is the holder of the following properties as on March 31, 2005: Particulars Amount (Rs.) Property at Mumbai, let out for the business of a firm in which he is a partner 12,00,000 Property at Chennai, used for his own business 8,00,000 Vehicles for personal use

12,50,000 Cash on hand 1,20,000 Jewellery 7,50,000 Property gifted to the smaller HUF consisting of himself, wife and children (The value as per the Schedule III is Rs.8,00,000) 9,50,000 The gross wealth of Mr. Lal as on March 31, 2005 is (a) Rs.20,70,000 (d) Rs.5,70,000

(b) Rs.22,70,000 (e) Rs.15,20,000.

(c) Rs.30,20,000

(2 marks) < Answer > 16. Under which of the following transactions, issue of one ‘C’ form is not allowed as per the provisions of the Central Sales Tax Act, 1956? (a) Where the total value of a transaction is less than Rs.25,000 per financial year (b) Where there is only one transaction in a financial year and the amount of the transaction has no relevance (c) Where an order of high value has been placed and the supplies are effected in one financial year in installments (d) Where a transaction covers more than one financial year (e) Where different orders have been placed during one financial year and each order is of a value exceeding Rs.25,000. (1 mark) < Answer > 17. Which of the following is/are the ‘sale in course of export’ on which no tax is payable under the Central Sales Tax Act? I. Sale or purchase that occasions the export. II. Sale effected by a transfer of the documents of title to goods after the goods have crossed the customs frontiers of India. III. Exports through the agents, if the goods are not sold to the agents any time. (a) Only (I) above (III) above (d) Both (I) and (III) above (1 mark) < Answer >

(b) Only (II) above (e) (I), (II) and (III) above.

(c) Only

18. Which of the following statements is true in respect of the property which is self occupied for a part of the year and let out for the rest? (a) The value of the property is computed as if the house is self occupied for the entire year (b) The fair rental value of the property is taken as the annual value (c) The value of the property is computed as if the house is let out (d) The municipal value of the property is taken as the annual value (e) The standard rent of the property is taken as the annual value. (1 mark) < Answer > 19. Which of the following is/are chargeable to tax as deemed profits under the Income Tax Act? I. Recovery against any deduction of an expenditure, loss or liability allowed in the earlier years. II. Profit on the sale of the asset used for the scientific research. III. Recovery of the bad debts allowed as a deduction in the earlier years. IV. Recovery of the money after the discontinuance of the business or the profession. (a) Only (I) above (c) Both (I) and (II) above (e) (I), (II), (III) and (IV) above.

(b) Both (III) and (IV) above (d) (I), (II) and (III) above

(1 mark) < Answer > 20. Mr.Anjaneyulu, who is a resident and ordinarily resident has the following income for the previous year 2004-05: Particulars Amount (Rs). Interest on the UK bonds 75,000 Income from the property in Canada but received in India 4,85,000 Income from a business abroad but controlled from India 96,000 Profit from a company in Delhi but controlled from London 1,26,000

Dividend from a foreign company but received in India 64,000 What is the amount taxable in the hands of Mr.Anjaneyulu for the assessment year 200506? (a) Rs.7,71,000 (d) Rs.6,11,000

(b) Rs.5,60,000 (e) Rs.7,82,000.

(c) Rs.8,46,000

(2 marks) < Answer > 21. As per the Customs Act, 1962, unloading of the cargo can start only after the (a) Grant of the entry inwards by the Customs Officer (b) Submission of the bill of entry (c) Vessel reaches the Indian territorial waters (d) Approval has been granted by the Customs Officer (e) Clearance is received from the warehouse for keeping the goods. (1 mark) < Answer > 22. Ms.Veda holds 2000 shares in Bee Ltd., acquired at a cost of Rs.80,000 during 1980-81. (The fair market value of the shares as on April 1, 1981 was Rs.70,000). She has been offered right shares by the company in the month of April, 2004 at Rs.60 per share, in the ratio of 2 for every 4 held. She retained 60% of the rights and sold the balance to Ms.Rita for an amount of Rs.28,000 in the month of November, 2004. What is the capital gain taxable in the hands of Ms.Veda for the assessment year 2005-06 if she sells all the shares at a price of Rs.120 per share in the month of March, 2005? Cost of inflation index: 1981-82 2003-04

100 463

2002-03 447 2004-05 480 (a) Long term loss Rs.1,44,000 and the short term gain Rs.64,000 (b) Long term gain Rs.1,44,000 and the short term loss Rs.64,000 (c) Long term gain Rs.1,44,000 and the short term gain Rs.64,000 (d) Long term gain Rs.1,98,000 (e) Long term loss Rs.90,000. (2 marks) < Answer > 23.

Mr.Kiran owns a car (1,500 c.c), which he uses for both official as well as for private purposes. He has incurred the running and maintenance expenses of Rs.47,350 during the previous year 2004-05 and also paid the salary of the driver at the rate of Rs.1,850 per month. His employer reimbursed the entire expenditure. The perquisite taxable in the hands of Mr.Kiran for the assessment year 2005-06 is (a) Rs.47,950 (b) Rs.21,600 (c) Rs.69,550 (d) Rs.16,800 (e) Rs.52,750. (2 marks) < Answer > 24. Mr.Jumani is an employee of the central government and is posted at Delhi. He gets a basic pay of Rs.50,000, entertainment allowance of Rs.7,200, dearness allowance of Rs.15,000 for the previous year 2004-05. He spends 50% of the entertainment allowance for private purposes. Which of the following statements is true in respect of the exemption of the entertainment allowance Mr. Jumani can claim for the assessment year 2005-06? (a) The entire amount of entertainment allowance is taxable, as it has been utilised partly for private purposes (b) The entire amount of entertainment allowance is exempted as Mr.Jumani is a government servant (c) The exemption is restricted to a maximum amount of Rs.5,000 (d) The exemption is restricted to 10% of the basic plus dearness allowance (e) The exemption is allowed to the extent of the amount spent on official purposes. (1 mark) < Answer > 25. Ms.Padma, an employee of M/s.Sundaram Steels Ltd., is entitled for a pension of Rs.2,500 per month but no gratuity. She retires on January 31, 2005 and gets Rs.80,000 in lieu of commutation of 25% of pension. The amount of commuted pension exempted from income tax for the assessment year 2005-06 is (a) Rs.80,000 (b) Rs.4,000 (c) Rs.Nil (d) Rs.1,60,000 (e) Rs.1,06,667. (2 marks) < Answer > 26. Which of the following is false in respect of the depreciation that can be claimed by an assessee u/s 32 of the Income Tax Act, 1961? (a) The assessee need not be the registered owner of the asset (b) The assessee is entitled for a depreciation in respect of the capital expenditure incurred on a building in respect of which he holds the right of occupancy (c) In the case of the lease transaction, the depreciation can be claimed by

the lessee (d) The assessee can claim the depreciation in respect of the assets over which he has a right to retain the possession and defend the same (e) Depreciation is available on the tangible as well as the intangible assets. (1 mark) < Answer > 27. Which of the following statements is false in respect of the interest on the house property loan? (a) The interest can be claimed as a deduction irrespective of whether paid or not during the previous year (b) Deduction is available only if either the principal or the interest is a charge on the property (c) Interest on the unpaid interest is not deductible (d) Interest on a fresh loan taken to repay the original loan raised for the purchase, construction or repair of the house property is allowed as a deduction (e) No deduction is allowed for any brokerage or commission for arranging the loan. (1 mark) < Answer > 28. Mr.Shyam has three minor children and the following are their incomes for the previous year 2004-05: Minor Son (Rs.) Minor daughter (Rs.) Minor Son (Rs.) Interest on the bank deposits 1,250 1,800 1,475 Income from the exercise of their skills 2,500 3,600 4,500 Total 3,750 5,400

5,975 What is the total deduction that Mr.Shyam can claim in respect of the income of his minor children for the assessment year 2005-06? (a) Rs.4,225 (e) Rs.Nil.

(b) Rs.4,500

(c) Rs.15,125

(d) Rs.4,525

(2 marks) < Answer > 29. Mrs.Raghavan, who is an employee of a private company, had to go abroad for her medical treatment. The cost of the treatment was Rs.7,00,000 as against the RBI permit of Rs.6,50,000 for the same. The travel expenses amounting to Rs.1,75,000 were borne by her employer. The gross salary of Mrs.Raghavan for the previous year 2004-05 is Rs.3,50,000. What is the perquisite taxable in respect of the medical treatment in the hands of Mrs.Raghavan for the assessment year 2005-06? (a) Rs.2,25,000 (d) Rs.6,50,000

(b) Rs.1,75,000 (e) Rs.7,00,000.

(c) Rs.50,000

(2 marks) < Answer > 30. Mr.Parasuram, a professional consultant furnishes the following information for the previous year 2004-05: Particulars Rs. Income from the profession 75,000 Long term capital gains 12,000 Winnings from the lotteries (Gross) 15,000 Income from other sources 20,000 Interest from the bank 10,000 Medical insurance premium on self 4,000 Rent paid (per month) 3,000 What is the amount of deduction he can claim in respect of the rent paid for the assessment year 2005-06? (a) Rs.26,500 (d) Rs.36,000 (2 marks) < Answer > 31.

(b) Rs.25,400 (e) Rs.29,500.

(c) Rs.24,000

The maximum exemption limit in respect of the retrenchment compensation received by an employee as per the provisions of section 10(10B) of the Income Tax Act, 1961 is (a) Rs.5,00,000 (b) Rs.3,50,000 (c) Rs.2,50,000 (d) Rs.3,00,000 (e) Rs.4,00,000. (1 mark) < Answer > 32. An assessee can claim the deduction under section 80D of the Income tax act, in respect of the mediclaim policy taken on the health of I. Self. II. Spouse. III. Dependent children and parents. (a) Only (I) above (c) Only (III) above (e) (I), (II) and (III) above.

(b) Only (II) above (d) Both (I) and (II) above

(1 mark) < Answer > 33. In the case of a non-government employee (receiving gratuity), the commuted pension is (a) Exempted to the extent of one-half of the commuted pension (b) Exempted to the extent of one -third of the commuted pension (c) Exempted to the extent of one -fourth of the commuted pension (d) Fully exempted (e) Fully taxable. (1 mark) < Answer > 34. Which of the following expenses is not deductible under the provisions of Section 37(1) of the Income Tax Act, 1961? (a) Fees paid to obtain the license to investigate and search minerals (b) Annual listing fees paid to the stock exchanges (c) Professional tax paid by a person carrying on the business or trade (d) Amount paid to third parties in order to use his quota rights (e) Entertainment expenditure incurred on opening a new branch. (1 mark) < Answer > 35.

Which of the following conditions is/are to be satisfied for excluding the unrealized rent from the rent received/ receivable? I. The tenancy is bonafide. II. The defaulted tenant has vacated or steps have been taken to compel him to vacate the property. III. The defaulted tenant is not in the occupation of any other property of the assessee. IV. The assessee has taken all the reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless. (a) Only (II) above (c) Both (I) and (II) above (e) (I), (II), (III) and (IV) above.

(b) (II), (III) and (IV) above (d) (I), (II) and (IV) above

(1 mark) < Answer > 36. Mrs.Bhanu owns a house property, which has 2 equal units, one of which is self-occupied and the other let out. The fair rent of the entire property is Rs.1,60,000, municipal value is Rs.1,65,000 and the standard rent fixed by the rent controller is Rs.1,64,000. The rent received from the tenant is Rs.6,000 per month. Interest on the capital (borrowed in 2002 for the construction of the property) is Rs.72,000. What is the annual income from the property to be taxed in the hands of Mrs.Bhanu for the assessment year 2005-06? (a) Rs.14,600 (loss) (c) Rs.21,400

(b) Rs.36,000 (loss) (d) Rs.22,800

(e) Rs.43,500.

(2 marks) < Answer > 37. Mr. Yash, a practicing consultant has an income of Rs.15,00,000 for the previous year 2004-05. The due date for the filing of the return of income for the assessment year 200506 is (a) June 30, 2005 (c) September 30, 2005 (e) August 31, 2005. (1 mark) < Answer > 38.

(b) July 31, 2005 (d) October 31, 2005

Under which of the following situations, are the rules under Part B of Schedule III not applicable for valuation of a building? I. The Assessing Officer, with the approval of Deputy Commissioner is of the opinion that it is not practicable to apply the rules of Part B of Schedule III to a particular case. II. The unbuilt area exceeds the specified area by more than 20% of the aggregate area. III. The property is built on a leasehold land and the lease expires within a period of 15 years and the lease deed does not give an option to the lessee for renewal of the lease. (a) Only (I) above (c) Both (I) and (II) above (e) (I), (II) and (III) above.

(b) Only (II) above (d) Both (I) and (III) above

(1 mark) < Answer > 39. An assessee sells certain goods to a related person at a price of Rs.1,500 and the cost of those goods to the assessee is Rs.1,200. What is the assessable value of the goods sold to the related person? (a) Rs.1,500 (e) Rs.Nil.

(b) Rs.1,200

(c) Rs.1,725

(d) Rs.1,380

(2 marks) < Answer > 40. The salary details of Mrs.Vimala an employee of a private company for the previous year 2004-05 are as under: Particulars Amount (Rs.) Basic salary 2,50,000 Dearness allowance( not forming part of the salary) 40,000 Bonus 20,000 Commission 5,000

Leased/ furnished accommodation at a lease rent 60,000 Cost of the furniture (WDV as on April 1, 2004 Rs.10,000) 22,000 Rent of the other appliances at the accommodation (yet to be paid by the employer) 12,000 What is the gross taxable salary of Mrs.Vimala for the assessment year 2005-06? (a) Rs.3,56,700

(b) Rs.3,95,500

(d) Rs.3,54,500

(e) Rs.3,98,500.

(c) Rs.3,93,800

(2 marks) < Answer > 41. The value of the perquisite in respect of the credit card, provided by the employer to the employee (including an add-on card) is taxable in the hands of (a) An employee whose income is less than Rs.50,000 (b) All the employees (c) An employee who has a substantial interest in the employer company (d) An employee whose income is more than Rs.50,000 (e) An employee who is a director of the employer company. (1 mark) < Answer > 42. If the declared goods are sold to unregistered dealers, the rate of tax under the Central Sales Tax Act is (a) 4% (b) 8% (d) Twice the rate applicable to the local sales (e) 10% or twice the local sales tax rate, whichever is higher.

(c) 10%

(1 mark) < Answer > 43. The cost of improvement for the purpose of the computation of capital gains is taken as ‘nil’ in which of the following cases? I. Goodwill of a business. II. Right to

manufacture any article or thing. III. Right to produce or process any article or thing. IV. Right to carry on any business. (a) Both (I) and (IV) above (c) (I), (II) and (III) above (e) (II), (III) and (IV) above.

(b) Both (II) and (III) above (d) (I), (II), (III) and (IV) above

(1 mark) < Answer > 44. The incidence of the wealth tax in the case of an individual depends on his (a) Residential status (b) Economic status (c) Citizenship (d) Residential status and nationality (e) Residential status, citizenship and the economic status. (1 mark) < Answer > 45. The act of throwing goods into the sea with a view to lighten the ship in order to prevent it from sinking, is known as (a) Derelict (e) Peril.

(b) Jetsam

(c) Flotsam

(d) Wreck

(1 mark) < Answer > 46. Which of the following is not considered as deemed income within the meaning of section 69 of the Income Tax Act? (a) Unexplained investments (c) Investments not fully disclosed (e) Amount borrowed or repaid on Hundi. (1 mark) < Answer > 47.

(b) Unexplained money (d) Explained expenditure

Mrs.Malini has been provided a rent-free unfurnished accommodation by the employer and the lease rent of the same is Rs.96,000 per annum. She draws an amount of Rs.2,25,000 as basic, 20% of basic as dearness allowance (50% forming part of the retirement benefits), and Rs.36,000 as commission for the previous year 2004-05. What is the taxable value of the perquisite rent-free accommodation in the hands of Mrs. Malini for the assessment year 2005-06? (a) Rs.96,000 (d) Rs.24,750

(b) Rs.28,350 (e) Rs.26,100.

(c) Rs.30,600

(2 marks) < Answer > 48. Which of the following deductions are allowed on the payment basis under the head ‘Income from house property’? (a) Municipal taxes (c) Collection charges Maintenance expenses.

(b) Insurance premium (d) Repairs

(e)

(1 mark) < Answer > 49. As per the provisions of the Income Tax Act, which of the following statements is false? (a) An expenditure pertaining to the business, the benefit of which is enjoyed by some one other than the assessee, is not deductible (b) An expenditure the benefit of which extends beyond the previous year is allowed as a deduction (c) No deduction is allowed in respect of the expenditure pertaining to a non-assessable business (d) Anticipated losses though certain, cannot be deducted (e) Ordinary expenditure incurred in carrying on the illegal business also is allowed as a deduction. (1 mark) < Answer > 50. Which of the following statements is true in respect of the income under the head ‘salary’? I. The relationship of the employer and employee exists between the payer and the payee. II. The nature of the payment must be real and not fictitious. III. Voluntary waiver or foregoing of the salary by an employee is chargeable to tax. IV. Salary is taxed irrespective of whether it is received from the past, present or the prospective employer.

(a) Both (I) and (II) above (c) Both (I) and (III) above (e) (I), (II), (III) and (IV) above.

(b) Only (I) above (d) Both (III) and (IV) above

(1 mark) < Answer > 51. Where the goods are sold to a government department and the local sales tax rate is lower than the Central Sales Tax rate of 4%, the applicable sales tax rate is (a)Twelve percent (c) Four percent flat rate

(b) Local sales tax rate (d) Eight percent (e) Two percent.

(1 mark) < Answer > 52. The following are the details of taxable income of Mr.Agarwal and Mrs.Agrawal for the previous year 2004-05: (Rs.) Particulars Mr. Agarwal Mrs. Agarwal Salary from Ding Dong Ltd.(net) – 1,20,000 Income from House property 90,000 – Business income 7,000 36,000 Income from other sources 3,000 40,000 1,00,000 1,96,000 Mr.Agarwal is a director of M/s.Ding Dong Ltd. and holds 22% share capital of the company. Mrs. Agarwal is employed without any professional qualification. The taxable income of Mr.Agarwal for the assessment year 2005- 06 is (a) Rs.1,00,000

(b) Rs.2,20,000

(d) Rs.2,96,000

(e) Rs.2,66,000.

(c) Rs.1,90,000

(2 marks) < Answer > 53. As on March 31, 2005, Mr.Suraj, who is a non-resident Indian national, has the following assets: Particulars (Rs) Jewellery in India

56,00,000 Gold and silver held outside India 26,00,000 Residential property in India let out for 250 days 15,00,000 Loan taken for the purpose of buying the gold held abroad 56,000 Loan taken for the purchase of the property 9,75,000 Personal loan taken for the daughter’s marriage against the security of the jewellery 9,50,000 Compute the taxable wealth of Mr.Suraj for the assessment year 2005-06. (a) Rs.46,25,000

(b) Rs.71,69,000

(d) Rs.72,25,000

(e) Rs.61,25,000.

(c) Rs.62,19,000

(2 marks) < Answer > 54. When the imported goods are put to use for 28 months, the duty drawback allowed by the government is (a) 40% (e) 85%.

(b) 50 %

(c) 60 %

(d) 70 %

(1 mark) < Answer > 55. The tax incidence under the Income Tax Act, is the highest in the hands of an assessee, if his residential status is (a) Resident and ordinarily resident (b) Resident but not ordinarily resident (c) Non-resident (d) Both resident and ordinarily resident and resident but not ordinarily resident (e) Both resident and non-resident. (1 mark) < Answer >

56. Standard deduction under section 24 of the Income Tax Act, 1961 out of Net Annual Value (NAV) of a house property, is equal to (a) 1/3 of NAV (b) 1/4 of NAV (c) 30% of NAV (d) Rs.30,000 (e) Rs.1,50,000. (1 mark) < Answer > 57. An assessee is entitled for a weighted deduction in respect of the expenditure incurred on the in-house research and development expenses under Sec 35 (2AB) of the Income Tax Act, at (a) 100% of the expenditure incurred (b) 125% of the expenditure incurred (c) 150% of the expenditure incurred (d) 75% of the expenditure incurred (e) 50% of the expenditure incurred. (1 mark) < Answer > 58. Mr.Jacob holds 1500 shares in X Ltd., acquired at a cost of Rs.75,000, during December, 1995. During June, 1997, he was given a bonus allotment of 1000 shares. During March, 2002, he was given a rights offer for 3000 shares at Rs.75 per share, which he acquired at the same time. During the month of February, 2005, he sold all the shares in favour of Z at a price of Rs.90 per share. What is the amount of the capital gains chargeable in the hands of Mr.Jacob, for the assessment year 2005-06? Cost of inflation index: 1995-96 2002-03

- 281 - 447

1997-98 2003-04

- 331 - 463

2001-02 2004-05

- 426 - 480

(a) Rs.1,13,365 (e) Rs.Nil. (2 marks) < Answer >

(b) Rs.23,665

(c) Rs.1,95,000

(d) Rs.1,45,000

59. Compute the taxable income of Ms.Bharati for the assessment year 2005-06 from the information given below: Particulars Rs. Net income from house property 1,25,000 Income from the business 1,35,000 Income from short term capital gains – sale of shares 56,000 Long term loss from the sale of property brought forward (90,000) Income from the tea business 1,20,000 Dividends from the Indian companies carrying on agricultural operations 80,000 Current year depreciation, to be deducted from the business income 26,000 Brought forward business loss (loss incurred six years ago) (45,000) (a) Rs.2,45,000 (b) Rs.2,93,000 (c) Rs.3,17,000 (d) Rs.2,03,000 (e) Rs.3,73,000. (2 marks) < Answer > 60. The income from the property, transferred to the wife, with an agreement to live apart is taxable in the hands of the (a) Transferor, as the deemed owner (b) Transferee (c) Either the transferor or the transferee, whose income is higher (d) Transferor and the transferee equally (e) Transferee’s legal heir. (1 mark) < Answer > 61. As per the provisions of the Wealth Tax Act, the exemption in respect of the cash balance held by a business is restricted to (a) An amount of Rs.50,000 (b) The amount recorded in the books of accounts (c) The amount not recorded in the books of accounts (d) Rs.1,00,000 (e) Rs.2,00,000.

(1 mark) < Answer > 62. The ‘taxable event’ under the Central Excise Act is the date of (a) Clearance from the factory (b) Manufacture (c) Purchase of the raw material (d) Sale of the goods (e) Clearance from the factory or the actual sale whichever is later. (1 mark) < Answer > 63. ABC Ltd. is a dealer in Andhra Pradesh. The aggregate interstate sales of the company during the period January to March 2005 were Rs.46,800. The sales tax rate in Andhra Pradesh is 5% on intrastate sale. If a buyer from outside the state issues declaration in Form C, the tax payable on such goods during the period will be (a) Rs.2,430 (e) Rs.1,800.

(b) Rs.2,340

(c) Rs.2,250

(d) Rs.1,872

(2 marks) < Answer > 64. Which of the following deductions are covered by the section 16 of the Income Tax Act, 1961? I. Standard deduction. II. Entertainment allowance. III. House rent allowance. IV. Profession tax. V. Special allowances. (a) (I), (II) and (III) above (c) (I), (II) and (IV) above (e) (I), (II), (III), (IV) and (V) above.

(b) Both (III) and (V) above (d) (II), (III) and (V) above

(1 mark) < Answer > 65. Under the provisions of the Income Tax Act, the profit on the sale of which of the following assets is taxed under the head capital gains?

(a) (c) (e) Personal apparel.

Personal computer (b) Personal household goods Personal house property (d) Personal car

(1 mark) < Answer > 66. During the previous year 2004-05, Ms.Kavya has the following income and the brought forward losses: Particulars Rs. Short term capital gains on the sale of the shares 1,50,000 Long term capital loss of the assessment year 1999-2000 (96,000) Short term capital loss of the assessment year 2000-01 (37,000) Long term capital gain 75,000 What is the capital gain taxable in the hands of Ms. Kavya for the assessment year 2005-06? (a) Rs.92,000 (d) Rs.1,29,000

(b) Rs.1,88,000 (e) Rs.2,25,000.

(c) Rs.1,13,000

(2 marks) < Answer > 67. A resident individual has taken a loan for his higher education from a bank and paid an amount of Rs.25,000 towards the tenth and the final (annual) instalment of the loan during the previous year 2004-05. What is the deduction he is eligible to claim in computing his income for the assessment year 2005-06? (a) Rs.25,000 (b) Rs.40,000 (c) Rs.Nil (d) Rs.15,000 (e) Rs.60,000. (1 mark) < Answer >

68. Under section 61 of the Customs Act, the goods (other than the capital goods) will be allowed to remain in the warehouse for a period of (a) 6 months (b) One year (c) Two years (d) Three years (e) Five years. (1 mark) < Answer > 69. As per the provisions of the Central Excise Act, CENVAT scheme generally grants (a) Credit of the duty paid on inputs (b) Credit of the duty paid on exports (c) Credit of the duty paid on output (d) Credit of the duty paid on imports (e) Credit of the duty paid on the inputs and the manufactured goods. (1 mark) < Answer > 70. As per the Wealth Tax Act, the standard deduction from the gross maintainable rent is allowed for the valuation of the property at (a) 10% of the Gross maintainable rent

(b) 12% of the Gross maintainable rent

(c) 15% of the Gross maintainable rent

(d) 20% of the Gross maintainable rent

(e) 25% of the Gross maintainable rent. (1 mark) < Answer > 71. Which of the following is not an indirect tax? (a) Octroi tax.

(b) Entry tax

(c) Gift tax

(d) Service tax

(e) Expenditure

(1 mark) < Answer > 72. The term ‘capital asset’ for the purposes of Income Tax Act, 1961 includes I. Movable property. II. Immovable property. III. Fixed and circulating property. IV.

Tangible and intangible property. (a) Both (I) and (II) above (b) Both (III) and (IV) above (c) (I), (II) and (III) above (d) (II), (III) and (IV) above (e) (I), (II), (III) and (IV) above. (1 mark) < Answer > 73. Which of the following is an interstate sale as per the provisions of the Central Sales Tax Act? (a) Sale of shares in a company by Radha of Hyderabad to Sudha of Chennai (b) Sale of the house property by Joy of Bangalore to Lovely of Nagpur (c) Sale of Times of India by Raman of Goa to Suman of Mumbai (d) Consignment sale of goods by a principal in Kolkata to an agent in Delhi (e) Sale of the lottery tickets by a person in Kolkata to another person in Delhi. (1 mark) < Answer > 74. The duty levied on the imports into and exports out of the country is called (a) Excise duty (d) Customs duty

(b) Export duty (e) Estate duty.

(c) Import duty

(1 mark) < Answer > 75. According to the provisions of Central Sales Tax Act, 1956, sales tax is collected in the state (a) Where movement of goods commences (b) Where the goods are agreed for sale (c) Where the goods are received (d) Where the dealer has the place of business and maintains the books of accounts (e) Where the goods are resold. (1 mark) < Answer > 76. Which of the following statements is true in respect of the ‘income from the house property’? I. The income from the vacant plot is not taxable under the head income from house property. II. Income from subletting is taxable either as ‘business income’ or ‘income from other sources’. III. The income from the property, the ownership of which is under a dispute is taxable. IV. The rent charged by an assessee on the quarters

constructed and let out to the employees is not taxable under the head ‘income from house property’. (a) Both (I) and (III) above (b) Both (II) and (IV) above (c) (I), (II) and (IV) above (d) (I), (III) and (IV) above (e) (I), (II), (III) and (IV) above. (1 mark) < Answer >

Suggested Answers Economic Legislation – II (162) : April 2005 1. Answer : (d) Reason : According to the second proviso to Section 35B(1) an appeal may be refused to be admitted by the CEGAT in case the amount of fine or penalty under contest does not exceed Rs.50,000. < TOP > 2. Answer : (e) Reason : The aggregation of non-agricultural income is not required if (I) The non-agricultural income does not exceed the basic exemption limit (II) The agricultural income does not exceed Rs.5000. (III) The assessee is a firm (IV) The assessee is a co-operative society. < TOP > 3. Answer : (d) Reason : In cases of the house property which is not actually occupied by the owner owing to the employment or business and the same has neither been let out during the previous year nor any benefit is received by the owner from the said property, the income from the property is treated as self occupied. Hence the annual value is nil. Option (d) is the correct answer < TOP > 4. Answer : (e) Reason : When the asset is converted into stock-in-trade before the assessment year 1985-86 i.e. previous year 1984-85, it is not treated as transfer under the section 2(47) and hence nothing is chargeable to tax as capital gains. < TOP > 5. Answer : (a) Reason : The tax liability of Mrs.Malati for the assessment year 2005-06 is : Particulars Rs. Income from salaries (net) 80,000 Winnings from the lotteries 20,000 Profits from the poultry farming business 12,000 Interest on the Bank fixed deposits 15,000 Long term capital gains 25,000 Gross taxable income 1,52,000 Less deductions : Section 80L 12,000 Net taxable income 1,40,000 Mrs. Malati has no other

savings and she can only claim the rebate under section 88C - Rs.5,000 for the women assessee below the age of 65 years. < TOP > 6. Answer : (e) Reason : A relative in relation to an individual means the husband, wife, brother or sister or any lineal ascendant or descendant of the individual. < TOP > 7. Answer : (e) Reason : As per section 2(dd) of the Central Sales Tax Act, 1956, place of business includes (in case the dealer carries on business through an agent) the place of business of such an agent, a warehouse, a godown, or any other place where a dealer stores his goods and also a place where a dealer keeps his books of account. < TOP > 8. Answer : (a) Reason : Since 4/5 of the property is self occupied, the value of the property is calculated as under : Self occupied (4/5) Let out (1/5) Self occupied property: Annual value 0 Less interest on the house loan (4/5 x 3,000) 2,400 Net loss from the property (2,400) Let out property: Municipal value (1/5 x 45,000) 9,000 Fair rent (1/5 x 42,000) 8,400 Actual rent received (12 x 1,000) 12,000 Since the actual rent is higher, it is taken as the gross annual value 12,000 Less municipal taxes (1/5 x 3,500) 700 Net annual value 11,300 Less the standard deduction at 30% 3,390 Less the interest on the loan (1/5 x 3,000) 600 Net income from the let out property 7,310 < TOP > 9. Answer : (b) Reason : The cost of the rights renounced in favour of another person for a consideration, is taken to be nil. The consideration so received is taxed as short-term capital gains in full. The period of holding is taken from the date of the rights offer to the date of the renouncement. < TOP > 10. Answer : (c) Reason : Value of interest on housing loan at concessional rate (Rs.6,00,000 ´ 4.5% x) Rs.13,500 Value of computer (Rs.75,000 – 50% of Rs.75,000) Rs.37,500 Total value of perquisites Rs.51,000 The value of perquisite on account of housing loan is the excess of interest at charged by SBI over the concessional rate From the asst. year 2005-06, the standard rate to be taken as the interest chargeable on the interest free loan is the rate as fixed by the SBI for a similar loan as on the first day of the relevant previous year, depending on the tenure of the loan. For a loan of 5 years tenure the interest charged by SBI is 7.5%. Hence the taxable perquisite is the interest calculated @ the differential rate of 4.5% (7.5-3). The perquisite in respect of reimbursement of expenses incurred on mobile phone is not taxable. The value of perquisite in respect of transfer of computers is the amount determined by reducing the actual cost by 50% for each completed year of usage. < TOP >

11. Answer : (a) Reason : The income from the business which is set up outside India, but is controlled wholly or partly from India, is taxable in the hands of the resident (both ordinarily and not ordinarily) but is not taxable in the hands of the non-resident. Hence the option (a) is the answer. < TOP > 12. Answer : (d) Reason : No depreciation is allowed on the land < TOP > 13. Answer : (a) Reason : Since the two properties are self occupied, one of them is treated as self occupied and the other as let out in such a way that the tax on income from the properties is minimal. Particulars Property II Self- occupied (II) Property I Let out (I) Step I – Fair rent or the municipal value whichever is higher subject to a maximum of the standard rent N.A. 77,000 Step II – Actual rent received N.A. NA Gross annual value (higher of the above two) Nil 77,000 Less municipal taxes Nil 9,360 Net annual value of the property Nil 67,640 Less standard deduction@ 30% Nil 20,292 Less Interest on the capital borrowed 35,000 46,000

Net income from the property (35,000) 1,348 Total income from the property (33,652) < TOP > 14. Answer : (b) Reason : Independent contractor, in cases where the manufacture is carried out in the premises of the raw material supplier is treated as manufacturer. All the others are not manufacturers. < TOP > 15. Answer : (a) Reason : Computation of the wealth of Mr.Lal as on March 31, 2005: Particulars Amount (Rs.) Property at Mumbai let out for the business of a firm in which he is a partner – exempted as it is let out for the commercial use – Property at Chennai used for his own business – exempted – Vehicles for personal use 12,50,000 Cash on hand (1,20,000-50,000) 70,000 Jewellery 7,50,000 Property gifted to the smaller HUF consisting of himself, wife and children (The value as per the Schedule III is Rs.8,00,000) 9,50,000 Total 30,20,000 Less exemption under section 5(vi) is respect of one property ( the property gifted to the smaller HUF) 9,50,000

Net wealth 20,70,000 < TOP > 16. Answer : (d) Reason : One declaration form can cover all the transactions in one whole financial year, irrespective of the total amount or the value of the transactions during the year. But if a transaction covers more than one financial year, separate ‘C’ form is required for each financial year. Provisions of one ‘C' form per year was upheld in the case of Laxmi Agarbathi Factory. < TOP > 17. Answer : (e) Reason : As per the section 5 of the Central Sales Tax Act, a sale or purchase is said to be in the course of export if : The sale or purchase either occasions such export, The sale is effected by a transfer of the documents of title to goods after the goods have crossed the customs frontiers of India., Exports arranged through the agents are also a part of the sale in the course of exports if the goods are not sold to the agents at any time. Hence the option (e) is correct. < TOP > 18. Answer : (c) Reason : The value of the property, which is self occupied for a part of the year and let out for the rest, is calculated as if the property has been let out. Hence the option (c) is the answer. All the other options are incorrect. < TOP > 19. Answer : (e) Reason : All the following receipts are treated as deemed profits as per the provisions of section 41 of the Income Tax Act : · Recovery against any deduction of expenditure, loss or liability allowed in the earlier years – section 41(1) · Profit on the sale of the asset used for the scientific research – section 41(3) · Recovery of the bad debts allowed as a deduction in the earlier years – section 41(4) · Recovery of the money after the discontinuance of the business or the profession. – section 176(3A), (4). Hence the option (e), which includes all the above alternatives is the answer. < TOP > 20. Answer : (c) Reason : As Mr.Anjaneyulu is a resident and ordinarily resident for the previous year 2004-05, his taxable income is calculated as under: Interest on the UK bonds 75,000 Income from the property in Canada but received in India 4,85,000 Income from a business abroad but controlled from India 96,000

Profit from a company in Delhi but controlled from London 1,26,000 Dividend from a foreign company but received in India 64,000 Total taxable income 8,46,000 < TOP > 21. Answer : (a) Reason : The unloading of the goods can be done only after the grant of entry by the Customs officer as per the section 31 of the Customs Act. < TOP > 22. Answer : (a) Reason : The capital gains are calculated as under; Original shares (2000) Rights shares purchased (600 shares) Right shares renounced (400 shares) Sale consideration 2,40,000 72,000 28,000 Cost of the acquisition (Rs.80,000 x 480 /100) (600 shares at Rs.60 per share) 3,84,000 * 36,000 Nil Long term capital gains (losses) Short term capital gains (1,44,000) 36,000 28,000 Long term loss Rs.(1,44,000) and the short term gains Rs.64,000. * Indexed cost of acquisition not allowed as the shares are held for less than 1 year. < TOP > 23. Answer : (a) Reason : As Kiran owns the car and used it for both private and official purposes, perquisite value of the car will be decided as follows: Amount reimbursed by

the employer ( Rs.47,350 + Rs.22,200) = Rs.69,550 Less : Deduction available for driver and car used for official Purpose (Rs.1200 ´ 12 + Rs.600 ´ 12) = Rs.21,600 Perquisite value of the car = Rs.47,950 < TOP > 24. Answer : (c) Reason : The entertainment allowance given to the government employees is exempted as under : · Rs.5,000 · 20% of the basic salary = Rs.10,000 · Actual amount of the entertainment allowance received, whichever is lower Rs.7,200. It is immaterial whether the money is utilised for official or personal purposes. Hence the option (c) is correct as the actual amount received is more than Rs.5,000, the exemption is restricted to Rs.5,000. All the other options are incorrect. < TOP > 25. Answer : (a) Reason : Commuted value 25% of pension – Rs.80,000 Commuted value of full of pension = = Rs.3,20,000 As Ms.Padma does not receive any gratuity, the commuted pension exempted is equal to ½ of the commuted value of the pension. i.e. = Rs.1,60,000 As the amount received on commutation of pension is less than maximum amount exempt from tax, the total amount of Rs.80,000 is exempted and nothing is chargeable to tax. < TOP > 26. Answer : (c) Reason : Option (c) that in the case of the lease transaction, the depreciation can be claimed by the lessee is false. In the case of a lease, the depreciation is allowed only to the lessor and not to the lessee as the asset is owned by the lessor. All the other options are correct. < TOP > 27. Answer : (b) Reason : The interest on the borrowed capital is allowed as a deduction under section 24(b) as per the following : As the deduction is available on the accrual basis, it should be claimed as a deduction on a yearly basis even if the interest is not actually paid during the previous year. Deduction is available even if neither the principal nor the interest is a charge on the property. Interest on the unpaid interest is not deductible Shew Kissen Bhatter v. CIT (1973) 89 ITR 61(SC). Interest on the fresh loan taken for the purpose of the repayment of the original loan is deductible. Hence the option (b) that deduction is available only if either the principal or the interest is a charge on the property is the false statement. < TOP > 28. Answer : (a) Reason : The deduction that can be claimed is calculated as under; Minor Son Minor daughter Minor son

Interest on the bank deposits 1,250, 1,800 1,475 Deduction allowed 1,250 1,500 1,475 Total deduction allowed = (1,250+1,500+1,475= 4,225) The amount earned by them by the exercise of their professional skills does not qualify for the deduction. < TOP > 29. Answer : (a) Reason : The value of the perquisite in respect of the medical expenses incurred on the treatment of the employee abroad is calculated as under : The cost of the treatment is exempted to a maximum of the RBI Permit. Taxable value = Rs.7,00,000-6,50,000 = Rs.50,000 Travel expenses = Rs.1,75,000 Total value of the perquisite = Rs,2,25,000 . The entire expenditure borne by the employer on behalf of Mrs.Raghavan is a taxable perquisite as her gross total income exceeds Rs.2,00,000. < TOP > 30. Answer : (c) Reason : The deduction under section 80 GG in respect of the rent paid by Mr.Parasuram is calculated as under : Income from the profession 75,000 Long term capital gains (excluded for this purpose) 0 Winnings from lotteries (Gross) 15,000 Income from other sources 20,000 Interest on the bank deposits 10,000 Total income 1,20,000 Less deductions Under section 80D – Medical insurance, premium (self) 4,000 Under section 80L - Interest from the Bank 10,000 Net Income for the purpose of Section 80GG 1,06,000 Deduction under section 80GG Rs.2,000 per month 24,000 25% of the total income (25 % of 1,06,000) 26,500 Excess of the actual rent paid over the 10% of total income (36,000-10,600) 25,400 Least of the above 3 alternatives is allowed as a deduction 24,000 < TOP > 31. Answer : (a) Reason : As per the provisions of section 10(10B) of the Income Tax Act, 1961, the maximum amount that is exempt from tax in respect of the retrenchment compensation received by an employee is Rs.5,00,000. < TOP >

32. Answer : (e) Reason : The deduction under section 80D in respect of the mediclaim can be taken by an assessee on the health of self, spouse, dependent parents or dependent children. < TOP > 33. Answer : (b) Reason : Payment in commutation of pension received by a nongovernment employee is exempted to the extent of one-third of such pension in cases where the employee also receives the gratuity. Hence the option (b) is the correct answer. < TOP > 34. Answer : (a) Reason : Options (b) to (e) i.e. Annual listing fees paid to the stock exchanges, Professional tax paid by a person carrying on the business or trade, Amount paid to third parties in order to use his quota rights, Entertainment expenditure incurred on opening a new branch are allowed under the provisions of section 37(1). But the fees paid to obtain the license to investigate and search for the minerals is not allowed. Hence the option (a) is the answer. < TOP > 35. Answer : (e) Reason : Unrealised rent shall be excluded from rent received / receivable only if the following conditions are satisfied : The tenancy is bonafide. The defaulted tenant has vacated or steps have been taken to compel him to vacate the property. The defaulted tenant is not in occupation of any other property of the assessee. The assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless .Hence the answer is (e). < TOP > 36. Answer : (a) Reason : When a portion of the property is self-occupied and the other is let out, the income from both is to be calculated separately. Particulars Self-occupied Let out Step I – Fair rent or the municipal value whichever is higher subject to a maximum of the standard rent N.A. 82,000

Step II – Actual rent received N.A. 72,000 Gross annual value (higher of the above two)

Nil 82,000 Less municipal taxes Nil Nil Net annual value of the property Nil 82,000 Less standard deduction@ 30% Nil 24,600 Less Interest on the capital borrowed 36,000 36,000 Net income from the property (36,000) 21,400 Total income from the property (14,600) < TOP > 37. Answer : (d) Reason : A professional having the income above Rs.10,00,000 has to get the tax audit done and hence the return of income is to be filed on or before October 31, 2005. < TOP > 38. Answer : (e) Reason : In the following cases, the rules under Part B of Schedule III are not applicable for valuation of building : (I) The Assessing Officer, with the approval of Deputy Commissioner is of the opinion that it is not practicable to apply the rules of Part B of Schedule III to a particular case. (II) The unbuilt area exceeds the specified area by more than 20% of the aggregate area. (III) The property is built on a lease hold land and the lease expires within a period not exceeding 15 years and the lease deed does not give an option to the lessee for renewal of the lease. Hence in situations (I), (II) and (III), the rules under Part B of Schedule III are not applicable for valuation of building. Thus the answer is (e). < TOP > 39. Answer : (d) Reason : In the case of the captive consumption, the assessable value is taken as the cost of the goods plus 15%. Hence the answer is Rs.1,380.

< TOP > 40. Answer : (a) Reason : Calculation of the taxable salary of Mrs.Vimala for the assessment year 2005-06 : Particulars Rs. Basic salary 2,50,000 Dearness allowance [not forming part of retirement benefits] 40,000 Bonus 20,000 Commission 5,000 Perquisite- Rent free furnished accommodation 10% of salary or the lease rent whichever is lower: 10% (Rs.2,50,000+Rs.20,000+Rs.5,000) or Rs.60,000 whichever is less = Rs.27,500 Cost of furnishing 10% of the original cost =Rs.2,200 Hire charges (paid or payable) = Rs.12,000 41,700 Total taxable salary (Gross) 3,56,700 < TOP > 41. Answer : (b) Reason : If the amount of the expenses including the membership fees and the annual fees of the credit card(including an add-on card)of an employee are either directly borne by the employer himself or are reimbursed to the employee by the employer, the same is taxable in the hands of all the employees whether specified or not. < TOP > 42. Answer : (d) Reason : As per the section 8(2)(a) of the CST Act, if the declared goods are sold to unregistered dealers, the rate of tax applicable is equal to twice the rate of local sales tax. < TOP > 43. Answer : (d) Reason : The cost of improvement is taken to be nil in the following cases: (I) Goodwill of a business (II) Right to manufacture any article or thing (III) Right to produce any article or thing (IV) Right to carry on any business Hence the option (d) is the answer. < TOP > 44. Answer : (d) Reason : The incidence of the wealth tax in the case of an individual depends on his residential status and the nationality whereas in the case of the HUF and the Company it is on the basis of the residential status. < TOP > 45. Answer : (b) Reason : Jetsam is where goods are thrown into sea with a view to lighten the ship in order to prevent it from sinking. < TOP > 46. Answer : (d) Reason : Any income for which no explanation is forthcoming from the assessee with regard to its nature and source, is considered as deemed income by the Assessing Officer. If satisfactory explanation is not given with regard to investment made, monies received recorded and expended they are deemed incomes in the hands of assessee. Thus, the explained expenditure (d) is not a deemed income but is allowed as an

expenditure. Unexplained investments (a) section 69; unexplained money (b) Section 69 A; Investments not fully disclosed (c) 69B an amount borrowed or repaid on Hundi, Section 69 (D) (e) are considered as deemed incomes if the assessee does not provide satisfactory explanation to the Assessing Officer. Thus, the amounts stated in alternatives (a), (b), (c) and (e) are deemed incomes and not (d). < TOP > 47. Answer : (b) Reason : Calculation of the value of the lease rent accommodation : Salary for the purposes of the rent free accommodation is taken as under : Basic

Rs.2,25,000

Dearness allowance (only 50% is to be taken) (2,25,000 x 20% x ½)

Rs. 22,500

Commission

Rs. 36,000

Total

Rs.2,83,500

Lease rent accommodation value is taken as the actual rent paid by the employer or 10% of the salary whichever is lower. Lease rent Rs.96,000 10% of the salary Rs.28,350 10% of the salary being less, the value of the perquisite is taken as Rs.28,350. < TOP > 48. Answer : (a) Reason : Only the municipal taxes are allowed as a deduction on the payment basis. In respect of all the others (b) Insurance premium (c) Collection charges (d) Repairs (e) Maintenance expenses etc. no specific deduction is allowed. Under section 24 of the Income Tax Act, 1961, a standard deduction at the rate of 30% of the net annual value is allowed in respect of all the above. < TOP > 49. Answer : (a) Reason : Option (a) that an expenditure, the benefit of which is enjoyed by some one other than the assessee, is not deductible is false. Since the expenditure is incurred primarily in connection with the assessee’s business, though the benefit accrues to somebody, it is deductible. All the other options are true statements. < TOP > 50. Answer : (e) Reason : (I) The relationship of the employer and employee exists between the payer and the payee (II) The nature of the payment must be real and not

fictitious (III) Voluntary waiver or foregoing of the salary by an employee is chargeable to tax (IV) Salary is taxed irrespective of whether it is received from the past, present or the prospective employer All the above statements are true in respect of the salary. Hence option (e) is the answer. < TOP > 51. Answer : (b) Reason : The rate of tax payable on interstate sale of goods to a Government department(both central or state) is 4%. In the cases where the local sales tax rate is lower than 4%, the local sales tax rate is applicable. < TOP > 52. Answer : (b) Reason : Since Mrs. Agarwal is employed without any professional qualification in a company in which Mr. Agarwal has substantial interest, the salary of Mrs. Agarwal is taxable in the hands of Mr. Agarwal. Particulars Rs. Salary of Mrs. Agarwal (net) 1,20,000 Income from house property 90,000 Business income 7,000 Income from other sources 3,000 2,20,000 < TOP > 53. Answer : (a) Reason : Computation of the taxable wealth of Mr.Suraj for the assessment year 2005-06: As he is a non-resident Indian national, only the assets held in India are taxable and those held outside India are tax free. Jewellery held in India 56,00,000 (The personal loan taken against the security of the jewellery is disallowed) --56,00,000 Residential property let out for 250 days 15,00,000 Less the loan taken for the purchase of the property 9,75,000 5,25,000

Taxable wealth in India 61,25,000 Less the amount exempted 15,00,000 Taxable wealth 46,25,000 < TOP > 54. Answer : (a) Reason : The Government by a notification has fixed that where the use of imported goods is over 24 months but not more than 30 months – 40% is the duty drawback allowed. < TOP > 55. Answer : (a) Reason : The tax incidence is highest in the hands of a resident and ordinarily resident as both the Indian and the foreign income are taxable in his hands. Whereas in the case of the resident but not ordinarily resident and the non-residents, some incomes are exempt from tax. Hence the option (a) is the answer. < TOP > 56. Answer : (c) Reason : 30% of Net Annual Value is deductible irrespective of any expenditure incurred by the taxpayer. < TOP > 57. Answer : (c) Reason : An assessee is entitled for a weighted deduction in respect of the expenditure incurred on the in- house research and development expenses at 150% i.e one and one-half times of the expenditure so incurred. < TOP > 58. Answer : (a) Reason : The capital gains are computed as follows : Original shares Bonus shares Rights shares No of shares 1500 1000 3000 Date of acquisition

December, 1995 June, 1997 March, 2002 Sale consideration (@ Rs.90 per share) 1,35,000 90,000 2,70,000 Cost of acquisition (75,000 x 480 / 281) (2,25,000 x 480 / 426) 1,28,114 Nil 2,53,521 Capital gains (long term) 6,886 90,000 16,479 Total long term gains = 6,886+90,000 + 16,479 = 1,13,365 < TOP > 59. Answer : (b) Reason : The gross taxable income of Ms.Bharati for the assessment year 2005-06 is calculated as under : I – Income from the house property 1,25,000 II – Income from the business Profits before depreciation 1,35,000 Less current year depreciation 26,000 Less brought forward business loss 45,000 Net income from the business 64,000 III – Income from the capital gains Short term gains 56,000 Long term loss from property (cannot be setoff) Nil Capital gains 56,000 IV – Income from the tea business(taxable to the extent of 40%) 48,000 Gross taxable income 2,93,000 < TOP > 60. Answer : (b) Reason : In the case of the transfer of the property to a wife with an agreement to live apart, the income from the said property is taxable in the hands of the transferee. < TOP > 61. Answer : (b) Reason : In the case of the business enterprises, the amount of the cash balance on the valuation date that is exempted is the amount recorded in the books of accounts. The amount over and above that recorded in the books is taxable. < TOP >

62. Answer : (b) Reason : The taxable event for the excise duty is the date of manufacture. < TOP > 63. Answer : (e) Reason : Aggregate sale price = Rs.46,800 on account of interstate sales. Submission of ‘C’ Form amounts to sale to registered dealers, the applicable sales tax rate is 4% Sales tax payable = = = Rs.1,800 Thus, all other alternative answers are incorrect. As the buyer has furnished the ‘C’ form the sales are taxable @4% or local sales tax rate whichever is lower. < TOP > 64. Answer : (c) Reason : The following deductions are covered by the section 16 of the Income Tax Act, 1961: Standard deduction, entertainment allowance and the profession tax. Hence the option (c) is the answer. (as it covers all the above three) < TOP > 65. Answer : (c) Reason : Except the personal house property, all the other personal assets like computer, car, apparel and household goods are exempted from the capital gains. < TOP > 66. Answer : (c) Reason : The capital gains taxable are as under : Rs. Short term capital gains on the sale of the shares 1,50,000 Long term capital gain (75,000-75,000) Nil (Long-term capital loss can be setoff only to the extent of the long-term gains. The balance can be forwarded to the next assessment year Rs.21,000) Short term capital loss of the assessment year (2000-01) (37,000) Net taxable gains 1,13,000 < TOP >

67. Answer : (c) Reason : The deduction under section 80E can be claimed only for a period of 8 years or till the principal amount and the interest thereon are repaid in full, whichever is earlier. Hence no deduction can be claimed for the assessment year 2005-06. < TOP > 68. Answer : (b) Reason : Under section 61 of the Customs Act, the goods (other than the capital goods) will be allowed to remain in the warehouse for a period of one year. < TOP > 69. Answer : (a) Reason : CENVAT scheme deals with the refund of the duty paid on the inputs. < TOP > 70. Answer : (c) Reason : The standard deduction from the gross maintainable rent is allowed for the valuation of the property for Wealth tax purposes at 15% of the Gross maintainable rent. < TOP > 71. Answer : (c) Reason : Except the gift tax, all the other taxes are indirect taxes. Gift tax, is a part of the direct taxes < TOP > 72. Answer : (e) Reason : Capital asset is defined to include property of any kind, whether fixed or circulating, movable or immovable, tangible or intangible < TOP > 73. Answer : (e) Reason : As per the provisions of the Central Sales Tax Act, the sale of the shares and newspapers are not treated as sale. Also the consignment sale is not treated as a sale. Sale of the house property also is not taxable under the CST Act as there cannot be any movement of the goods. But the sale of lottery tickets is treated as a sale. < TOP > 74. Answer : (d) Reason : The duty levied on the imports into and exports out of the country is called Customs duty < TOP > 75. Answer : (a) Reason : Basically, the provisions of Central Sales Tax Act, aim at levying of tax on interstate sales and it is payable in the state from where movement of goods begin (a) The Sales Tax is not payable in the state where the goods are manufactured (b), where the goods are received(c), where the goods are imported (d) or where the goods are resold (e). < TOP > 76. Answer : (e) Reason : All the following statements are true under the head income from house property: · The income from the vacant plot is not taxable under the head income from house property. · Income from subletting is taxable either as

‘business income’ or ‘income from other sources’. · The income from the property, the ownership of which is under a dispute is taxable. · The rent charged by an assessee on the quarters constructed and let out to the employees is not taxable under the head ‘income from house property’. Hence the option (e) is the answer. < TOP > < TOP OF THE DOCUMENT >