Question Paper
Economic Legislation-II (162) : October 2005 • Answer all questions. • Marks are indicated against each question 1.
Mr. Pasha, an official of the US embassy in India, receives remuneration in India. What is the < Answer > maximum amount that is exempted from tax for the Assessment year 2005-06 in the hands of Mr. Pasha? (a) The entire amount is exempted from tax (b) The entire amount is exempted from tax only if the corresponding Indian official enjoys a similar exemption in the US (c) No exemption is allowed (d) He can claim the same exemptions as any other Indian assessee (e) Only 50% of the remuneration is exempted from tax. (1 mark)
2.
Under which of the following situations, is clubbing of agricultural income with < Answer > non-agricultural income, in the hands of Hindu Undivided Family (HUF) not applicable for the Assessment Year 2005-06? (a) (b) (c) (d) (e)
Where the agricultural income is Rs.4,000 and the non-agricultural income is Rs.90,000 Where the agricultural income is Rs.6,000 and the non-agricultural income is Rs.1,00,000 Where the agricultural income is Rs.5,500 and the non-agricultural income is Rs.1,50,000 Where the agricultural income is Rs.5,500 and the non-agricultural income is Rs.1,10,000 Where the agricultural income is Rs.7,000 and the non-agricultural income is Rs.1,85,000. (1 mark)
3.
Which of the following statements is true in respect of the salary and other allowances received by a < Answer > Member of Parliament? (a) (b) (c) (d) (e)
It is taxable under the head ‘Income from salaries’ It is taxable under the head ‘Profits and gains from business or profession’ It is taxable under the head ‘Income from other sources’ It is taxable under the head ‘Income from salaries’ in respect of the salary and ‘Income from other sources’ in respect of the allowances It is exempted from tax. (1 mark)
4.
< Answer >
Mr.Purohit has the following income for the previous year 2004-05: Particulars
Rs.
Income from salaries (net) Income from long term capital gains covered by Securities Transaction Tax Income from lotteries (gross)
4,25,000 1,15,000 1,40,000
What is the tax liability of Mr.Purohit for the assessment year 2005-06? (a) Rs.1,78,000 (d) Rs.1,70,200
(b) Rs.1,66,500 (e) Rs.1,46,370.
(c) Rs.1,70,700 (2 marks)
5.
Which of the following incomes of a professional institution is/are exempted from income Tax? (a) (b) (c) (d) (e)
Income from the house property held by the Institute Interest on the investments Income received for rendering any specific services Any income other than the income from the house property, interest/ dividends and from rendering specific services Dividends on the investments. 1
< Answer >
(1 mark) 6.
< Answer >
Which of the following incomes is not exempted u/s 10 of the Income Tax Act? (a) (b) (c) (d) (e)
Income received from farm buildings used for dwelling purpose Daily allowance received by Member of Parliament Share of profit from a partnership firm Amount received from Life Insurance policies Stipend receipts (1 mark)
7.
Which of the following is true in respect of the pension earned and received abroad, but later remitted < Answer > to India, by a pensioner? (a) (b) (c) (d) (e)
It is chargeable to tax if the pensioner is non-resident It is chargeable to tax if the pensioner is resident and ordinarily resident It is chargeable to tax if the pensioner is resident but not ordinarily resident It is not chargeable to tax as it is received abroad Pension is not taxable. (1 mark)
8.
Mr.Peeyush, a citizen of China, visited India for the first time in June 2000. The number of days he was < Answer > in India for the past 5 years is as under: Financial year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005
Day 92 96 86 97 78
The residential status of Mr.Peeyush for the assessment year 2005-06 is (a) (b) (c) (d) (e)
Resident and ordinarily resident Resident but not ordinarily resident Non-resident Non-resident and ordinarily resident Non-resident and not ordinarily resident. (1 mark)
9.
The surcharge in the case of the domestic company assessees for the assessment year 2005-06 is (a) 5 percent
(b) 10 percent
(c) 2.5 percent
(d) 12 percent
< Answer >
(e) Nil. (1 mark)
< Answer > 10. Mr. Prashant received on maturity an amount of Rs.4,75,000 from the LIC in respect of a policy issued after March 31, 2003 with an assured value of Rs.3,50,000. The annual premium paid by him was Rs.85,000 during the life of the policy .What is the amount that is taxable in the hands of Mr.Prashant for the assessment year 2005-06?
(a) Rs.4,75,000 (d) Rs.Nil
(b) Rs.3,50,000 (e) Rs.62,500.
(c) Rs.1,25,000 (2 marks)
< Answer > 11. Mr.Pramod, who is employed in public sector company has non-agricultural income and agricultural income for the previous year 2004-05 amounting to Rs.1,65,000 and Rs.45,000 respectively. The income tax liability of Mr.Pramod for the assessment year 2005-06 is
(a) Rs.Nil (d) Rs.17,000
(b) Rs.29,580 (e) Rs.11,550.
(c) Rs.7,500 (1 mark)
< Answer > 12. Mr. Pandit has been provided by his employer M/s. Linda and Co. two cars for both official and the personal use. He is drawing a salary of Rs.4,50,000 per annum. The expenses incurred by the employer
2
in respect of the cars are as under: Car 1 (1300 c.c.) Cost of the car Rs.3,50,000 Maintenance expenses Rs.37,500 No driver is provided
Car 2 (1650 c.c.) Cost of the car Rs.4,75,000 Maintenance expenses Rs.42,500 Salary of the driver Rs.24,000.
If Mr.Pandit uses one car for both official and private purposes and the other only for the private purpose, what is the minimum taxable value (assuming Mr.Pandit goes for the best option) of the perquisite in respect of the cars for the assessment year 2005-06 in the hands of Mr.Pandit? (a) Rs.1,04,400
(b) Rs.98,900
(c) Rs.86,900
(d) Rs.1,09,200
(e) Nil. (1 mark)
< Answer > 13. Ms.Purba retires on March 31, 2005 from a private company. As per the company policy she was entitled for an annual leave of 20 days. Balance leave to be encashed at the time of retirement is 200 days. Her salary at the time of retirement was Rs.14,500. She was given an increment of Rs.2,500 from the month of November 2004. An amount of Rs.1,25,000 was paid to her as leave encashment at the time of retirement. What is the taxable portion of the leave encashment for the assessment year 200506?
(a) Rs.1,25,000
(b) Rs.88,333
(c) Rs.36,667
(d) Rs.1,32,500
(e) Rs.Nil.
(2 marks) < Answer > 14. Ms.Parvati, retired from service with effect from December 31, 2004 at the age of 65 years (she was born on October 31,1939). She furnishes the following information in respect of the salary and the pension received by her for the previous year 2004-05:
Particulars Salary upto December 31, 2004 (basic) Pension from January, 2005 Employer’s contribution to the Recognised Provident Fund Lumpsum received from the provident fund Income from the deposit of the retirement benefits (in companies)
Amount Rs. 2,50,000 24,000 30,000 6,75,000 85,000
What is the tax liability of Ms.Parvati for the assessment year 2005-06? (a) Rs.72,700 (d) Rs.49,154
(b) Rs.69,100 (e) Rs.47,200.
(c) Rs.67,700 (3 marks)
< Answer > 15. Mrs. Prerna is an employee of a private company in the city of Baroda. She draws an amount of Rs.30,000 pm. as basic salary. Besides, her employer also pays an amount of Rs.7,500 p.m as HRA. She takes a house on rent only from September 01, 2004 @ Rs.8,000 per month. What is the quantum of HRA taxable in the hands of Ms.Prerna for the assessment year 2005-06?
(a) Rs.30,000 (d) Rs.32,500
(b) Rs.55,000 (e) Rs.28,000.
(c) Rs.82,000 (2 marks)
< Answer > 16. Pallavi Transports, a transport company grants allowances to its drivers to meet their personal expenditure in the course of their duty. Mr. Prasad is working as a driver from May 2004 and gets an amount of Rs.65,000 as the allowance for the year 2004-05 and he is not in receipt of the daily allowance. What is the taxable portion of the allowance in the hands of Mr.Prasad for the assessment year 2005-06?
(a) Rs.72,000
(b) Rs.45,500
(c) Rs.66,000
(d) Rs.19,500
(e) Rs.65,000. (1 mark)
< Answer > 17. Mr.Pattabhi retires from service on December 31, 2004 and he has the following income for the previous year 2004-05:
Particulars
Rs.
Basic pay @Rs.16,000 per month for 9 months
1,44,000 3
Dearness pay (50% forms part of the retirement benefits) Rs.8,000 per month for 9 months
72,000
Dearness pay (50% forms part of the retirement benefits) Rs.8,000 per month for 9 months
72,000
Lumpsum payment received from the Unrecognised Provident Fund Deposits in the PPF account
6,00,000 40,000
Out of the amount received from the provident fund, the employers share was Rs.2,20,000 and the interest thereon Rs.50,000. The employee’s share was Rs.2,70,000 and the interest thereon Rs.60,000. What is the taxable portion of the amount received from the unrecognized provident fund in the hands of Mr. Pattabhi for the assessment year 2005-06? (a) Rs.3,30,000
(b) Rs.2,70,000
(c) Rs.2,80,000
(d) Rs.1,10,000
(e) Rs.6,00,000. (2 marks)
< Answer > 18. The salary of Mr. Pillai for the Assessment year 2005-06, after the deduction of the tax at source of Rs.8,000 and his contribution to the provident fund at 15% is Rs.1,24,600. What is the gross salary of Mr.Pillai for the Assessment year 2005-06?
(a) Rs.1,25,800
(b) Rs.1,24,600
(c) Rs.1,56,000
(d) Rs.1,32,600
(e) Rs.1,48,000. (1 mark)
< Answer > 19. Ms. Pratibha, an employee of a private company, is entitled to a pension of Rs.5,500 per month but no gratuity. She retires on March 31, 2004 and gets 25% of pension commuted on December 31,2004 for Rs.1,80,000. The amount of pension taxable in the hands of Ms.Pratibha for the assessment year 200506 is
(a) Rs.1,80,000
(b) Rs.49,500
(c) Rs.Nil
(d) Rs.61,875
(e) Rs.66,000. (1 mark)
< Answer > 20. Mr.Prakash, an employee of PQR Ltd., sends his 2 children and a dependant brother to the school owned and maintained by the company. The company incurs an expenditure of Rs.1,00,000 on the children and Rs.90,000 on the brother for providing the education. It recovers an amount of Rs.45,000 and Rs.30,000 respectively from Mr.Prakash. What is the taxable value of the perquisite in the hands of Mr.Prakash for the assessment year 2005-06?
(a) Rs.67,000
(b) Rs.1,21,000
(c) Rs.91,000
(d) Rs.1,15,000
(e) Rs.79,000. (1 mark) < Answer >
21. Mr.Parmesh has the following sources of income for the previous year 2004-05: Particulars Income from long term capital gains (chargeable to Securities Transaction Tax) Income from profession Deposit in the PPF Investment in the infrastructure company Investment in the MEP 2004
Amount Rs. 2,75,000 1,90,000 12,000 70,000 10,000
What is the tax liability of Mr.Parmesh for the assessment year 2005-06? (a) Rs.1,15,770
(b) Rs.84,580
(c) Rs.47,600
(d) Rs.15,550
(e) Rs.17,820. (2 marks)
< Answer > 22. The scholarships given by the employer-company to the children of its employees at its discretion over and above the terms of the employment is
(a) (b) (c) (d) (e)
Taxable in the hands of all the employees Taxable in the hands of specified employees only Taxable in the hands of non-specified employees only Not assessed as a perquisite Taxable at a specific percentage. (1 mark)
< Answer > 23. In respect of a non-government employee (not covered by the Payment of Gratuity Act), the number of completed years of service is equal to
4
(a) (b) (c) (d) (e)
The total service, including the fraction of the year Total service, ignoring the fraction of the year The total service, including the fraction of the year, in excess of six months Total service ignoring the fraction of the year less than six months Maximum of thirty years. (1 mark) < Answer >
24. Mr.Partha has been given the following allowances in addition to the salary, by his employer Particulars Transport allowance Transfer allowance Research allowance Uniform allowance
Actual allowance received (Rs.) 20,000 50,000 25,000 14,000
Actual amount spent (Rs.) 15,000 56,000 19,0 00 14,000
What is the total amount of the allowances taxable in the hands of Mr.Partha? (a) Rs.1,09,000
(b) Rs.1,04,000
(c) Rs.5,000
(d) Rs.16,400
(e) Rs.11,000. (2 marks) < Answer >
25. Ms.Priya received the following emoluments for the previous year 2004-05. Particulars Basic salary Bonus City compensatory allowance Entertainment allowance Professional tax paid
Amount (Rs.) 3,75,000 25,000 1,15,000 5,000 2,400
Calculate the tax liability of Ms.Priya for the assessment year 2005-06. (a) Rs.1,01,266
(b) Rs.1,25,746
(c) Rs.1,07,386
(d) Rs.95,780
(e) Rs.93,280. (2 marks)
< Answer > 26. For the Assessment year 2005-06, XY.Ltd. a private company has a taxable income of Rs.95,000. The amount of rebate that can be claimed by XY.Ltd. for the Assessment year 2005-06 under section 88D is
(a) Rs.29,070
(b) Rs.33,250
(c) Rs.10,000
(d) Rs.5,000
(e) Nil. (1 mark) < Answer >
27. The lump sum paid for long and meritorious service rendered by an employee is (a) Pension (c) Contractual Bonus
(b) Gratuity (d) Retrenchment Compensation
(e) Honorarium. (1 mark)
28. Consider the following data of a house property which is let out during the assessment year 2005-2006: Particulars Municipal value Fair rent Standard rent under Rent Control Act Annual rent Unrealized rent during the year Loss due to vacancy Vacancy period
< Answer >
Rs. 1,90,000 2,00,000 2,10,000 2,40,000 44,000 6,000 1.5 months
The Gross annual value of the property (a) Rs.2,40,000
(b) Rs.2,00,000
(c) Rs.1,80,000
(d) Rs.1,70,000 (e) Rs.1,60,000 (3 marks)
29. Which of the following statements is/ are 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 5
< Answer >
(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 > 30. Ms.Pushpa and Ms.Priyadarshini are the co-owners of a property, sharing in the ratio of 7:3. The property has been self occupied and the municipal taxes paid are Rs.27,000. The interest on the loan borrowed for the purpose of the said house is Rs.75,000. The loan was borrowed in the year 1998. What is the annual value of the property chargeable in the hands of Ms.Pushpa for the assessment year 200506?
(a) Rs.52,500 (loss) (c) Rs.22,500 (loss)
(b) Rs.30,000 (loss) (d) Rs.52,500 (e) Rs.30,000. (1 mark)
< Answer > 31. Income from which of the following properties is not covered under the head income from house property?
(a) (b) (c) (d) (e)
Income from the house property in a foreign country held by a resident Income from the disputed house property Income from the property held as stock-in-trade Income from the letting of the property where the letting is only incidental and subservient to the main business of the assessee Income from the house property held by co-owners. (1 mark)
< Answer > 32. Ms.Poona 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 Ms. Poona 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 (3 marks)
< Answer > 33. Mr.Pillai raises a loan of Rs.6,00,000 at 15% for the construction of the house on April 1, 2003. The house has been completed on April 1, 2004 and self occupied. The loan repayment commences from April, 2005. What is the amount of the interest to be charged in the assessment year 2005-06?
(a) Rs.90,000
(b) Rs.1,08,000
(c) Rs.84,000
(d) Rs.1,02,000
(e) Rs.98,000. (1 mark)
< Answer > 34. Ms.Parvati purchases a house property in the year March 1981 for Rs.1,80,000 and an amount of Rs.95,000 was spent on the improvement and repairs of the property before the end of March, 1981. The property was proposed to be sold to Mrs. Jaya in the month of June 2000 and an advance of Rs.40,000 was taken from her. As the entire money was not paid in time Ms.Parvati forfeited the advance and subsequently sold the property to Mrs.Lavanya in the month of March 2005 for Rs.12,50,000. The fair value of the property on April 1, 1981 was Rs.2,90,000. What is the capital gain chargeable in the hands of Ms.Parvati for the assessment year 2005-06?
Cost of inflation index: 1981-82
100
2000-01
389
2002-03
447
2003-04
463
2004-05
480
6
(a) (b) (c) (d) (e)
Rs.92,700 (Long term capital loss) Rs.92,500 (Long term capital gain) Rs.23,250 (Long term capital loss) Rs.50,000 (Long term capital gain) Rs.92,700 (Long term capital gain). (2 marks)
< Answer > 35. P Ltd., converts its capital asset acquired for an amount of Rs.90,000 in the year April, 1991 into stockin-trade in the month of April, 1995. The fair market value of the asset on the date of conversion is Rs.2,15,000. The stock-in-trade was sold for an amount of Rs.3,75,000 in the month of December, 2004. What is the capital gains chargeable to tax in the assessment year 2005-06?
Cost of the inflation index: 1991-92
199
1995-96
281
1992-93
223
2003-04
463
1994-95
259
2004-05
480
(a) Rs.61,263 (Long term gain) (c) Rs.66,708 (long term gain) (e) Rs.61,263 (short term gain).
(b) Rs.65,603 (long term gain) (d) Rs.66,708 (short term gain) (2 marks)
< Answer > 36. Ms.Priyadarshini purchases 1,000 equity shares in A.Ltd. at the rate of Rs.18 per share(brokerage : 1 percent) January 1980. She gets 500 bonus shares by virtue of holding 1000 shares on January 1985. Fair market value of the shares of A.Ltd. on April 01, 1981 is Rs.25. In January 2005 she transfers 1,000 original shares and 500 bonus shares @Rs.80 per share on a recognized stock exchange in India and the transaction is chargeable to securities transaction tax. Compute the capital gains taxable in the hands of Ms.Priyadarshini for the assessment year 2005-06 for transfer of original shares
Cost of inflation index:
(a) (b) (c) (d) (e)
1981-82
100
2002-03
447
1984-85
125
2003-04
463
2001-02
426
2004-05
480
Rs.41,200 (Long term capital gain) Rs.41,200 (Long term capital loss) Rs.39,400(Long term capital gain) Rs.39,400(Short term capital gain) Nil. (1 mark)
< Answer > 37. The time limit within which the capital gain from sale of agricultural land needs to be invested in agricultural land to avail exemption u/s 54B of Income Tax Act is
(a) (b) (c) (d) (e)
6 months from the date of the transfer of the original agricultural land One year from the date of the transfer of the original agricultural land 15 months from the date of the transfer of the original agricultural land 2 years from the date of the transfer of the original agricultural land 3 years from the date of the transfer of the original agricultural land (1 mark)
< Answer > 38. Which of the following statements are true in respect of the clubbing provisions, where both the husband and the wife have the substantial interest in the concern and both receive the remuneration from the concern?
(I) The remuneration received from the concern, is taxable in the hands of the respective recipients. (II) Remuneration will be included in the total income of either the husband or the wife, whose total income, excluding such remuneration is greater. (III) Remuneration once taxed in the hands of one spouse, cannot be included in the income of the other spouse in subsequent years, without the assessing officer giving an opportunity of being 7
heard, to the assessee in whose hands he would like to charge the income. (a) Only (I) above (b) Only (II) above (c) Only (III) above (d) Both (I) and (II) above (e) Both (II) and (III) above. (1 mark) < Answer >
39. P has the following income for the previous year 2004-05: Particulars Income from the business of owning and maintaining the race horses Income from other business Brought forward business loss (other than the loss from the business of owning and maintaining the race horses) Brought forward business loss (from the business of owning and maintaining the race horses)
Rs. 75,000 85,000 50,000 96,000
What is the business income taxable in the hands of P for the assessment year 2005-06? (a) Rs.35,000
(b) Rs.14,000
(c) Rs.64,000
(d) Rs.1,10,000
(e) Rs.Nil. (2 marks)
40. Mr.Puneet, a resident individual, furnishes the following particulars for the previous year 2004-05: Income from Salary (Net) Income from the house property Income from business - Non speculative Income from speculative business Capital gains (Short term) Capital gains (Long term)
< Answer >
45,000 (24,000) (22,000) (4,000) (25,000) 19,000
What is the total income chargeable to tax for the assessment year 2005-06? (a) Nil
(b) Rs.18,000
(c) Rs.21,000
(d) Rs.40,000 (e) Rs.14,000. (2 marks)
< Answer > 41. Mr.Pratap is employed by the Central Government in the Ministry of Labour. During the previous year 2004-05 his basic salary was Rs.15,000 per month. He contributes 12% of his salary towards notified pension scheme. The Central Government also contributes 11% of his salary towards the same. The amount allowable as deduction under section 80CCD for the Assessment year 2005-06 is
(a) Rs.21,600
(b) Rs.19,800
(c) Rs.41,400
(d) Rs.18,000
(e) Rs.36,000. (1 mark)
< Answer > 42. Mr.Pandu , an Indian citizen makes the following donations during the previous year 2004-05. His Adjusted Gross Total income for the computation of deduction under section 80G is Rs.3,00,500. The amount of deduction under section 80G is
Donation to National Defence Fund Donation to Government of India for promotion of family planning Donation to Prime ministers National Relief Fund Donation to Africa Fund Donation in Kind to an approved Charitable trust Donation to an approved Charitable trust (a) Rs.1,07,000
(b) Rs.1,00,000
(c) Rs.80,000
(d) Rs.81,025
Rs. 24,000 Rs. 28,000 Rs. 18,000 Rs. 10,000 Rs. 7,000 Rs. 20,000 (e) Rs.82,050. (2marks)
< Answer > 43. Mr. Purohit, a citizen of India, doing business globally acquired various assets movable and immovable in different parts of the globe. His residential status for the current previous year is resident but not ordinarily resident in India. He wants to file his wealth tax return for the assessment year 2005-06. The value of assets held by him as on March 31, 2005 is as follows:
1. 2. 3.
Nature of asset Motor cars of foreign make not held as stock-in-trade Gold held in the form of ornaments 7% Gold Bonds under Gold Deposit Scheme 8
Rs. 15,00,000 4,50,000 12,00,000
3. 4. 5. 6. 7. 8. 9. 10. 11.
7% Gold Bonds under Gold Deposit Scheme Urban land purchased for factory site on January 01, 2001 Cash in hand Cash at bank Fixed assets situated in U.K Shares of Reliance Industries Ltd. Shares of various Nationalized Banks Residential house property at Hyderabad (Let-out with effect from June 5, 2002) Loan from Housing Society for construction of residential house at Hyderabad ( Loan taken Rs.12,50,000)
12,00,000 6,00,000 95,000 2,58,000 65,00,000 1,50,000 7,00,000 15,00,000 9,50,000
The wealth tax liability of Mr. Purohit for the assessment year 2005-2006 is (a) Rs.25,950
(b) Rs.40,950
(c) Rs.41,045
(d) Rs.10,950
(e) Rs.1,450. (3 marks) < Answer >
44. Mr.Patrick a non-resident foreign national, has the following assets as on March 31, 2005: Particulars Property in India used solely for the residential purposes Property held abroad Jewellery in India Motor car (Imported) held in India Motor car held abroad
Rs. 36,00,000 47,00,000 50,00,000 36,00,000 45,00,000
Compute the taxable wealth in the hands of Mr. Patrick for the assessment year 2005-06? (a) Rs.77,00,000 (d) Rs.1,07,00,000
(b) Rs.92,00,000 (e) Rs.1,18,00,000.
(c) Rs.71,00,000 (1 mark)
45. The Union Government is vested with the power to levy the excise duty on most of the goods except
< Answer >
(a) Mineral products (b) Arms and Ammunition (c) Stone products (d) Vehicles (e) Alcoholic liquor for the human consumption, opium, Indian hemp and other narcotic drugs. (1 mark) 46. Which of the following statements is/are true in respect of the dutiability of the site related activities?
< Answer >
(I)
Excise duty is chargeable on the goods or the components leaving the factory in the state in which they are. (II) At the site, duty would be chargeable if the assembly of the parts or the components results in a different movable and marketable commodity before installation. (III) Mere bringing of the components together also attracts the duty. (IV) In case of the piece-by-piece erection of the component at the site resulting in an immovable property, no duty is leviable. (a) Both (I) and (IV) above (c) (II), (III) and (IV) above (e) (I), (III) and (IV) above.
(b) (I), (II) and (IV) above (d) Both (III) and (IV) above (1 mark)
< Answer > 47. As per the provisions of the Central Excise, which of the following records have to be furnished by the assessee to the Officer, duly empowered by the Commissioner or the audit party of the C&AG for scrutiny?
(I) (II) (III) (IV)
Financial Books and Financial Statements under section 204 of the Companies Act. Cost Audit Records under section 233B of the Companies Act. Income Tax Audit Report under section 44AB of the Income Tax Act. Records maintained as per the Rule 22(2) and the Cost Audit Report under section 233B of the Companies Act.
(a) Only (I) above
(b) Both (I) and (II) above 9
(c) (I), (II), and (III) above (e) All (I), (II), (III) and (IV) above.
(d) (II), (III) and (IV) above (1 mark)
< Answer > 48. An appeal against the order of the Tribunal relating to the classification of the goods or the valuation as per the central Excise can be made to the
(a) (b) (c) (d) (e)
High Court within 30 days Supreme Court within 30 days Central Government within 30 days Supreme Court within 60 days from the date of the order of the Tribunal Central Government within 60 days from the date of the order of the Tribunal. (1 mark)
49. Which of the following statements pertaining to Section 11BB dealing with delayed refunds is false? (a) (b) (c) (d) (e)
< Answer >
Interest on delayed refunds will be paid only on the amount that is finally held to be refundable Interest payable will be at the rate fixed by the Board Interest will be compound interest Where there is a refund of any fine or penalty, no interest is payable on such refund Interest will be payable on refunds arising from proceedings initiated under section 11B. (1 mark) < Answer >
50. The state in which the dealer has one or more places of business is called (a) The place of business (c) The principal state (e) The domain state.
(b) An appropriate State (d) An auxiliary state (1 mark)
< Answer > 51. The maximum percentage of the tax that can be levied on the interstate sale of the declared goods to the unregistered dealers is
(a) (b) (c) (d) (e)
4% Twice the rate applicable in the case of the local sales 8% or twice the rate applicable in the case of the local sales 10% or twice the rate applicable in the case of the local sales 8%. (1 mark)
< Answer > 52. As per the provisions of the section 10A of the Central Sales Tax Act, any person purchasing the goods is guilty of an offence of mis representing the facts at the time of the purchase, is punishable with a fine which may extend upto
(a) (b) (c) (d) (e)
The tax leviable on him is respect of the goods sold to him 50% of the tax leviable on him 100% of the tax leviable on him 150% of the tax leviable on him 125% of the tax leviable on him. (1 mark)
< Answer > 53. The gross interstate sales of PQR Ltd for the year 2004-05 were Rs.20,00,000. If the products are sold in the home state of Punjab, the sales tax rate is 12%.
Consider the additional information given below: Sale of Rs.12,00,000 is inclusive of the erection expenses of Rs.85,000 and the discount of Rs.25,000. The ‘C’ form was furnished by the buyer in respect of this sale. The sale of Rs.8,00,000 was without the ‘C’ form to an unregistered dealer and the buyer also returned goods worth Rs.40,000 within a period of 5 months. What is the turnover taxable in the hands of PQR Ltd for the year 2004-05? (a) Rs.18,23,286
(b) Rs.17,26,649
(c) Rs.16,51,786
(d) Rs.17,85,714
(e) Rs.17,78,846. (2 marks) < Answer >
54. Uniform Commercial Code covers 10
(a) (b) (c) (d) (e)
Sale of goods and contracts to sell goods at a future time in the US Sale of the goods in Germany Bankruptcy and insolvency in the US Sale of good in Asian countries Consumer protection Code in the US. (1 mark)
< Answer > 55. If any goods are pilfered after the unloading and before the proper officer has made an order for the clearance for home consumption or the deposit in a warehouse
(a) (b) (c) (d) (e)
The importer will not be liable to pay the customs duty leviable on such goods in any case The importer will be liable to pay the full customs duty leviable on such goods The importer will be liable to pay 50% of the customs duty liable on such goods The importer will be liable to pay the full customs duty but is entitled to claim the refund of the same The importer will be liable to pay the duty only if such goods are restored to him after the pilferage. (1 mark)
< Answer > 56. Under the provision of the Customs Act, the warehousing bond required to be executed by the importer of the dutiable goods binds him to a sum equal to
(a) (b) (c) (d) (e)
Half the amount of the duty assessed on the imported gods The amount of the duty assessed on the imported goods One and half times the amount of the duty assessed Two times the duty assessed Three times the duty assessed. (1 mark)
< Answer > 57. Any customs station area where the imported goods or the exported goods are kept before the clearance by the Customs Authorities is called
(a) Customs Airport (c) Customs Area
(b) Customs Port (d) Customs Station (e) Warehouse. (1 mark)
< Answer > 58. The process by which the imported goods are permitted to be changed into an other form with an intention to attract the duty at lower rates is called
(a) Deterioration of the goods (c) Processing of the goods (e) Reforming of the goods
(b) Downsizing of the goods (d) Denaturing of the goods (1 mark) < Answer >
59. The import manifest has to be filed by the person-in-charge of the of the conveyance within (a) (b) (c) (d) (e)
10 hours of arrival at the customs station 15 hours of arrival at the customs station 18 hours of arrival at the customs station 20 hours of arrival at the customs station 24 hours of arrival at the customs station. (1 mark)
< Answer > 60. Which of the following statements is false in respect of the adhoc exemption that the Central Government can grant in respect of the Customs duty payable?
(a) (b) (c) (d) (e)
The exemption can be granted only in exceptional circumstances There is no power to grant the general exemption if adhoc exemption is given An adhoc exemption can be granted in each individual case The governments can modify the form and the method of duty apart from the reduction of the duty An ad valorem rate can be changed to specific rate. (1 mark)
< Answer > 61. The additional depreciation on the assets is allowed to the industrial undertakings existing before April 1, 2002. If the increase in the installed capacity as a result of the new machinery is
11
(a) (b) (c) (d) (e)
Not less than 10 percent of the original capacity Not less than 25 percent of the original capacity Not less than 12 percent of the original capacity Not less than 15 percent of the original capacity Not less than 20 percent of the original capacity. (1 mark)
< Answer > 62. D Ltd. furnishes the following information in respect of the newly acquired assets during the year 200405(being the third year of its operations) and requests you to ascertain the total depreciation that it can claim on these new assets for the year 2004-05 given the rate of present depreciation to be 25%.
Name of the asset
Date of acquisition
Additional capacity
Plant A Plant B Plant C
May 15, 2004 June 10, 2004 October 25, 2004
18% 26% 22%
(a) Rs.11,68,750 (d) Rs.15,60,000
(b) Rs.7,01,250 (e) Rs.14,50,000.
Cost of the asset (Rs.) 12,50,000 18,75,000 15,50,000
(c) Rs.18,70,000 (2 marks)
< Answer > 63. Plaza Ltd., engaged in the business of manufacture and production of the drugs, incurred the following expenditure on the scientific research during the year 2004-05.
Rs. Paid to the agricultural research institute, approved for the purpose of the scientific research Paid to National research laboratory for the scientific research
90,000 1,25,000
Expenditure incurred on the in house research and development
2,00,000
What is the deduction that the company claim in respect of the scientific research for the assessment year 2005-06? (a) Rs.5,68,750 (d) Rs.5,72,500
(b) Rs.6,22,500 (e) Rs.5,91,250.
(c) Rs.5,18,750 (1 mark)
< Answer > 64. Peter Ltd., was incorporated on the April 20, 2004, with an estimated cost of the project of Rs.35,00000 and the capital employed in the business was Rs.33,00,000. The preliminary expenses incurred at the time of the formation of the company are as under:
Particulars
Rs.
Expenses of incorporation, public issue of the shares and the printing of the prospectus and the memorandum Preparation of the project feasibility report, by an agency not approved by the board Consultancy charges to the architects, a firm approved by the board
1,00,000 56,000 25,000
What is the amount of the preliminary expenses that qualifies for a deduction under section 35D? (a) Rs.1,75,000
(b) Rs.1,65,000
(c) Rs.1,70,000
(d) Rs.1,25,000
(e) Rs.1,81,000. (2 marks)
65. The deduction in respect of the family planning expenditure under section 36(1)(ix) can be claimed by (a) Partnership firms (c) Proprietary concerns
(b) Corporate assessees (d) Association of persons
< Answer >
(e) Individuals. (1 mark)
< Answer > 66. M purchases goods from P on two different dates amounting to Rs.17,000 and Rs.18,000 respectively on credit. He makes the payments to P on the expiry of the credit period of 30 days by cash Rs.35,000. What is the amount that is to be disallowed?
(a) Rs.7,500
(b) Rs.7,000
(c) Rs.3,500
(d) Rs.15,000 12
(e) Nil.
(1 mark) < Answer > 67. P & Pis a partnership firm engaged in the business of construction and has gross receipts of Rs.38 lakhs for the previous year 2004-05.The partnership deed provides for the payment of salary at the rate of Rs.6,000 per month to each partner and the depreciation on the assets (WDV Rs.2,50,000) to be provided at the rate of 10%. The net profit of the firm is Rs.4,50,000. What is the net profit of the firm chargeable to tax if the firm adopts the scheme under section 44AD of the Income Tax Act, 1961?
(a) Rs.1,29,900
(b) Rs.2,81,000
(c)
Rs.2,95,100
(d) Rs.2,50,900 (e) Rs.2,75,900. (2 marks)
< Answer > 68. Mr.Patil aged 66 years earned an amount of Rs.1,00,000 from the lotteries during the previous year 2004-05. He has invested an amount of Rs.20,000 in the national savings certificates. What is the tax liability of Mr.Patil for the assessment year 2005-06?
(a) Rs.26,000
(b) Rs.10,000
(c) Rs.6,120
(d) Rs.14,500
(e) Rs.12,500. (1 mark)
< Answer > 69. Pluto Ltd., is engaged in the business of carriage of goods and owns 9 trucks, 5 of which are heavy goods vehicles and the others are light goods vehicles. On June 12, 2004, the company purchased another heavy goods vehicle at a cost of Rs.22,00,000. The total freight collection was Rs.22,00,000 and the operational expenses were Rs.12,50,000, depreciation Rs.2,75,000 and other administrative expenses were Rs.1,25,000. What is the total income chargeable to tax for the assessment year 200506, if the assessee adopts the provisions of section 44AE?
(a) Rs.4,20,000
(b) Rs.3,96,200
(c) Rs.3,78,000
(d) Rs.4,03,200
(e) Rs.5,50,000. (3 marks)
70. An individual resident assessee has made the following investments for the previous year 2004-05: Insurance premium paid on the life of the spouse (Assured value Rs.1,00,000) Insurance premium on the dependant mother’s life Medical insurance premium on the daughter, who is employed Medical insurance premium on self Contribution to the PPF Investments in the National Savings Certificates Investment in the infrastructure securities
< Answer >
18,000 6,000 14,000 12,000 20,000 10,000 25,000
What is the amount that qualifies for the rebate under section 88? (a) Rs.89,000
(b) Rs.83,000
(c) Rs.1,00,000
(d) Rs.70,000
(e) Rs.80,000. (2 marks) < Answer >
71. Rectification of the mistake u/s 154 can be made under the Income Tax Act, within a period of (a) (b) (c) (d) (e)
2 years from the end of the financial year in which the return of income was filed 2 years from the end of the financial year in which the order sought to be rectified was passed 4 years from the end of the financial year in which the order sought to be rectified was passed 3 years from the end of the financial year in which the order sought to be rectified was passed 4 years from the end of the financial year in which the return of income was filed. (1 mark)
< Answer > 72. Y, a practicing consultant has an income of Rs.12,25,000 for the previous year 2004-05. The due date for the filing of the return of income for the assessment year 2005-06 is
(a) June 30, 2005 (c) September 30, 2005 (e) August 31, 2005.
(b) July 31, 2005 (d) October 31, 2005 (1 mark)
13
Suggested Answers
Economic Legislation-II (162): October 2005 1.
Answer : (b) Reason : Salary of diplomatic personnel: Any remuneration received by a person who is an official of an embassy, high commission, legation, commission, consulate or trade representation of a foreign state, or a member of the staff of any of these officials will be exempt from tax if the corresponding Indian officials in that foreign country enjoy a similar exemption as per the provisions of section 10(6)(ii) of the Income Tax Act, 1961.
< TOP >
2.
Answer : (a) Reason : The aggregation of non-agricultural income is not required if (i) The non-agricultural income does not exceed the basic exemption limit , ie Rs.50,000 in the case of individual & HUF(ii) The agricultural income does not exceeds Rs.5,000 . Since in the option (a), the agricultural income does not exceed Rs.5,000, no clubbing of income is required.
< TOP >
3.
Answer : (c) Reason : The amount which is received from a person other than the employer cannot be termed as salary. A Member of Parliament or a State Legislature is not treated as an employee of the Government. Hence the salary and other allowances received by Member of Parliament is taxable under the head Income from other sources.
< TOP >
4.
Answer : (e) Reason : Calculation of the tax liability of Mr.Purohit for the assessment year 2005-06 : Taxable Income :
< TOP >
Particulars
Rs.
Income from salaries (net)
4,25,000
Income from long term capital gains covered by securities transaction tax (Exempt from AY 2005-06 under section 10(38)
Nil
Income from lotteries (gross)
1,40,000
Taxable income
5,65,000
Tax liability thereon : Income tax on the winnings from lotteries (@30% on Rs.1,40,000)
42,000
Income tax on the balance income (Rs.5,65,000– Rs.1,40,000) ie. Rs.4,25,000 as per the slabs
1,01,500
Total tax liability
1,43,500
Add cess @2%
2,870
Total tax liability including cess & surcharge
1,46,370
For the AY 2005-06, where the net income range is Rs.1,50,000 to Rs.8,50,000 , the income tax rate is Rs.19,000 + 30% of (total income minus Rs.1,50,000) 5.
Answer : (d) Reason : As per the provisions of the section 10(23A) of the Income Tax Act, 1961, any income (other than the income from house property, income received for rendering any specific services, income by way of interest or dividends on investments) of a professional institute is exempt from tax subject to the fulfillment of certain conditions. Hence the option (d) is correct.
< TOP >
6.
Answer : (e) Reason : The following incomes are exempt under Section 10 : (a) Agricultural Income – Section 10(1) (b) Daily allowance of Members of Parliament – Section 10(17) (c) Share of profit from a partnership firm (section 10(2A) (d) Amount received under Life-Insurance policies – Section 10(10D) e. Stipend receipts are not exempt under sec 10
< TOP >
7.
Answer : (b) Reason : Pension earned and received abroad and later remitted to India is taxable in the hands of the
< TOP >
14
resident and ordinarily resident. Hence the option (b) is the answer. It is exempt from tax in the hands of the resident but not ordinarily resident and a non-resident 8.
Answer : (b) Reason : According to section 6(1), an individual is said to be a resident if he satisfies atleast one of the following two basic conditions : He is in India in the previous year for a period of 182 days or more; He is in India for a period of 60 days or more during the previous year and 365 days or more during the 4 years immediately preceding the previous year. According to section 6(6), a resident is said to be an ordinarily resident if he satisfies the following two additional conditions : He has been resident in India in at least 2 out of 10 previous years immediately preceding the previous year. He has been in India for a period of 730 days or more during 7 years immediately preceding the previous year. Mr. Peeyush was in India for 78 days during the previous year 2004-05 and for 371 days during the 4 years preceding the previous year. Hence, he is a resident. However as he was not in India for 730 days during 7 years preceding the previous year . Hence he does not satisfy the additonal condition. Hence the residential status of Mr.Peeyush for the assessment year 2005-06 is Resident but not ordinarily resident
< TOP >
9.
Answer : (c) Reason : For the assessment year 2005-06, the surcharge is calculated at 2.5% of the income tax in respect of domestic company assessees.
< TOP >
10. Answer : (a) Reason : As per the provisions of the section 10(10D) of the Income Tax Act, 1961, any sum received on the LIC policies including the bonus is not chargeable to tax if the premium paid in any of the years does not exceed 20% of the sum assured. In the given case the premium paid is more than 20% of the sum assured, hence the exempiton is not available and the total sum received in taxable. Hence the sum o f Rs.4,75,000 is taxable in the hands of Mr.Prashant.
< TOP >
11. Answer : (b) Reason : As the non-agricultural income is more than Rs.1,00,000 (maximum amount chargeable to tax), the clubbing of non-agricultural income with agricultural income is applicable. Hence the tax payable by Mr.Pramod is Computation of tax liability
< TOP >
Income tax on non-agricultural income and agricultural income i.e. on Rs.2,10,000 Income tax on agricultural income +Rs.50,000(basic exemption limit) Income tax computed under step (1) less step (2)
37,000 8,000 29,000
Add surcharge
Nil
Add Education cess @2%
580
Tax payable
29,580
12. Answer : (b) Reason : The value of the perquisite in respect of the cars is calculated as under: Option I (Car 1 is Option 2 (Car 2 is used for both used for both official official and personal and personal use) use) Perquisite value Rs.14,400 Rs.19,200 Chauffer 0 Rs.7,200 Expenses Only car 2 Rs.42,500 Only car 1 Rs.37,500 Normal wear and tear (10% of the cost) Only car 2 (Rs.4,75,000x10%) Only car 1 (Rs.3,50,000x10%) Rs.47,500 Rs.35,000 Total value of the perquisite Rs.1,04,400 Rs.98,900 Hence the option 2 is the better of the two as the value of the perquisite is lower in that case. Taxable value of the perquisite is Rs.98,900.
< TOP >
13. Answer : (c)
< TOP >
15
Reason : Ms. Purba being a non government employee the exemption in respect of the leave encashment is calculated as under : Actual money received
Rs.1,25,000
10 months average salary (note 1)
Rs.1,32,500
Maximum amount allowed
Rs.3,00,000
Cash equivalent of the leave to her credit at the time of retirement (Rs.13,250 x 6.67 months)
Rs.88,333
Least of the above four is exempt from tax i.e Rs.88,333. The taxable portion of the leave encashment is Rs.36,667 (Rs.1,25,000-Rs.88,333) Note 1 Calculation of the average salary for 10 months : Salary from June, 2004 to October, 2004 Rs.12,000x5= Rs.60,000 Salary from November, 2004 to March, 2005 Rs.14,500x5= Rs.72,500 Salary for 10 months Rs.1,32,500 Average salary Rs.13,250 14. Answer : (d) Reason : Calculation of the tax liability of Ms.Parvati for the assessment year 2005-06 :
< TOP >
Particulars Amount Rs. Basic salary 2,50,000 Pension 24,000 Income from salaries 2,74,000 Less standard deduction 30,000 Net taxable salary 2,44,000 Income from other sources Interest on the company deposits 85,000 Gross total income 3,29,000 Deductions under chapter VI are nil Net taxable income 3,29,000 Tax liability thereon 72,700 2% cess 1,454 Tax liability 74,154 Rebate under section 88B (senior citizen) 20,000 Rebate under section 88C (women assessee) 5,000 Net tax payable 49,154 For the Assessment year 2005-06, the rebate under section 88C is available if the tax payer was born at any time after April 01,1939. For the Assessment year 2005-06, the rebate under Section 88B is available if the taxpayer was born at any time before April 01, 1940. 15. Answer : (b) Reason : Calculation of the taxable portion of the HRA in the hands of Ms.Prerna: As she had taken the house on rent only for a part of the year, the exemption is calculated in respect of that period only. For the rest of the period, HRA is fully taxable. Monthly salary Rs.30,000, Monthly HRA Rs.7,500, Rent paid per month Rs.8,000 from September 2004. As the house is situated in the city of Baroda, the least of the following is exempt from tax; 40% of the salary (Rs.30,000x40%) Rs.12,000, Actual HRA received Rs.7,500, Excess of rent paid over 10% of salary (Rs.8,000 -Rs.3,000 (Rs.30,000x10%) Rs.5,000. Rs.5,000 per month being the least of the above is exempt and the balance HRA is taxable. Therefore the total taxable portion of the HRA in the hands of Ms.Prerna for the assessment year 2005-06 is HRA (Rs7,500x12) Rs.90,000 Exempted HRA (Rs.5,000 x 7) Rs.35,000, Taxable HRA Rs.55,000. (The exemption is calculated only for 7 months as she has taken the house on rent only from September, 2004)
< TOP >
16. Answer : (d) Reason : The exemption in respect of the allowances received by the transport employees during the course of their duties is calculated as under : 70% of the allowance received Rs.65,000x70% = Rs.45,500 Rs.6,000 per month Rs.6,000x11 = Rs. 66,000 Rs.45,500 being the lower of the above, is exempted and the balance is taxable.
< TOP >
16
Therefore the taxable portion of the allowance is Rs.65,000-Rs.45,500= Rs.19,500 17. Answer : (a ) Reason : Calculation of the taxable amount of the Lumpsum received from the unrecognized provident fund by Mr. Pattabhi for the assessment year 2005-06: Share of the amount taxable as salary: Employer’s share in the payment received from the Unrecognized Provident Fund Rs.2,20,000 Interest on the employer’s share Rs.50,000 Rs.2,70,000 Amount taxable under the head income from other sources : Interest on the employee’s share Rs.60,000 Total amount taxable from the amount received from the fund Rs.3,30,000 The employee’s share received from the Unrecognised Provident Fund is exempt from tax.
< TOP >
18. Answer : (c) Reason : The gross salary of Mr.Pillai for the year is calculated as under :
< TOP >
Rs. Amount of salary after the tax deduction and the PF Contribution 1,24,600 Add the tax deducted at source 8,000 Salary net of PF contribution at 15% 1,32,600 Add the PF contribution (1,32,600 x 15 / 85) 23,400 Gross salary 1,56,000 19. Answer : (d) Reason : Commuted value of 25% of pension – Rs.1,80,000 Commuted value of full of pension = = Rs.7,20,000 As Ms.Prathibha does not receive any gratuity, the commuted pension exempted is commuted value of ½ of pension. i.e. = Rs.7,20,000/2= Rs.3,60,000 As the amount received on commutation of pension Rs.1,80,000 is less than maximum amount exempt from tax, the total amount of Rs.1,80,000 is exempted and nothing is chargeable to tax. Taxable pension for Assessment year 2005-06 is Pension received from April 2004 to the date of commutation ie. Till December 2004 = 9 x Rs.5,500 = Rs.49,500 Add uncommuted pension for 3 months = Rs.5,500 x 75% x 3 =Rs.12,375 Total taxable pension for the AY 2005-06 = Rs. 61,875
< TOP >
20. Answer : (c) Reason : The value of the perquisite in respect of the education provided by the employer to the employees children in its own school is calculated as under : In respect of the 2 children Cost of education Rs.1,00,000 Less Rs.1,000 pm per child Rs.24,000 Less amount recovered 45,000 = Rs.31,000 In respect of the dependant brother (Rs.90,000 – Rs.30,000) = Rs.60,000 Total taxable value of the perquisite = Rs.91,000
< TOP >
21. Answer : (e) Reason : Calculation of the tax liability of Mr.Paramesh for the assessment year 2005-06 : Particulars Amount Rs. Income from long term capital gains 2,75,000 Income from profession 1,90,000 Gross taxable income 3,85,000 Tax liability thereon Tax on the long term capital gains (exempt u/s Nil Tax on other income Total tax liability 31,620
< TOP >
17
Total tax liability Rebate under section 88 Deposit in the PPF Rs. 12,000 Investment in the infrastructure company Rs. 70,000 Investment in the MEP 2004 Rs. 10,000 Total Rs. 92,000 Rebate at 15% on Rs.92,000 = 13,800 restricted to tax liability Entire rebate cannot be claimed as the same is not available against the tax on the long term capital gains. Hence the rebate is restricted to the tax payable on the business income Balance tax payable
31,620
13,800
17,820
22. Answer : (d) Reason : The amount of the scholarship given by the employer to the children of its employees solely at its discretion without reference to the terms of the employment is not assessed as a perquisite in the hands of the employees. CIT v. M.N.Nadkarni (1986) 161 ITR 544 (Bom.) 23. Answer : (b) Reason : In case of non-government employees not covered by the Payment of Gratuity Act, the completed years of service is taken as equal to the whole number of years, ignoring a fraction of the year . Hence the option (b) is the correct answer. The other alternatives are wrong.
< TOP >
< TOP >
24. Answer : (d) Reason :
Transport allowance
< TOP >
Actual allowance received (Rs.) 20,000
Actual amount spent (Rs.) 15,000
Eligible amount (Rs.)
Amount taxable (Rs.) 10,400
Rs.800 pm ie. Rs.9,600 Transfer allowance 50,000 56,000 Amount spent 0 Research allowance 25,000 19,000 Amount spent 6,000 Uniform allowance 14,000 14,000 Amount spent 0 The total allowances taxable are Rs.16,400. The travelling allowance, transfer allowance, research allowance and the uniform allowance are all taxable on the basis of the actual allowance received or the actual expenditure incurred whichever is lower. 25. Answer : (b) Reason : Calculation of the taxable income of Ms.Priya for the assessment year 2005-06 Particulars Amount Rs. Basic salary 3,75,000 Bonus 25,000 City compensatory allowance 1,15,000 Entertainment allowance 5,000 Gross total income 5,20,000 5,00,000 Less profession tax 2,400 Net taxable income 4,97,600 Tax liability 1,23,280 Cess 2,466 Total tax liability 1,25,746 No deduction is allowed in respect of the entertainment allowance as Ms.Priya is a nongovernment employee and hence the entertainment is taxable in full. Hence after deducting from the gross taxable income the entertainment allowance (if any) and the professional tax and standard deduction, the balance is the Gross total income. Since Ms.Priya has no investments the whole amount is taxable.
< TOP >
26. Answer : (e) Reason : The benefit of rebate under section 88 D is only if the taxpayer is an individual. Hence no rebate under the section is available to XY.Ltd.
< TOP >
18
27. Answer : (b) Reason : Gratuity (b) is the sum paid for the long and meritorious services rendered by an employee. Gratuity payment has become legally compulsory. Pension (a) is a periodical payment of money for past service and it is received by the employee after retirement and is taxed as salary. Contractual Bonus (c) is taxable in the year of receipt. It is treated as salary. Compensation (d) is taxable as salary or profit in lieu of salary. It is computed in accordance with the provisions of Industrial Disputes Act 1947. Honorarium (e) is the payment received for honorary services. Thus, (a), (c), (d) and (e) do not mean the lump sum received for long meritorious services rendered.
< TOP >
28. Answer : (d) Reason : Computation of gross annual value Municipal value or fair rent whichever is higher, subject to maximum standard rent. Here, standard rent is more than the municipal value and fair rent, Therefore, the value Rs.2,00,000 Actual rent Rs.2,40,000 Less : Unrealized rent Rs. 44,000 Less : Loss due to vacancy Rs.6,000 Rs.1,90,000 Higher of the above two values is Rs.2,00,000 1.5 months Rs. 30,000 Less : Vacancy allowance – Rs.2,40,000 × 12 months
< TOP >
Gross annual value Rs.1,70,000 29. 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, itshould 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 >
30. Answer : (b) Reason : The annual value of the property for the assessment year 2005-06 is as under : Ms.Pushpa Ms.Priyadarshini Net annual value Nil Nil Less Standard deduction Nil Nil Less deduction in respect of the interest on the loan Rs.30,000 Rs.22,500 Income from the house property (Rs.30,000) (Rs.22,500) The share of the interest on the loan is as under Pushpa Rs.75,000 x 7/10 = Rs.52,500 Priyadarshini Rs.75,000 x 3/10 = Rs.22,500 The interest on the loan in respect of Ms.Pushpa is restricted to Rs.30,000 as the loan was borrowed in the year 1998.
< TOP >
31. Answer : (d) Reason : The rule that the income from the ownership of the house property is taxable under the head income from house property has the following exceptions : If letting is only incidental and subservient to the main business of the assessee Where the income received is not from the bare letting of the tenement or from the letting accompanied by incidental services, but the subject hired out is a complex one. Hence the option (d) is the correct answer. The income under the options (a), (b) (c) and (e) is taxable under the head income from the house property.
< TOP >
32. Answer : (a) Reason : When a portion of the property is self-occupied and the other is let out, the income from the both is to be calculated separately. Particulars Self-occupied Let out Step I – Fair rent or the municipal value whichever is N.A. 82,000 higher subject to a maximum of the standard rent 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
< TOP >
19
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) 33. Answer : (b) Reason : Interest on the loan for the construction period : April 1, 2003 to March 31, 2004 Rs.6,00,000 @ 15% p.a. = 90,000 The above interest can be claimed as a deduction in 5 equal instalments starting from the previous year in which the house construction is completed. Hence the amount of the pre-construction periods interest to be charged in 2004-05 is Rs.90,000/5 = Rs.18,000 Interest for the year 2004-05 (On the full amount as the repayment commences only during the year 2005-06) Rs.6,00,000 x 15% = Rs.90,000 Therefore the total interest to be charged in the assessment year 2005-06 is Rs.1,08,000. (Rs.90,000 + Rs.18,000) 34. Answer : (d) Reason : The capital gains in the hands of Ms.Parvati for the assessment year 2005-06 are computed as under : Cost of acquisition (Fair market value as on April 1, 1981) 2,90,000 Less advance taken and forfeited 40,000 Cost for the purposes of indexation 2,50,000 Indexed cost of acquisition (Rs.2,50,000 x 480/100) 12,00,000 Sale proceeds 12,50,000 Less indexed cost of acquisition as computed above 12,00,000 Long term capital gains 50,000 35. Answer : (a) Reason : The capital gains on the sale of the capital asset converted to stock-in-trade is taxable in the given case as the same was done after April 1, 1985. It is calculated as under : Full value of the consideration (Fair value as on the date of 2,15,000 the conversion) Less the cost of the acquisition (90,000 x 480/281) 1,53,737 Long term capital gain 61,263 Note : The cost of inflation index (base year) is taken to be the year in which the asset is converted into the stock-in-trade 36. Answer : (e) Reason : If shares are long term equity shares transferred on or after October 01,2004 in a recognised stock exchange in India, the long term captial gain is not chageable to tax.
< TOP >
< TOP >
< TOP >
< TOP >
37. Answer : (d) Reason : To avail exemption from Capital Gain Tax under Section 54B, the capital gains from sale of land need to be invested in Agricultural Land within a time period of 2 years (24 months)
< TOP >
38. Answer : (e) Reason : When both the husband and the wife are having substantial interest in the company and both are in receipt of the remuneration from the concern, remuneration will be included in the total income of the husband or the wife whose total income, excluding such remuneration is higher. And remuneration once taxed in the hands of one spouse, cannot be included in the income of the other spouse in subsequent years, without the assessing officer giving an opportunity of being heard, to the assessee in whose hands he would like to charge the income. Hence statement II & III are true.
< TOP >
39. Answer : (a) Reason : The business income taxable is calculated as under :
< TOP >
Rs. Income from the business of owning and maintaining race horses Less Brought forward business loss (from the business of owning and maintaining the race horses Business loss from the activity of owning and maintaining the race horses to be carried forward for four assessment 20
75,000 96,000 (21,000)
first computed and cannot be set off against any other income. Income from other business Brought forward business loss (other than the loss from the business of owning and maintaining the race horses) Net business income
85,000 50,000 35,000
40. Answer : (c) Reason : The total income chargeable to tax for The assessment year 2005-06 is calculated as under : Income from Salaries 45,000 Income from house property (24,000) Income from the business Note (1) (22,000) Nil
Income from the capital gains Short term capital loss Long term capital gain Note (2) Taxable income for AY 2005-06
< TOP >
(25,000) 19,000 21,000
Note: Loss from the speculative business – can be setoff only against the income from the speculative business. Capital losses: Short term capital loss can be set off against both short term capital gain and long term capital gain. However, capital loss of Rs.6,000 cannot be setoff against any other income and can be carried forward. From the AY 2005-06, LOSS FROM BUSINESS or profession cannot be set off against income under the head ‘salaries’. Since in the above case the balance after setoff of houseproperty loss is income from salaries , loss from speculative and non speculative business cannot be set off. 41. Answer : (e) Reason : Under section 80 CCD Employees contribution towards the pension scheme limited to 10% of the salary of employee. Employers contribution towards the pension scheme limited to 10% of the salary of the employee. Hence 10% of (Rs.15,000 x 12) = Rs.18,000 Employees contribution = Rs.18,000 + employers contribution Rs.18,000 = Rs.36,000.
< TOP >
42. Answer : (d) Reason : Particulars
< TOP >
Donation to National Defence Fund Donation to Government of India for promotion of family planning Donation to Prime ministers National Relief Fund Donation to Africa Fund Donation in Kind to an approved Charitable trust Donation to an approved Charitable trust
Gross Qualifying amount 24,000 28,000
Net Qualifying amount 24,000 28,000*
Rate of deduction
Amount of Deduction
100% 100%
24,000 28,000
18,000
18,000
100%
18,000
10,000 7,000
10,000 Nil
100% Nil
10,000
20,000
2,050*
50%
1,025 81,025 Since the Adjusted Gross total income is Rs. 3,00,500, the donation towards Family planning and donation to an approved Charitable trust is limited to 10% of adjusted gross total income i.e Rs.30,050. Therefore after Rs.28,000 is allowed for Family planning promotion the balance of Rs. 2,050 is allowable for donation to Approved charitable fund.
43. Answer : (d) Computation of Wealth tax liability of Mr. Purohit for the assessment year 2005-2006 21
< TOP >
Description of asset 1 2 3 4
5 6 7 8 9 10 11
Rs.
Motor cars of foreign make not held as stock in trade Gold ornaments Gold bonds are not assets Urban land purchased for factory site held for 2 years from the date of acquisition is not an asset. As two years has already lapsed, the urban land is an asset. Cash on hand (above Rs.50,000) Cash at bank – not an asset Fixed assets outside India in case of not ordinary resident are not assets Shares of Reliance Industries Ltd. (not asset)
15,00,000 4,50,000 Nil
Shares of a nationalized banks (not asset) Residential house property let out for a period of 300 days is not an asset Hence, debt against it cannot be considered Net wealth Exempted limit Taxable wealth
Nil Nil
6,00,000 45,000 Nil Nil Nil
Nil 25,95,000 15,00,000 10,95,000
Wealth tax liability @ 1% = Rs 10,950 44. Answer : (c) Reason : Computation of the taxable wealth of Mr.Patrick for the assessment year 2005-06 : Mr.Patrick being a foreign citizen, only the wealth held in India is taxable and the assets held outside India are tax free. Wealth in India : Rs. Property (Not taxable as it is held for the residential purposes Jewellery in India 50,00,000 Motor car 36,00,000 86,00,000 Less the amount exempted 15,00,000 Taxable wealth 71,00,000
< TOP >
45. Answer : (e) Reason : The Union Government is vested with the power to levy the excise duty on most of the goods except Alcoholic liquor for the human consumption, opium, Indian hemp and other narcotic drugs as the same are covered in the Entry 51 of the State list and excise duty on these can be levied only by the State Government
< TOP >
46. Answer : (b) Reason : The statements (I), (II) and (IV) are true (I) Excise duty is chargeable on the goods or the components leaving the factory in the state in which they are. (II) At the site, duty would be chargeable if the assembly of the parts or the components results in a different movable and the marketable commodity before installation. (III) Mere bringing of the components together will not attract duty (IV) In case of the piece-by-piece erection of the component at the site resulting in an immovable property, no duty is leviable.
< TOP >
47. Answer : (d) Reason : The following records have to submitted by an assessee to the Officer duly empowered by the Commissioner or the audit party of the C&AG for scrutiny: Records maintained as per the Rule 22(2), The Income Tax Audit Report under section 44AB of the Income Tax Act and The Cost Audit Report under section 233B of the Companies Act
< TOP >
48. Answer : (d) Reason : An appeal against the order of the Tribunal relating to the classification of the goods or the valuation as per the central Excise can be made to the Supreme Court within 60 days
< TOP >
49. Answer : (c)
< TOP >
22
Reason : Section 11BB dealing with interest on delayed payments provides that Interest on delayed refunds will be paid only on the amount that is finally held to be refundable Interest payable will be at the rate fixed by the Board Interest will be simple interest. Currently 6% p.a. Where there is a refund of any fine or penalty, no interest is payable on such refund Interest will be payable on refunds arising from proceedings initiated under section 11B. Hence option (c ) is false. 50. Answer : (b) Reason : As per section 2(a) the appropnriate State is defined in relation to a dealer who has one or more places of business in the same state, that state.
< TOP >
51. Answer : (b) Reason : As per the provisions of the section 15 of the CST Act, no State shall levy a tax on the declared goods exceeding 4%. Hence the sales tax on any interstate sale of the declared goods to the unregistered dealer is equal to twice the local sales tax rate.
< TOP >
52. Answer : (d) Reason : As per the provisions of the section 10A of the CST Act, where any person purchasing the goods is guilty of an offence of mis representing the facts at the time of the purchase, is punishable with a fine which may extend upto 150% of the tax leviable on him in respect of the sale of goods to him if the same is covered under section 8(2)
< TOP >
53. Answer : (b) Reason : When the ‘C’ form has been issued the CST is payable at 4%. The amount of the erection charges and the discount are to be deducted. Hence in respect of the first sale of Rs.12,00,000, the aggregate price is calculated as under: Total price as per the invoice Rs.12,00,000 Less the erection charges 85,000 Less the discount 25,000 Rs. 1,10,000 Net aggregate sale price 10,90,000 In the case of the second transaction where no ‘C’form has been furnished, the tax to be charged is 10% or the local tax rate whichever is higher (as the dealer is an unregistered) The aggregate sale price is calculated after deducting the sales returns as the same are returned within a period of 5 months. Hence the price is Rs,8,00,000-40,000 = 7,60,000. The tax payable is as under: CST Turnover Rs.10,90,000 @ 4% 10,90,000*4/104 = 41,923 10,48,077 Rs.7,60,000 @ 12% 7,60,000*12/112 = 81,428 6,78,572 Total 1,23,351 17,26,649
< TOP >
54. Answer : (a) Reason : The Uniform Commercial Code covers the Sale of goods and contracts to sell goods at a future time in the US
< TOP >
55. Answer : (e) Reason : If any goods are pilfered after the unloading and before the proper officer has made an order for the clearance for home consumption or the deposit in a warehouse, The importer will be liable to pay the duty only if such goods are restored to him after the pilferage
< TOP >
56. Answer : (d) Reason : The importer of any goods, specified in the subsection(1) of section 61, which has been entered for the warehousing and assessed to duty under section 17 or 18 shall execute the bond binding him with a sum equal to twice the duty assessed on such goods
< TOP >
57. Answer : (c) Reason : Any area where the imported goods or the exported goods are kept before the clearance by the Customs Authorities is called customs Area as per the provisions of the section 2(11) of the Customs Act
< TOP >
58. Answer : (d)
< TOP >
23
Reason : The process by which the imported goods are permitted to be changed into an other form with an intention to attract the duty at lower rates is called Denaturing or the mutilation of the goods 59. Answer : (e) Reason : The import report has to be filed by the person-in-charge of the of the conveyance within 24 hours of arrival at the customs statio
< TOP >
60. Answer : (b) Reason : (a) The exemption can be granted only in exceptional circumstances -True (b) There is no power to grant the general exemption - False (c) An adhoc exemption can be granted in each individual case - True (d) The governments can modify the form and the method of duty apart from the reduction of the duty - True (e) An ad valorem rate can be changed to specific rate - True. Section 25
< TOP >
61. Answer : (a) Reason : In respect of the undertakings established before April 1, 2002, the additional depreciation is allowed only if the increase in the installed capacity is not less than 10%. Hence the option (a) is the answer.
< TOP >
62. Answer : (d) Reason : The depreciation that can be claimed by D Ltd., for the year 2004-05 is as under :
< TOP >
Name of the asset
Date of acquisition
Additional capacity
Cost of the asset
Normal depreciation
Additional depreciation
Plant A
May 15, 2004
18%
12,50,000
3,12,500
1,87,500
Plant B
June 10, 2004
26%
18,75,000
4,68,750
2,81,250
Plant C
October 25, 2004
22%
15,50,000
1,93,750
1,16,250
The normal depreciation that can be claimed is Rs.9,75,000 (Rs.3,12,500+4,68,750+1,93,750) The additional depreciation that can be claimed is Rs.1,87,500 + Rs.2,81,250 + Rs.1,16,250 = Rs. 5,85,000. Total depreciation = Rs.9,75,000 + RS.5,85,000 = Rs.15,60,000. All the plants are eligible for additional deprecation of 15% since they resulted in increased capacity of more than 10%. Also the Plant C is eligible only for 50% of the normal depreciation as it has been put to use for less than 180 days and 7.5% additional depreciation. 63. Answer : (a) Reason : The deduction that can be claimed in respect of the expenditure on the scientific research is calculated as under : Donation to the agricultural research institute 90,000 125% 1,12,500 Donation to the National research laboratory 1,25,000 125% 1,56,250 Expenditure on the in-house research 2,00,000 150% 3,00,000 5,68,750 64. Answer : (d) Reason : The deduction in respect of the preliminary expenses is allowed over a period of 5 years an d the amount that qualifies for the deduction is subject to a maximum of 5% of the cost of the project or the capital employed, whichever is higher. 5% of the cost of the project (Rs.35,00,000 x 5%) = Rs.1,75,000 5% of the capital employed (Rs.33,00,000 x 5%) = Rs.1,65,000 Actual expenses incurred : Incorporation expenses Rs.1,00,000 24
< TOP >
< TOP >
Project feasibility report (not allowed as it is Done by an agency not approved) Consultancy charges Rs.25,000 Rs.1,25,000 The actual preliminary expenses being the least, qualifies for the deduction under section 35 D. Hence the option (d) is the answer. 65. Answer : (b) Reason : No deduction is allowed under section 36(1)(ix) in the case of the non-corporate assessee. The deduction can be claimed by them only under section 32 and 37(1) if all the relevant conditions are satisfied.
< TOP >
66. Answer : (e) Reason : No amount is to be disallowed though the total payment in cash exceeds Rs.20,000. The payments is in respect of two bills and both the bills are of value less than Rs.20,000. For the provisions of section 40A(3) to be applied, both the value of the individual bills and the payment should be in excess of Rs.20,000.
< TOP >
67. Answer : (a) Reason : The profits of the firm engaged in the business of civil construction are calculated as under if the scheme under section 44AD is adopted : Profit from the business (8% of Rs.38,00,0000) 3,04,000 Less remuneration to the partners (note 1) 1,74,100 Income from the business 1,29,900 Note : No depreciation is calculated when the profits are taken as a percentage of the profits and not the actual profit calculated as per the books.
< TOP >
Note 1 : The remuneration to the partners is calculated as under : On the first Rs.75,000 (Rs.50,000 or 90% of Rs.75,000 whichever is more) On the next Rs.75,000 @ 60% On the balance profits @ 40% (3,04,000-1,50,000)
67,500 45,000 61,600 1,74,100
68. Answer : (c) Reason : The tax calculation is as under in respect of Mr.Patil. Tax on the winnings from lotteries (@ 30%) 30,000 Less the rebate under section 88 (20% of Rs.20,000) 4,000 Less rebate under section 88B 20,000 Balance tax payable 6,000 2% cess 120 Tax Liability 6,120 69. Answer : (b) Reason : The income in respect of eth business of plying / hiring / leasing of the trucks is calculated as per the provisions of section 44AE as under : Type of the carriage Period of holding of Number of months Rate per Amount the trucks including part of truck per the month month Light goods vehicle – 4 April 1, 2004 to 12 3,150 1,51,200 Nos. March 31, 2005 Heavy goods vehicle – 5 April 1, 2004 to 12 3,500 2,10,000 nos. March 31, 2005 Heavy goods vehicle 1 no. June 12, 2004 to 10 3,500 35,000 March 31, 2005 Total Income 3,96,200 70. Answer : (b) Reason : The amount that qualifies for the rebate under section 88 is calculated as under: Insurance premium paid on the life of the spouse (Assured value Rs.1,00,000) 18,000 Insurance premium on the dependant mother’s life ( not allowed) Medical insurance premium on the daughter, who is employed (not allowed) 25
< TOP >
< TOP >
< TOP >
Medical insurance premium on the daughter, who is employed (not allowed) Medical insurance premium on self (Restricted to Rs.10,000) (80D) 10,000 Contribution to the PPF 20,000 Investments in the National Savings Certificates 10,000 Investment in the infrastructure securities 25,000 Total amount that qualifies for the rebate 83,000 71. Answer : (c) Reason : Rectification of the mistake can be made under the Income Tax Act, within a period of 4 years from the end of the financial year in which the order sought to be rectified was passed. Section 154. 72. Answer : (d) Reason : A professional having the income above Rs.10,00,000 has to get the tax audit done and hence the return on income is to be filed on or before October 31, 2005. < TOP OF THE DOCUMENT >
26
< TOP >
< TOP >