The Income Tax Act

Income Tax – Residential Status 1. X, an Indian citizen wants to determine his residential status. He give the following details of his stay in India. Previous year 2005-2006 2004-2005 2003-2004 2002-2003 2001-2002 2000-2001 1999-2000 1998-1999 1997-1998 1996-1997

Days of stay 190 57 73 131 69 145 65 200 300 365

Out of the 190 days in the previous year 2005-2006, 10 days spent by X on a private ship stationed in the territorial waters of India. You are required to determine his residential status, quoting the provisions of Sections 6(1) and 6(6) of the Income Tax Act, 1961. 2. Mr. Paolo and Mrs. Paolo are Spanish citizens. They have come to India on November 21, 2005 for 250 days. In the earlier previous years their stay in India were as follows. Previous year Mr. Paolo Mrs. Paolo 2004-2005 245 days 300 days 2003-2004 25 days 180days 2002-2003 40 days 10 days 2001-2002 130 days 50 days You are required to find the residential status of Mr. And Mrs. Paolo for the assessment year 2006-2007. 3. Jules is a foreign citizen (not being a person of Indian origin). Since 1981, he visits India every year in the month of May for 101 days. Determine the residential status of Jules for the assessment year 20062007.

4. Pankaj, an Indian IT professional secured a job in Germany and left India for the first time on September 25, 2004, for joining his job. During the previous year 2005-2006 he came to India on an assignment for 165 days. Determine the residential status of Pankaj for the assessment years 2005-2006 and 2006-2007. 5 Shri Rohit Kapoor anticipates the following income during the previous year relevant to the assessment year 2006-2007. RS. 1. Salary received in India 40,000 2. Payment received in France for the services rendered 69,000 in India 3. Income from land cultivation, situated in Burma 45,000 remitted to India in previous year 4 4. Income from house property situated in Canada 52,000 5. Income earned from business in Srilanka, being 21,000 controlled from India 6. Dividends paid by a foreign company being controlled 20,000 from India but received in branch office at Germany Compute The Total Income for Assessment year 2006-2007, if he is i. Resident and ordinarily resident in India ii. Resident and not ordinarily resident in India iii. Non- resident in India.

Income from Salaries 10.

Mr. Anand, a private sector employee retires on 31/10/2005 after 26 years of service and received Rs.1,20,000 as leave salary at the time of his retirement. His employer allows him 1½ month of leave for every 1 year of service. He has already encashed leave for 15 months. His salary for 2004-2005 was Rs.4,150 p.m. and from 1.4.2005 it was raised to 5,000 p.m. Compute the taxable amount of leave encashment.

11.

Mr. X retires from private service on 30th April, 2005 and his pension has been fixed at Rs.1,700 p.m. He gets ½ of his pension commuted on January 1st, 2006 and receives Rs 60,000. He also receives gratuity. Pension becomes payable on the 1st day of each month. Calculate his total taxable pension for the assessment year 2006-2007.

12.

X a resident of Coimbatore, draws a monthly basic salary of Rs.4,000 for the previous year 2005-2006. During the year 2005-2006 he gets Rs.7,200 as dearness allowance forming part of basic salary, 3% commission on sales made by him (sales made by X during the relevant previous year are Rs.77,500) and Rs.7,500 as house rent allowance. House rent paid by him is Rs.6,200. Determine the house rent allowance that is chargeable to tax.

13.

X, an employee of ABC Ltd. furnishes the following information for the previous year 2005-2006. Rs.

Basic Salary From 1.4.05– 30.9.05 4,500 p.m. From 1.10.05 onwards 5,750 p.m. Advance salary of 3 months received 17,250 Dearness allowance (62% is taken for 7,530 calculation of retirement benefits) Bonus 6,500 Employers contribution to provident 7,844 Fund account of the employee Children educational allowance 4,350 (for 2 children) The company provides him with a rent-free unfurnished house at Hyderabad. The fair rent of the house is Rs.39,700 p.a. Determine the taxable value of the perquisite.

14.

Mr ‘S’ who works in PQR Ltd., Cochin, furnishes the following particulars of income. Compute the salary income for the previous year 2005-2006. • Salary – Rs.2,500 p.m. • Bonus equal to 3 months salary • Dearness allowance (forming part of salary) – Rs.375 p.m. • Employee contributes 12.5% of salary towards recognized provident fund. Employer also contributes the same amount. • Interest credited in the recognized provident fund @ 12.5% is Rs.18,000. • House rent allowance – Rs.750 p.m. • Rent paid by employee – Rs.900 p.m. • Employee is provided with a 12 hp car which he utilize for official as well as private purposes. Expenses are met by the employer. • Two children of Mr. S are studying in the institution run by the employer for which no fees are paid. Normal expenditure per student in such institution is Rs.85 p.m. • Reimbursement of medical expenses incurred on the mother of Mrs. S in a hospital approved by the Chief Commissioner – Rs.3,200. • Reimbursement of ordinary medical expenses paid to a private nursing home – Rs.15,700. • Mr. S pays Rs.9,000 as LIC premium on the policy of Rs.80,000. His wife is also insured for Rs.60,000 and he pays a premium of Rs.7,500 p.a. Contribution to 10-year CTD scheme amounts to Rs.475 p.m.

15.X is employed with PQR Limited on a monthly salary of Rs.6000. He has been provided a free residential telephone. Besides, he gets free lunch in office. Discuss whether these perquisites are chargeable to tax. 16.

X is a managing director of a company since 1976. On October 30, 2005 he sends his resignation to the chairman. On November 15, 2005 the company makes a request to him not to compel them for acceptance of the resignation and in consideration offers to pay him Rs.2,00,000. He accepts the company’s offer but due to ill-health he is forced to work for reduced number of hours and on reduced salary. According to X,

Rs.2,00,000 received by him is not taxable as it cannot be considered as a salary or a perquisite. 17.Mrs. Dahlia Mukherjee, who joined Spiritex International Ltd., Calcutta on April 01,1978, was nominated as a whole time director with effect from April 01, 1995. Mrs. Mukherjee received the following emoluments during the previous year ending March 31, 2005. Particulars Amount (Rs) Basic salary 1,120,000 City Compensatory allowance 12,000 House rent allowance 30% of basic Leave encashment 3,500 Entertainment allowance 6,000 Spiritex International Ltd. also provides her • Free gas and water for domestic use (cost: Rs.6,000). • A domestic servant (not being sweeper, gardener or watchman) whose salary is Rs. 5,000 and who is engaged by the company. • Free education for her two daughters in a school maintained by it (cost of education: Rs. 12,000). • Free lunch in office (cost: Rs.7,200). • Free holiday home facility in Puri (cost: Rs.10,000) and in Darjeeling (cost: Rs.15,000). Out of a pool of 5 Maruti Zen cars (horsepower rating more than 16) owned by Spiritex, Mrs.Mukherjee is entitled to use any one (or More) of them for official as well as private purposes. Though the service of company’s chauffeur is always available, she utilizes them only on few occasions. Spiritex International does not maintain any logbook. Mrs. Mukherjee contributes Rs.14,000 towards recognized provident fund, pays Rs. 16,000 as insurance premium for a policy of Rs.1,80,000 taken on her major son’s life and pays Rs.42,000 as house rent. Income of Mrs. Mukherjee from other sources is Rs.30,000. You are required to determine the taxable income and tax liability of Mrs. Dahlia Mukherjee for the assessment year 2005-2006. 18.

Naresh retires from Symbiotic Ltd. on October 31, 2005. He receives Rs.2,000 per month as pension. On November 01, 2005 he gets 72% of

pension commuted for Rs.36,000. Determine his taxable pension for the assessment year 2006-2007. He does not get gratuity. 19.Following details relate to the income of Mr.Krishna Mohan Swami serving in Mangalore during the previous year 2004-2005. Basic salary : Rs.15,000 per month Dearness allowance : Rs.3,000 per month Advance salary was taken for 3 months on March 31, 2005 Furnished rent-free house is provided by the employer to Mr. Krishna Mohan. Rent payable by the employer is Rs.3,000 per month and furniture costing Rs.15,000 is bought by the employer. Bonus : Rs.5,000 Pension : Rs.500 per month (from previous Employer) Education allowance for two children : Rs.50 per month per child Helper kept for performing duties : Rs.1,500 per month Mr. Krishna Mohan uses his own car for official purposes. You are required to compute the taxable salary income of Mr. Krishna Mohan Swami for assessment year 2005-2006. 20. Mrs. Manisha Agarwal, a director-employee of Supreme Software Ltd. submits the following information relevant for the assessment year 20052006: Basic salary Rs.56,000 Dearness allowance (45% from part of salary) 25% of basic Commission 5% on turnover achieved by her (Turnover achieved by her in the previous year is Rs.5,00,000) Bonus Rs.11,000 Education allowance for 3 children Rs.3,600 Medical expenses reimbursed by the employer Rs.5,000 Leave travel concession Rs.5,000 Payment of electricity bills by the employer Rs.1,000 Reimbursement of gas bills Rs.1,000 Free refreshment during the office hours Rs.2,000 The employer provides a furnished bungalow to Manisha in Calcutta at a concessional rent of Rs.11,200. The fair rent of the house is Rs.40,800. Furniture costing Rs.20,000 owned by the employer and an air-

conditioner at a monthly rent of Rs.250 was provided for 5 months to Manisha. The cost of maintenance of the garden adjacent to the bungalow (including the salary of gardener) is Rs.2,000, the salary of 2 watchmen is Rs.1,000 and the salary of the cook is Rs.1,000, all of which are paid by the employer. A Fiat car (H.P. less than 16) owned by the employer was provided to Manisha along with a driver for both official and personal purpose. The employer does not maintain any logbook. Manisha receives an interest of Rs.26,000 from Bombay Dyeing Bonds. The following contributions are made by Manisha during the previous year 2004-2005: • Insurance premium for a policy on the life of her husband : Rs.8,000 • Insurance premium for a policy on the life of her father: Rs.4,000 • Deposit in 10-year account under the Post Office Savings Bank: Rs.2,000 You are required to compute the total taxable income and income tax liability of Manisha for the assessment year 2003-2004.

Income from House Property 21. ‘X’ is the owner of a house property in Bombay. Municipal Valuation of the property – Rs.45,000, Fair rent – Rs.47,500, Standard rent – Rs.50,000. The property consisting of 2 units is occupied by 2 tenants who pay a rent of Rs.21,500 each. Construction of the property was commenced on March 1, 1989 and was completed on October 1, 1991. The property was let out from November 1, 1991. Municipal Tax imposed on the property by the Municipal Corporation was Rs.15,600. 75% of Municipal taxes are borne by the owner and 25% by the tenants. Amount paid by X during the previous year 2004-2005 is Rs.6,700. Determine the net adjusted annual value of the property for the assessment year 2005-2006. 22. ‘X’ owns a house at Chennai (Municipal Value Rs.28,000, Fair Rental Value – Rs.26,500, Standard Rent – Rs.27,000). During the previous year the house was let out from 1.4.2004 to 31.8.2004 and from 1.11.2004 onwards on a monthly rent of Rs.2,500. (It was unoccupied from 1.9.2004 to 31.10.2004). Expenses incurred are as follows: a. Municipal Taxes 12% of Municipal Rental Value b. Repairs Rs.1,200 c. Collection Charges Rs.1,000 d. Fire Insurance Rs.2,500 e. Land Revenue Rs.4,150 f. Interest on borrowed capital (Rs.60,000 is borrowed on August 1st , 1997 @ 16% p.a., construction of house is completed on May 31st, 1999) for the year 2004-05: Rs.9,600 (Loan is still unpaid). Calculate the Income Chargeable to Tax

25. From the particulars given below compute income from house property. Municipal Rental Value Fair Rental Value Self-Occupied portion Let Out portion (1.4.2004 to 30.9.2004 @ 4,750 p.m. and self-occupied from 1.10.2004 onwards Municipal Taxes paid Fire Insurance Premium paid Ground Rent paid Interest on loan taken for construction Date of completion of construction

Rs.45,000 Rs.42,000 1/5 4/5 Rs.2,575 p.a. Rs.3,000 p.a. Rs.4,020 p.a. Rs.6,400 1.8.2000

26. ‘X’ owns a house (construction of the house completed on January 31, 1993) which is partly self-occupied and partly let out. 40 % of the floor area is let out for residential purpose on a rent of Rs.2,750 p.m. (However, this portion remains vacant for 2 months from February 1, 2005 to March 31, 2005, when it was used by X). Of the remaining 60%, 25% of the floor area is used by X for purpose of his profession while the remaining 35% is utilized for purpose of his residence. Other particulars: Municipal Valuation Rs.65,000 Standard Rent Rs.70,000 Municipal Taxes paid Rs.12,000 Interest on Capital borrowed for renewal of Rs.17,500 property Ground Rent Rs.4,500 Annual Charge created under the bill in favor Rs.15,000 of Mrs. X Fire Insurance Premium paid Rs.7,500 Income of X from profession is Rs.64,500 (with debiting house rent and other incidental expenditure including admissible depreciation on portion of house used for profession – 2,000). He has contributed Rs.2,000 towards home loan account of National Housing Bank. Compute the Total Income. 27. For the assessment year 2005-2006, X submits the following information. Income from business Rs.27,000 Interest on non-government securities Rs.4,000 Property Income House 1 House 11 Municipal Valuation 20,000 25,000 Rent Received 25,000 36,000 Municipal Taxes Paid 2,400 2,700 Repairs 400 1,600 Collection Charges 500 600 Land Revenue Paid 1,400 2,250 Insurance Premium 1,700 3,275 Unrealized Rent of 2004-05 1,400 1,500 Date of Completion of Construction January 31, 1992 December 31, 1991 Determine the taxable income and tax liability of X for the assessment year 20052006 (Both the houses are let out for residential purpose). He also contributes Rs.2,000 towards home loan account of National Housing Bank.

28. Mr. X has occupied 3 houses for his residential purposes, particulars of which are as follows: House 1 11 111 Rs. Rs. Rs. Standard rent under Rent Control Act17,500 20,000 22,500 Municipal valuation 14,000 21,750 24,000 Fair rent 15,000 25,000 23,000 Municipal taxes paid 1,500 1,700 600 (paid by Tenant) Repairs Nil 400 600 Insurance premium paid during 400 600 2004-05 Due but outstanding on March 650 31, 2005 Ground rent due 1,700 1,800 2,050 House 1 remained vacant for 2 months from February 1, 2005 to March 31, 2005. X borrows Rs.15,000 @ 18% p.a. for construction of House 11 (date of borrowing: April 1, 1993, date of repayment of loan: May 1, 1995). Construction of all the houses is completed on April 1, 1999. Determine taxable income and tax liability for assessment year 2005-2006. 29. X occupies two houses for his residential purposes. Details are given below: House 1 House 11 Municipal valuation 85,000 44,000 Standard rent under Rent Control Act 62,000 Municipal taxes 10% 10% Fair rent 60,000 55,000 Fire insurance 6,000 5,500 Interest on capital borrowed for construction of 16,600 house Repairs 1,200 400 Date of commencement and completion of construction of House 1 is April 1, 1992 and October 31, 1992 and House II is March 14, 1990 and April 12, 1991 respectively. Determine the income from house property for the assessment year 2005-06.

30. Nisha owns a house property (date of completion: May 03, 1970) consisting of two similar residential units (Unit A on the ground floor and Unit B on the first floor). While Unit A is fully self-occupied throught the previous year 2004-2005, Unit B is let out for residential purposes (rent being Rs.4,000 per month) from April 01, 2004 to January 31, 2005 and self-occupied for the remaining part of the year. The following information is also available. Particulars Amount (Rs.) Fair rent of the property 80,000 Municipal valuation 90,000 Municipal taxes (paid) 4,000 Interest on borrowed capital (which is used for the 18,000 purchase of the property) Ground rent 500 Dividend from Reliance India Ltd. (RIL) 15,000 Interest from units of UTI 5,000 Income as part time Lecture and Examiner 30,000 You are required to find out the net income of Nisha for the assessment year 20052006. 31. Parag owns a house at Bombay, the details of which are provided below: Municipal value Rs.24,000 Fair rent Rs.22,000 The house is let out for residential purposes on monthly rent of Rs.2,500 from April 01, 2004 to May 31, 2004 and January 01, 2005 to March 31, 2005. The house is selfoccupied by Parag for the remaining part of the previous year 2004-2005. Parag incurs the following expenses with respect to the house property in the year 2003-2004: Particulars Amount (Rs.) Municipal taxes 4,000 Repairs 1,000 Fire insurance premium 2,500 Land revenue 4,600 Parag borrowed Rs.1,20,000 (which is still unpaid) on April 01, 1999 @ 20% p.a. Interest on borrowed capital for the year 2004-2005 is Rs.24,000. Construction of the house is completed on April 01, 2000. Income of Parag from other sources is Rs.96,000. You are required to determine the taxable income of Parag for the assessment year 2005-2006.

Profits and Gains of Business or Profession 35. From the following Profit and Loss a/c of M/s. X Ltd. determine the taxable income for the assessment year 2001-2002. General expenses 4,200 Gross profit 1,90,700 Salary to staff 60,000 Interest on bank deposit 4,000 Fire insurance 2,000 Short-term capital gains 16,700 Sales tax 5,000 Dividends received 9,800 from a foreign company Advance income tax paid 1,000 Reserve for future losses 20,000 Rent and Repairs of 3,000 building Loss of cash by an 6,050 employee through embezzlement Legal expenses 21,500 Net profit 98,450 2,21,200 2,21,200 • General Expenses include Rs.1,050 paid as compensation to an old employee whose services were terminated in the interest of business and Rs.600 by way of help to a poor student. • Salary to staff includes payment of Rs.4,500 out of India on which tax has not been deducted at source. • Legal expenses include payment of Rs.8,000 to an advocate for giving advice on income tax matters. • During the previous year 2000-2001, the company purpose a plot of land for Rs.90,000 in order to construct a laboratory building for research. Construction of the building has not yet commenced. Cost of construction is expected to be Rs.1,10,000. 36. X furnishes the following information for the assessment year 20012002. Profit and Loss Account for the year ending March 31, 2001. Rs. Office expenses 7,800 Gross profit Salary to staff 21,600 Interest on Govt. securities (Gross) Expenditure on occasion of 8,200 Interest on post office Diwali savings

Rs. 1,25,700 4,000 2,500

Cost of extension to building Depreciation Entertainment expenses Contribution to: Unapproved Gratuity Fund Unrecognized provident fund Reserve for bad debts Net profit

11,200 Bad debts recovered (earlier allowed as deduction) 3,700 12,506

300

6,000 Sundry receipts 2,000 4,500 700 58,294 1,34,500 1,34,500 • Office expenses include a sum of Rs.2,500 paid in cash. • Salary to staff includes a payment of a sum of Rs.4,075 to a relative which is reasonable. • Depreciation according to income tax provisions works out to Rs.2,400. • X had gone on a business trip to Bombay. Expenditure incurred on traveling was Rs.1,931.25 per day for 6 days. This has not been recovered in the books. • Commission of Rs.4,000 paid for securing a business order has not been recorded in the books. Find out the taxable income for the assessment year 2001-2002.

37. X furnishes the following particulars for the assessment year 2001-2002. P & L a/c for the year ending March 31, 2001 Rs. Rs. Salary to staff 12,750 Gross profit 1,57,000 Advertisement 8,000 Rent of house property 24,900 received Wealth tax 2,500 Short-term capital gains 7,000 Income tax penalty 1,750 Bad debts recovered 5,600 (disallowed earlier) Travelling expenses 7,000 Gift received 4,000 Bonus to staff 8,500 Winning from lottery 6,000 Contribution to 6,200 Unrecognized Provident fund Car expenses 7,500 Depreciation 12,000 Repairs of house property 6,000

Municipal taxes of house property Interest on capital borrowed for construction of house property Net Profit

4,500 8,000

1,19,800 2,04,500 2,04,500 a. Salary includes payment of Rs.1,700 to a relative which is unreasonable. b. Advertisement includes cost of 5 articles being Rs.1,500 each. c. Travelling expenses includes an expenditure of Rs.1,750 per day for 4 days. (Being a business trip to Delhi.) d. Bonus is outstanding on March 31, 2001. 1/3 is paid on December 1, 2001. (Due date of furnishing return of income – August 31, 2001.) e. ¼ of Car expenses relate to personal use. f. Depreciation as per income tax provisions is Rs.9,500. g. X owns a house property. 25% is used for residential purpose. 50% of carpet area is let out and 25% is used for the purpose of his business. The rent of let out portion is Rs.2,075 p.m. Construction of the house is completed in the year 1987. He deposits Rs.27,000 on April 30, 2001 in the home loan account scheme of National Housing Bank. Determine the taxable income of X for assessment year 2001-2002.

38. From the Profit and Loss account of X for the year ending March 31, 2000 ascertain his taxable income for the assessment year 2000-01. Rs. Rs. Salary to staff 27,000 Gross profit 3,65,000 Household 14,000 Dividends from a 16,000 expenses foreign company Bad debts 600 Profit on sale of 45,000 import license Provision for bad 4,200 Bad debts 4,000 debts recovered (earlier allowed as deduction) Expenditure on 12,500 Gift from son 9,500 acquisition of patent right Provision for 9,750 Commission and 97,500 outstanding sales Discount

tax and excise duty Advertisement Lump sum consideration for acquiring knowhow Sundry expenses Depreciation Gift tax Net profit

25,000 45,000

10,500 20,000 2,500 3,66,000 5,37,050 5,37,050 1. Salary to staff includes salary to a relative which is unreasonable to the extent of Rs.6,700. 2. Out of outstanding sales tax, Rs.4,000 is paid on May 14, 2001 and the balance on August 30, 2001. Date of filing of return of income – August 31, 2001. 3. Advertisement expenses includes Rs.8,000 being cost of 2 articles. 4. Sundry expenses include expenditure of Rs.6,750 on maintenance of guest house in Delhi. 5. Depreciated value of Plant & Machinery (A & B) on April 1, 2000 – Rs.1,60,000. • Plant C whose cost is Rs.40,000 (eligible for 25% depreciation) is purchased on November 1, 2000. • Plant A (Depreciated value – Rs.26,750) is sold for Rs.15,000 on September 15, 2000. • Plant B and Plant C are sold for Rs.40,000 on January 30, 2001. 6. During the previous year 2000-2001, X makes payment of Rs.18,600 to an approved institute for the purpose of carrying on scientific research in natural science. The research is not related to the business of the assessee. Determine Net Income and tax liability of X for the assessment year 2001-02 assuming that he annually deposits Rs.4,500 to a public provident fund.

39. X is owner of a departmental store at Hyderabad. From the information furnished by him, calculate his total income for assessment year 20012002. Profit and Loss account for year ending March 31, 2001 Rs. Rs. Opening stock 1,40,000 Sales 40,00,000 Purchases 37,50,000 Closing stock 3,60,000 Salaries and Wages 1,40,000 Rent and Rates 36,000 Commission 21,500 Income tax for 2000-01 25,000 Advertisement 4,200 Interest on own-capital 46,000 Reserve for future losses 4,500 Depreciation on furniture 16,000 Postage and telegrams 3,000 Net profit 1,73,800 43,60,000 43,60,000 Other particulars: 1. Amount of sales includes the value of goods worth Rs.51,000 which were drawn by X for personal use. Cost price of goods was Rs.45,000 and their market price was valued at Rs.56,000. 2. Stock of goods has been valued at 20% below cost. 3. Depreciation as per income tax provisions Rs.14,700. 4. Income of X from other sources Rs.80,000. 5. Salary and wages includes payment to a relative which is unreasonable to an extent of Rs.4,000. 40. XYZ Ltd., an Indian Company, furnishes the following particulars for the assessment year 2001-02. P & L a/c for year ending March 31, 2002 Rs. Rs. Expenses on 4,500 Sundry receipts 6,200 promotion of family planning among employees Sales tax 2,500 Interest on bank 16,500 deposits

Reserve for future losses Bad debts Reserve for payment of advance income tax Car expenses Depreciation: Machinery Car Furniture Building Rent of building Sundry expenses Expenses on issue of shares for setting up an industrial undertaking Cost of project: Rs.20 lakh Net profit

21,000 Capital gains on sale of short-term investments 3,000 12,750

4,000

8,900 14,000 2,500 4,500 3,080 4,600 14,500 15,000

1,55,870 4,46,700

4,46,700

Other Information: 1. Expenditure on family planning includes capital expenditure of Rs.3,700. 2. ¼ of car expenses relate to personal use. 3. Depreciation on machinery as per income tax provisions works out to Rs.12,000. 4. Sundry expenses include Rs.4,500 being payment of printing bill to relative of Managing Director. 5. Salary includes payment of Rs.25,000 by way of a bearer cheque to an employee. 6. Contribution to National Laboratory for carrying out approved scientific research Rs.30,000. This contribution is qualified for weighted deduction under Section 35 (2AA).

The profit and loss account for the year ended 31st March, 2001 of M/s A & Sons, a proprietory concern is as follows: P & L a/c for year ending 31st March, 2001 Rs. Rs. Opening stock 60,000 Sales 16,00,000 Purchases 9,00,000 Closing stock 20,000 Wages 1,20,000 Salaries 48,000 Interest 46,000 Customs duty 9,800 General expenses 48,000 Depreciation 20,000 Income tax 45,000 Net profit 3,23,200 16,20,000 16,20,000 The following particulars are available: 1. Both the opening and closing stocks are valued at 15% below cost. 2. Interest includes a sum of Rs.16,000 being interest paid on debentures. 3. Wages include Rs.4,000 paid to the proprietor’s domestic servants. 4. Depreciation as per income tax provisions works out to RS.15,500. Calculate the taxable income for the assessment year 2001-2002 from the above data. 41.

42. X an advocate who maintains books of account on cash basis furnishes the following particulars of his income for the previous year ending March31, 2001. Receipts and payments a/c for year ending March 31, 2001 Rs. Rs. Balance b/d 2,500 Purchase of computers 8,000 Fees from clients: Car expenses 4,900 1998-1999 10,000 Office expenses 8,600 1999-2000 38,000 Interest on Loan 1,200 2000-2001 2,500 Income tax penalty 2,500 Presents from clients 6,000 Salary to staff 14,400 Loan from client 7,500 Contribution to public 1,500 provident fund Balance c/d 25,400 66,500 66,500

1. 35% of car expenses are attributable towards use of car for personal purposes. Depreciation @ 20%. 2. Written down value of the car on 1/4/2000 is Rs.12,500. 3. Fees due but outstanding – Rs.1,600. 4. Income of X from other sources Rs.20,000. 5. He purchased a typewriter for Rs.20,000 on April 10, 2001. Rate of depreciation 25%. Determine the taxable income of X for the assessment year 2001-2002. 43. X is a chartered accountant in practice. He is a resident and ordinarily resident in India. His Profit and Loss account for year ended March 31, 2001 reads as follows: P & L a/c for year ending 31st March, 2001 Rs. Rs. Salaries paid to staff 3,75,000 Fees earned Audit 2,40,000 Stipend to articled clerks 11,000 Taxation services 1,85,000 Rent 28,800 Consultancy services 2,75,000 Printing & Stationery 4,800 Income from UTI units 4,500 Interest on Loan 31,000 Profit on sale of shares 16,000 Books & periodicals 14,750 Honorarium from various 5,700 institutes for valuation of answer papers Postage 32,000 Repairs, maintenance 15,000 and Petrol for car Depreciation: Car 6,000 Computer 5,000 Typewriter 3,500 Furniture 2,000 Municipal tax paid in 1,500 respect of House Property Net Profit 1,95,350 7,26,200 7,26,200 1. He has incurred an expenditure of Rs.4,000 for entertaining various clients in hotels and clubs. 2. ¼ of car expenses is attributable to personal use. 3. 40% of loan was used for construction of house property and 60% was used for purchasing office computer.

4. R follows accrual basis of accounting. Printing and stationery include Rs.1,500 being the cost of some stationery items purchased in accounting year 1996-97 which was not provided for in that year due to oversight. 5. Written down values of various assets as on April 1, 2000 are as follows: Car (acquired on April 1, 1996) 81,000 Computer (acquired on April 2, 2000 at cost of Nil Rs.1,00,000) Typewriter (acquired on April 1, 1998) 20,000 Furniture (acquired on April 1, 1998) 25,000 Shares sold were held for 24 months before sale. 44. Discuss with reasons the admissibility of the following expenditure by an assessee under the provisions of the Income Tax Act, 1961. a. A sum of Rs.10,000 is payable by the assessee as an employer by way of contribution to a recognized provident fund for welfare of employees. b. A sum of Rs.4,500 is payable by the assessee as interest on term loan taken from a scheduled bank. c. Interest paid on borrowed capital for the construction of property till the date of letting out. 45. X Limited incurs capital expenditure of Rs.45,000 for acquisition of license to operate telecommunication services on April 1, 1998. The license comes to an end on April 1, 2007. In April, 2001 the Company transfers the license for an amount of Rs.48,000. Discuss the taxability under Section 35ABB. 46. X Co. Limited, a manufacturing concern, debited to its interest account a sum of Rs.25,000 being the interest on a loan taken to finance its expansion program. The machinery and plant purchased by using the proceeds of the loan was not put to use during the previous year as it was still in transit at the end of the year. a sum of Rs.7,500 was paid to a broker who had arranged the loan. Discuss the admissibility of the interest on loan and brokerage paid in the company assessment as deduction in computing business profits. 47.A firm of 4 partners is dissolved. It held stocks valued at Rs.5,00,000 on the date of dissolution, the basis of valuation being cost. For settlement of

accounts between the partners on dissolution, they have adopted Rs.5,00,000 as the value of stocks. Discuss. The net profit as per the profit an loss account of Mr. Ram is Rs.8,97,000 for the financial year ending 31st March, 2000. The following information is obtained from the books of accounts. a. The following payments made to or for the benefit of employees are debited to profit and loss account: i. Salary to 25 employees @ Rs.1,500 p.m. – Rs.4,50,000. ii. Employees contribution to recognized provident fund is Rs.60,000 out of which Rs.45,000 is credited to the relevant fund before the due date. th iii. Bonus paid to employees on 15 November, 2000 – Rs.75,000. th iv. Incentive to workers paid on 15 December, 2000 – Rs.40,000. v. Amount paid outside India on which tax is not deducted at source – Rs.65,000. vi. Expenditure incurred for promoting family planning among employees is Rs.35,000 out of which capital expenditure incurred for promoting family planning expenditure among employees is Rs.20,000. b. Advertisement expenditure debited to profit and loss account includes the following: i. Rs.8,900 being capital expenditure incurred on advertisement. ii. Rs.40,000 on advertisement in a brochure published by a political party. iii. Rs.27,000 is paid in cash. iv. Rs.15,000 paid to a concern in which Mr. Ram has substantial interest (Amount paid is excessive to the extent of Rs.6,700). c. Rs.17,000 is debited to profit and loss account as interest on capital borrowed for payments of income tax. d. Rs.40,000 is payment made to an approved institution for use in research for social science which is totally unrelated to the assessee’s business. e. Entertainment expenditure debited to profit and loss account – Rs.25,000. f. Ram has also incurred expenditure of Rs.45,000 for acquiring knowhow for the purpose of his business. This entry is not reflected in the profit and loss account. g. Ram owns a car which he uses for both private and official purposes. The car is used 35% for personal purposes and 65% for business purposes. Car expenses incurred for the financial year 1999-2000 are Rs.17,800. The written down value of the car on 31.3.1997 without 48.

providing for depreciation for assessment year 1997-98 is Rs.60,000. Mr.Ram has not made any entry relating to the car in his books. h. Ram has also debited the profit and loss account for Rs.13,350 being travelling expenses incurred by an employee in respect of an official visit to Bangalore for 6 days (per day expenditure: Rs.2,225). i. Interest on bank deposits credited to the profit and loss account – Rs.25,000 You are required to compute the net income of Mr.Ram for the assessment year 2000-2001. 49. Following are the details of Profit and Loss account of Hotline Ltd. which shows a profit of Rs.10,50,000 after debiting the following: i. Fee paid to a chartered engineer for valuation of company’s fixed assets – Rs.15,000. ii. Income tax paid in foreign countries – Rs.82,000. iii. Expenses incurred to eliminate a drain under statutory obligation – Rs.21,000. iv. Loss caused by depreciation of investment in securities – Rs.12,710. v. Payment in respect of income tax proceedings – Rs.12,000. vi. Salary of Rs.6,10,000 includes salary paid to an employee, amounting to Rs.81,000, for dealing with income tax matters. vii. Legal expenses incurred in connection with issue of capital – Rs.14,000. viii. Expenses incurred for registration of a trade mark – Rs.10,000. ix. Provision for anticipated future loss in business – Rs.1,20,780. x. Payment as salary to a foreign technician – Rs.1,07,000. xi. Travelling expenses of a director in connection with business related foreign collaboration – Rs.91,000. Determine the taxable income of Hotline Ltd. for the assessment year 2000-2001.

58. On September, 1995, X & Y each purchases 600 fully convertible debentures of A Ltd. @ Rs. 275 per debenture (Brokerage 1%). As per terms of these debentures, A Ltd. will give an option to the debenture holders on October 31, 1997 to get conversion of 1 debenture into 3 equity shares in the company irrespective of the market value of the debentures or shares. While X gets his debentures converted into shares, Y does not exercise his option. Market value of shares and debentures of A Ltd. on October 31, 1997 is Rs. 80 and Rs. 250 respectively (taken from the stock exchange daily official quotations). X sells 1800 equity shares in A Ltd. on November 1, 2000 @ Rs. 145 per share (Brokerage 0.5%) and Y sells 600 debentures of A Ltd. on October 10, 2002 @ Rs. 450 per debenture (Brokerage 1.75%). Find out capital gains chargeable to tax for assessment year 2003 – 2004 in the hands of X & Y. cost Inflation index for the relevant years are follows: 1995-1996 - 281 1997-1998 - 331 1998-1999 - 351 2002-2003 - 447 59. X purchases a house property for Rs. 2,14,000 on September 30, 1981. Fair Market Value of the property on April 1, 1982 is Rs. 1,70,000. He incurs the following expenses: (a) Construction of room on the ground floor during 1981-1982- Rs. 35,000. (b) Renewals in 1994-1995 –Rs. 68,000. The property is transferred on March 1, 2003 for Rs. 6,15,000. (Expenses incurred on transfer – Rs. 40,000). Cost Inflation Index for the relevant years are as follows: 1982.83 109 1994.95 259 1998.99 351

2002.3 447 Find out the amount of Long-term Capital Gains for assessment year 20032004.

60. ‘X’ sells a commercial building on May 15, 2002 for Rs. 10,50,000. From the data given below, find out income under the head Capital Gains for the assessment year 2003-2004. Cost of plot of land (acquired in 1986-87) 65,000 Cost of construction (incurred in 1988-89) 1,45,600 Cost of additional construction (incurred in 1992-93) 25,000 Expenditure on transfer 4,000 Cost inflation index for the relevant years are as follows: 1986.87 140 1988.89 161 1992.93 223 2002.3 447 69. Mr. Arvind bought a house in 1978 for Rs. 1,50,000. He constructed first floor of the house in 1980-81 for Rs. 2,00,000. He again constructed second floor of the house in 1978-88 for Rs. 3,00,000. He gifted the house to his wife on October 10, 1990. Mrs. Arvind sold the house on January 01, 2003 for Rs. 28,50,000. She paid brokerage of Rs. 40,000 on the sale of house. The fair market value of the house on April 01, 1981 was Rs. 5,00,000. She made a contribution of Rs. 50,000 to Public Provident Fund. You are required to compute Mrs. Arvind’s capital gain and tax liability arising thereon for the assessment year 2001-2002. (Cost of Inflation Index : 1987-88=150; 1990-91=182; 2002-03=447.) 71. Pretty Zeta Jones owns a house property and an agricultural land. She bought the house in 1989 for Rs. 1,54,000 and the house is self occupied. Her father has been using the land (150 acres) for cultivation since the last 15 years. Its fair market value as on April 01, 1981 was Rs. 5,00,000. She sells the following in the year 1999-2000: (a) House for Rs. 5,00,000 and purchases another house within 3 months for Rs. 2,00,000 for self-occupation.

(b) Agricultural land for Rs. 22,00,000 in December 2001. Within 2 months she buys another piece of agricultural land for Rs. 5,00,000 to be used for cultivation. (c) Gold jewelry for Rs. 1,20,000, Rs. 25,000 being the fair market price as on April 01, 1981. She purchases new jewelry for Rs. 56,000 within six months of sale of old jewelry. You are required to compute the taxable capital gains of Pretty Zeta Jones for assessment year 2001-2002. [Cost inflation index – 1989-90: 172; 2000-2001: 406]. 72. Sushmita subscribed 1000 shares of Dollar Dreams Ltd. an entertainment company, on April 01, 1993 at Rs. 10 per share when Dollar Dreams Ltd. came with an IPO. On April 01, 1995 Dollar Dreams came with a right issue at the ratio of 2:1 (2 shares for every existing share held) at a price of Rs. 50 per share ( Rs. 10 par value with a premium of Rs. 40 per share). Sushmita subscribed to 1000 right shares and renounced 1000 shares in favor of Aishwarya by transferring the right entitlement for a consideration of Rs. 10,000. On April 01, 2000 Dollar came out with a bonus issue at the ratio of 2:1 (2 shares for every share held). On March 31, 2003 both Sushmita and Aishwarya sold their holdings @ Rs. 500 per share. The transaction costs involved were 0.50% of the sale consideration. You are required to compute the capital gains arising in the hands of Sushmita and Aishwarya for the assessment year 2003-2004 clearly indicating the short-term and long-term capital gains. [Cost of Inflation Index: 1993-94:244, 1995-96:281, and 2002-03:447]. 88. X, a resident individual, furnishes the following information of his income/expenditure relevant for the previous year ending March 31, 2001. Business income Long-term Capital gain Winning from card games Payment of Mediclaim Insurance premium on own life Dividend from Indian Companies Donation to a poor boy for higher education Donation of clothes to an approved institution

Rs. 60,700 25,000 9,500 6,000 6,500 8,000 7,000

Donation to Indira Gandhi Memorial Trust 4,000 Donation to Rajiv Gandhi Foundation 2,000 Donation to Government for promoting family planning 1,500 Donation to Prime Minister’s relief fund 2,500 Determine his net income for assessment year 2001-2002 assuming that his income from short-term capital gains is Rs. 1,250. 89. X, a salaried employee gets Rs. 64,000 as basic salary and Rs. 4,500 as dearness allowance forming part of salary. His employer provides an unfurnished house at concessional rent in Amritsar (Fair Rent: Rs. 20,000; Rent Paid by X: Rs. 3,000) Income of X from other sources is Rs. 12,500. He pays medical insurance premium of Rs. 2,500. Determine net income of X for assessment year 2001-2002.

90. X Ltd. is engaged in manufacturing and/or processing of heavy chemical for export. For the year ending March 31, 2003 the summarised profit and loss account in as follows: Expenses (other than given below) Fright and insurance attributable to transport of goods beyond customs station in India Net Profit

60,10,000 Total turnover (of goods exported) 58,900 Export incentive u/s 28(iiia) (iiib) (iiic)

80,90,000

Brokerage, commission rent, interest 24,22,100 Profit of foreign branch 84,91,000

25,000

3,10,000

66,000 84,91,000

Other Information: 1. Out of total expenses of Rs. 60,10,000, debited to the profit and loss account, Rs. 2,15,000 is not deductible by virtue of Section 40 and 40A. the balance amount is however deductible. 2. On January 13, 2003, Rs. 78,000 is paid on account of customs duty of the previous year 2001-2002. Since this amount pertains to the previous year 2001-2002, it has not been debited to the aforesaid profit and loss account. 3. The company has received Rs. 78,30,000 in convertible foreign exchange till September 30, 2003 ( out of which Rs. 35,000) is freight and insurance attributable beyond customs station in India). The company has not applied for obtaining extension of time under Section 80HHC. 4. During the previous year 2002-2003, the income of the company from other sources is Rs. 85,000. 5. Out of export incentive of Rs. 3,10,000, Rs. 45,000 is profit on sale of license acquired from others. Compute the net income of the company for assessment year 2003-2004.

91. The business of X Ltd., wholly consists of export of goods manufactured by others. The Profit and Loss account of X limited for the previous year 2002-2003 is as follows:

opening stock Cost of goods purchased during the year

1,35,000 Total turnover 14,45,000 2,10,000 (consisting of only export of goods manufactured by others but not including freight and insurance for transport beyond customs station in India) 35,000 Export incentives as per 2,15,000 Section 28(iiia)(iiib)(iiic)

Brokerage Commission paid for purchase Other Direct Costs 12,000 Brokerage, Interest 1,12,000 Indirect cost (i.e. 86,000 Profit of foreign branch 95,000 office expenses, travelling expenses, interest, etc.) Income tax 45,000 Closing stock 1,60,000 Salary (including 1,25,000 provident fund contribution) to employees Net profit 13,79,500 20,27,500 20,27,500 Other Information: 1. Payment of Rs. 35,000 is made to a supporting manufacturer by bearer cheque. 2. Rs. 12,000 (being provident fund contribution) is included in salary payment. The Provident fund is recognised. The payment is however made after the due date of making payment. 3. Amount brought into India in convertible foreign exchange within the specified time limit is Rs. 10,25,000. 4. For the previous year 2002-2003, short-term capital loss is Rs. 12,000. 5. Out of the export incentive of Rs. 2,15,500, Rs. 85,000 is profit on sale of license acquired from others. Determine taxable income for assessment year 2003-2004 if the assessee company is an export house (being the holder of export house certificate) and it has issued 4 disclaimer certificates in Form 10CCAB to 4 supporting manufacturers for total turn over of Rs. 1,10,000.

92. From the following information of X, determine his net income for assessment year 2001-2002. Business income Dividend from a co-operative society Dividend from a foreign company Dividend from a private company registered in India Interest on deposit with a company Interest on deposit with a co-operative bank Interest on deposit with a co-operative society Interest on unit of Unit Trust of India Interest on funds borrowed for the purpose of investment in shares of the foreign company

Rs. 30,000 800 12,000 2,000 600 1,200 500 1,200 1,250

93. Suraj, a Development Officer with the LIC, after taking a housing loan purchased a house and took possession in January, 1983. However, as the house was not fit for human habitation, he took a further loan from LIC of Rs. 79,700 in August, 1988 for carrying out additions and alterations. In the previous year relevant to the assessment year 2000-2001 and 20012002, he made repayment of the said loan of Rs. 79,700 to the extent of Rs. 6,000 and Rs. 7,800 and claimed these amounts as eligible for grant under Section 88. Decide 94. Mr. ‘X’ left India for the first time on April 15, 1997 and returned during the year 2000-2001 on October 18, 2000. His income details for the previous year 2000-2001 is given below: a. Income from business (controlled from India) in Nepal Rs. 15,000 and the income is later remitted to India. b. Income earned from bank interest in Sri Lanka and received their amounts to Rs. 7,000. c. Share of income from a HUF as member thereof – Rs. 5,000. d. House Property Income from Nepal – Rs. 7,500. e. Profits earned abroad and received in India – Rs. 6,000. f. Salary from an Indian Company received in Germany (1/3 is paid for rendering service in India) – Rs. 25,000. g. Royalty received in India from a resident in respect of technology used by such person outside India – Rs. 20,500.

Find out the Gross Total Income of X for the previous year 2000-2001. 95. Profit and Loss account of X, an individual, shows a net profit of Rs. 4,80,000 for the year ending March 31, 2001. 1. Salary to staff includes basic salary to 15 employees 2,70,000 @ 1,500 p.m. Employee contribution to recognized provident fund 27,000 Entertainment allowance to employees (including 2 15,000 Directors) Salary to X’s brother (X’s brother may not get salary Of more than 1,200 p.m. in any other concern) 20,000 Mediclaim insurance premium of 15 employees 22,500 3,54,500 2. Depreciated value of plants owned by X, on April 1, 2000 Plant (25% depreciation) purchased on December 1, 1999 Plant B (25%depreciation) sold during the previous year 2000.2001 Amount claimed as depreciation

2,10,000 20,000 40,000 60,000

3. X makes payment of a bill of Rs. 25,000 by way of a bearer cheque. This amount is debited to the Profit and Loss account. 4. Donation debited to Profit and Loss account include a donation of Rs. 40,000 for the National Urban Poverty eradication fund. 5. Rs. 12,000 is debited to Profit and Loss account – Deposit made under own your telephone scheme. 6. Rs. 15,000 debited to profit and loss account being expenses of shifting business premises from original site to present site which is advantageously situated. 7. Interest on loan/capital (debited to the profit and loss account) includes the following: Interest on own capital of X – Rs. 25,000. Interest on loan taken from a public financial institution paid on March 5, 2000 (1/3 of the loan is utilized for payment of income tax) – Rs. 20,000. Compute the taxable income of X for the assessment year 2001-2002. 96. ‘X’ owns a house at Madras (Municipal Value – Rs. 28,000. Fair Rental Value – Rs. 26,500, Standard Rent – Rs. 27,000). During the previous year the house was let out from 1.4.99 to 31.8.00 and from 1.11.99

onwards on a monthly rent of Rs. 2,500. (It was unoccupied from 1.9.99 to 31.10.99). Out of rent received, the owner provides lift facility for which the charges amount to Rs. 6,500 p.a. Other expenses incurred are as follows: i. municipal Taxes – 12% of Municipal Rental Value. ii. Repairs – 1,200. iii. Collection charges – Rs. 1,000. iv. Fire insurance – Rs. 2,500. v. Land Revenue – Rs. 4,150. st vi. Interest on borrowed capital (Rs. 60,000 is borrowed on August 1 , 1994 @ 16% p.a. construction of house is completed on May 31st, 1995) for the year 1999-2000: Rs. 9,600 (loan is still unpaid) Determine the income from house property for the assessment year 20012002. WEALTH TAX 97. Wealth tax is payable in respect of excess of assets over debts. However, Section 45 Wealth Tax Act exempts certain ‘persons’ from the purview of wealth tax. Name. 98. Mr. Verma made a cash gift of Rs. 4 lakh to Mrs. Verma in 1993. Mrs. Verma bought jewelry with the money. The value of the jewelry as on March 31, 2001 was Rs. 6,50,000. What would be the implication of these in the computation of net wealth of Mr. Verma for the assessment year 2001-2002? 99. As on March 31, 2001 Illiad and Odyseey Ltd. owns two office flats at Hyderabad. Illiad and Odyseey purchased these flats for resale in the year 2000 at a price of Rs. 5 lakh and Rs. 4 lakh respectively. What would be the net wealth of Illiad and Odessey with respect to these two flats for the assessment year 2002-2003?

100.Mr. Inder Kumar Agarwal, owns a house property situated at Pune. The annual value of the property as per the municipal records is Rs. 80,000. Rent received from the tenant is Rs. 72,000. Municipal taxes are paid partly by him Rs. 4,000 and partly by the tenant Rs. 3,000. Repair expenses of Rs. 5,200 are, however, borne by the tenant. The tenant has

deposited Rs. 1,00,000 with owner as refundable security, which does not carry any interest. The difference between the unbuilt area and the specified area does not exceed 5% of the aggregate area. Required: Determine the value of the property on the assumption that the house is built on (a) freehold land; (b) leasehold land (unexpired period of lease is more than 50 years).