CA PCC Question Papers- Group II
Taxation November 2010
This Paper has 21 answerable questions with 0 answered
Total No. of Questions — 7] [Total No. of Printed Pages — 8
Time Allowed : 3 Hours
Maximum Marks : 100
Q.No. 1 is compulsory.
Attempt any five questions from the remaining six questions.
Working notes should form part of the answer.
Wherever necessary suitable assumptions may be made by the candidates.
1. (a) Mr.Ram, an Indian citizen, left India on 22.09.2009 for the first time to work as an officer of a company in Germany.
Determine the residential status of Ram for the assessment year 2010–11 and explain the conditions to be fulfilled for the same under the Income–tax Act, 1961. 4×5=20 (0)
(b) Mrs.Kasturi transferred her immovable property to ABC Co. Ltd. subject to a condition that out of the rental income, a sum of Rs. 36,000 per annum shall be utilized for the benefit of her son’s wife.
Mrs. Kasturi claims that the amount of Rs.36,000 (utilized by her son’s wife) should not be included in her total income as she no longer owned the property.
State with reasons whether the contention of Mrs. Kasturi is valid in law. (0)
(c) Determine the total income of Mr.Chand from the following information for the Assessment Year 2010–11:
Interest received on enhanced compensation (It relates to transfer
- of land in the financial year 2004–05. Out of the above, Rs.65,000
- relates to financial year 2009–10 and the balance relate to preceding years)
- Business loss relating to discontinued business of the assessment
- year 2004–05 brought forward and eligible for set off
- Current year business inco(i.e. financial year 2009–10) (computed) 4,00,000
(d) Compute net VAT liability of Rishi from the following information:
particulars Rs Rs
Raw materials from foreign market
(includes duty paid on imports @ 20%)
Raw material purchased from local market
Cost of raw material
Add: Excise duty @ 16%
Add: VAT @ 4%
Raw material purchased from neighbouring State
(includes CST @ 2%)
Storage and transportation cost
Rishi sold goods to Madan and earned profit @ 12% on the cost of production. VAT rate on sale of such goods is 4% (0)
2. (a) Mr. Raju, a manufacturer at Chennai, gives the following Manufacturing, Trading and Profit & Loss Account for the year ended 31.03.2010.
Manufacturing, Trading and Profit & Loss Account for the year ended 31.03.2010
To Opening Stock
To Purchase of Raw Materials
To Manufacturing Wages&Expenses
To Gross Profit 71,000
34,00,000 By Sales
By Closing stock 32,00,000
To Administrative charges
To State VAT penalty
To State VAT paid
To General Expenses
To Interest to Bank
(On machinery term loan)
To Net Profit 3,26,000
12,55,000 By Gross Profit
By Dividend from
By Income from agriculture (net) 10,60,000
Following are the further information relating to the financial year 2009–10:
(vi) Administrative charges include Rs. 46,000 paid as commission to brother of the assessee.The commission amount at the market rate is Rs. 36,000.
The assessee paid Rs.33,000 in cash to a transport carrier on 29.12.2009.This amount is included in manufacturing expenses (Assume that the provisions relating to TDS are not applicable to this payment.)
A sum of Rs. 4,000 per month was paid as salary to a staff throughout the year and this has not been recorded in the books of account.
Bank term loan interest actually paid upto 31.03.2010 was Rs. 20,000 and the balance was paid in October 2010.
Housing loan principal repaid during the year was Rs. 50,000 and it relates to residential property occupied by him. Interest on housing loan was Rs. 23,000. Housing loan was taken from Canara Bank. These amounts were not dealt with in the profit and loss account given above.
Depreciation allowable under the Act is to be computed on the basis of following information:
Plant & Machinery (Depreciation rate @ 15%)
Opening WDV (as on 01.04.2009)
Additions during the year (used for more than 180 days)
Total additions during the year
Note: Ignore additional depreciation under section 32(1)(iia)
Compute the total income of Mr. Raju for the assessment year 2010–11.
Note: Ignore application of section 14A for disallowance of expenditures in respect of any exempt income.
(b) Prasad & Co. seeks your advise for the following in the context of service tax:
(ii) It wants to file revised service tax return even though the original return was filed belatedly.
It will pay service tax only on actual receipt of money from the customers, though it maintains its books of account on mercantile basis.
Your answer must be with reasons. 4 (0)
3. (a) Two brothers Arun and Bimal are co–owners of a house property with equal share. The property was constructed during the financial year 1997–98. The property consists ofeight identical units and is situated at Cochin.
During the financial year 2009–10, each co–owner occupied one unit for residence and the balance of six units were let out at a rent of Rs. 12,000 per month per unit.The municipalvalue of the house property is Rs. 9,00,000 and the municipal taxes are 20% of municipal value, which were paid during the year.The other expenses were as follows:
Insurance premium (paid)
Interest payable on loan taken for construction of house Rs.
One of the let out units remained vacant for four months during the year.
Arun could not occupy his unit for six months as he was transferred to Chennai. He does not own any other house.
The other income of Mr. Arun and Mr. Bimal are Rs. 2,90,000 and Rs.1,80,000, respectively, for the financial year 2009–10.
Compute the income under the head ‘Income from House Property’ and the total income of two brothers for the assessment year 2010–11. 12 (0)
(b) ABC & Co. received the following amounts during the half year ended 31–3–2010:
- For services performed prior to the date of levy of service tax
- (Assume service tax was levied from a specified date by change of law
- Advance amount received in March, 2010
- (No service was rendered and the amount was refunded to the client in July 2010)
- For free services rendered to customers, amount reimbursed by the
- manufacturer of such product.
(for the period after the imposition of service tax)
Amounts realized and on which service tax is payable (excluding the items (i) to (ii) above) Rs.
Calculate the service tax liability duly considering the threshold limit. 4 (0)
4. (a) Mukesh (aged 55 years) owned a residential house at Nagpur. It was acquired by Mukesh on 10.10.1984 for Rs. 4,00,000.It was sold for Rs.55,00,000 on 4.11.2009.The State stamp valuation authority fixed the value of the property at Rs.60,00,000.The assessee paid 2% of the sale consideration as brokerage for the sale of said property.
Mukesh acquired a residential house at Chennai on 10.12.2009 for Rs.15,00,000 and deposited Rs.10,00,000 on 10.4.2010 in the capital gain bond of Rural Electrification Corporation Ltd. (RECL). He deposited Rs. 5,00,000 on 6.07.2010 in the Capital Gain Deposit Scheme in a nationalized bank for construction of additional floor on the residential house property acquired at Chennai.
Compute the capital gain chargeable to tax in the hands of Mr. Mukesh for the assessment year 2010–11. Calculate the income–tax payable on the assumption that he has no other income chargeable to tax.
Cost inflation index : Financial year 1984–85 = 125
Financial year 2009–10 = 632
(b) M/s Arora Ltd.,submits the following details of expenditure pertaining to the financial year 2009–10:
- Payment of professional fees to Mr. Mani Rs. 50,000.Tax was not deducted at source.
- Interior works done by Mr. Hari for Rs.2,00,000 on a contract basis.Payment made
- in the month of March 2010.Tax deducted in March 2010 was paid on 30.06.2010.
- Factory Rent paid to Mr. Rao Rs.15,00,000.Tax deducted at source and paid on 01.10.2010.
- Interest paid on Fixed Deposits Rs.2,00,000. Tax deducted on 31.12.2009 and paid on 28.09.2010.
- Payment made to M/s Green & Co.towards import of raw materials Rs.25,00,000.
- No tax was deducted at source.The supplier, Green & Co., is located in London.
- Examine the above with reference to allowability of the same in the assessment
year 2010–11 under the Income–tax Act, 1961.You answer must be with reference
to section 40(a) read with relevant tax deduction at source provisions
(c) X & Co. is a service provider.It received Rs. 19,80,000 during the financial year 2009–10 after deduction of tax at source under section 194 J of the Income–tax Act, 1961.
The rate of tax deduction is 10% (i.e. after deduction of Rs. 2,20,000)
(ii) Calculate the service tax liability of X & Co.
Can a multiple service provider use a single challan for payment of service tax for various services rendered by it?
5. (a) Mr. Raghu, Marketing Manager of KL Ltd., based at Mumbai furnishes you the following information for the year ended 31.03.2010:
Basic salary –
Dearness allowance –
Contribution of employer to Recognised Provident Fund – Rs. 1,00,000 per month
Rs. 50,000 per month
2 Months basic salary
15% of basic salary plus dearness allowance
Rent free unfurnished accommodation was provided by the company at Mumbai(accommodation owned by the company).
Recognised Provident Fund contribution made by Raghu
- Health insurance premium for his family
- Health insurance premium in respect of parents (senior citizens)
- Medical expenses of dependent brother with ‘severe disability’
- (covered by Section 2(o) of National Trust for Welfare of Persons
- with Austism, Cerbral Palsy, Mental Retardation and Multiple
- Disabilities Act, 1999).
- Interest on loan taken for education of his son studying B.Com (fulltime) in a recognized college.
- Interest on loan taken for education of a student for whom
- Mr. Raghu is the legal guardian for pursuing B.Sc. (Physics) (full–time) in a recognized university. Rs.
Compute the total income of Mr. Raghu for the assessment year 2010–11. 8 (0)
(b) State the conditions for deductibility of bad debt written off under the Income–tax Act, 1961. 4 (0)
(c) State how the service tax paid would be adjusted when the service is not provided either wholly or partially? 4 (0)
6. (a) State with reasons the taxability/deductibility of the following items in the context of Income–tax Act, 1961:
- Agricultural income to a resident of India from a land situated in Malaysia.
- Bad debt of Rs. 50,000 written off and allowed in the financial year 2007–08
- recovered in the financial year 2009–10.
- Allowance received by an employee working in a transport system at Rs. 10,000 per
- month to meet his personal expenditure while in duty. He is not receiving any daily allowance.
- Amount withdrawn from Public Provident Fund as per relevant rules.
- Telephone provided at the residence of employee and the bill aggregating to
- Rs.25,000 paid by the employer. Determine the perquisite value taxable in the hands of employee.
- Payment of Rs.50,000 to an electoral trust by an Indian company.
Assume that all the facts given above relate to financial year 2009–2010. 12 (0)
(b) Raj and Co., a manufacturer of product ‘X’, sold its goods to a distributor at Rs. 11,250 (inclusive of tax). The distributor sold the goods to wholesaler for Rs. 13,500. The wholesaler sold the goods to a retailer for Rs. 16,875. The retailer sold the goods to
consumer at Rs. 22,500. All the sales were inclusive of VAT @ 12.5%.
Compute the total VAT payable under the subtraction method. 4 (0)
7. Answer any four out of the following: 4×4=16
(a) Explain the tax treatment of Limited Liability Partnership under the Income–tax Act, 1961. (0)
(b) Sachin received Rs.15,00,000 on 23.01.2010 on transfer of his residential building in a transaction of reverse mortgage under a scheme notified by the Central Government. The building was acquired in March 1991 for Rs.8,00,000.
Is the amount received on reverse mortgage chargeable to tax in the hands of Sachin under the head ‘Capital gains’?
Cost inflation index for the Financial year 1990–91–182
Financial year 2009–10 –632 (0)
(c) AB Co. Ltd. allotted 1000 sweat equity shares to Sri Chand in June 2009.The shares were allotted at Rs.200 per share as against the fair market value of Rs.300 per share on the date of exercise of option by the allottee viz. Sri Chand. The fair market value was computed in accordance with the method prescribed under the Act.
(ii) What is the perquisite value of sweat equity shares allotted to Sri Chand?
In the case of subsequent sale of those shares by Sri Chand, what would be the cost of acquisition of those sweat equity shares?
(d) Discuss briefly on carry forward and set off of losses in the case of change in constitution of firm or on succession under section 78 of the Income–tax Act, 1961. (0)
(e) List out the merits of VAT. (0)