CA PCC Question Papers Group II Taxation – May 2007
Total No. of Questions— 8] [Total No. of Printed Pages—4
Time Allowed : 3 Hours Maximum Marks : 100
Answers to questions are to be given only in English except in the cases of candidates who have opted for Hindi medium.
If a candidate who has not opted for Hindi medium, answers in Hindi, his answers in Hindi will not be valued.
Answer all Questions.
1. State with reasons, whether the following statements are true or false, with regard to the provisions of the Income–tax Act, 1961: [Answer any five out of six sub–divisions] 5×2=10
(i) Only individuals and HUFs can be resident, but not ordinarily resident in India; firms can be either a resident or non–resident. (0)
(ii) In respect of voluntary contributions in excess of Rs.20,000 received by a political party, exemption under section 13A is available where proper details about the donations are maintained; there is no need to maintain books of account. (0)
(iii) Payment made in respect of a business expenditure incurred on 16th February, 2007 for Rs.25,000 through a cheque duly crossed as “& Co.” is hit by the provisions of section 40A(3). (0)
(iv) For grant of deduction under section 80–IB, filing of audit report in prescribed form is must for a corporate assesses; filing of return within the due date laid down in section 139(1) is not required. (0)
(v) From 1.6.2006 onwards, the Assessing Officer has the power, inter alia, to allot PAN to any person by whom no tax is payable. (0)
(vi) Where the Karta of a HUF is absent from India, the return of income can be signed by any male member of the family. (0)
2. Mr. Pankaj, aged 58 years, who retired from the services of the Central Government on 30.6.06, furnishes particulars of his income and other details as under:
— Salary @ Rs.6,000 p.m.
— Pension @ Rs.3,000 p.m. for July’ 06 to Nov’ 06.
— On 1.12.2006, he got 1/3rd of his pension commuted for Rs.1,20,000.
— A house plot at Ernakulam sold on 1.2.07 for Rs.5,00,000 had been purchased by him on 3.11.79 for Rs.10,000. The stamp valuation authority had assessed the value of said house plot at Rs.6,00,000 which was neither disputed by the buyer nor by him. The value of this house plot as on 1.4.81 was Rs.15,000 (The cost inflation index for the year 2006- 07 is 519).
Received interest on bank FDRs of Rs.72,500, dividend on mutual fund units of Rs.15,000 and interest on maturity of NSC of Rs.50,000 out of which an amount of Rs.40,000 was already disclosed by him on accrual basis in the returns upto Asst. Year 2006-07.
— Investment in purchase of NSC for Rs.30,000 and payment for mediclaim insurance for self and wife of Rs.12,500. Made investment in Tax Magnum units of Mutual Fund of SBI of Rs.80,000.
Compute the total income of Mr. Pankaj for A.Y. 2007-08.
In the event of Mr. Pankaj being ready to make appropriate investment for availingexemption in respect of capital gain arising from sale of house plot, what will be the amount to be invested and the period within which the same should be invested?
(a) if he wishes to avail exemption under section 54F by constructing a new residential house;
(b) if he wants to avail exemption under section 54EC.
3. (a) The broad break-up of tax and allied details of Mrs. Rinku, born on 30th March, 1942 are as under:
Long-term capital gains on sale of house
Short-term capital gains on sale of shares in B Pvt. Ltd
Prize winning from a T.V. show
Net agricultural income
Mrs. Rinku has paid the following:
LIC premium of self
LIC premium of husband
Premium for annuity contract with LIC in the name of her husband
Repayment of housing loan principal (loan taken by her son dependent on her) 2,00,000
Compute the tax payable by Mrs. Rinku for the assessment year 2007–08.
(b) Swadeshi Ltd., which follows mercantile system of accounting, obtained licence on 1.6.2005 from the Department of telecommunication for a period of 10 years. The total licence fee payable is Rs.18,00,000. The relevant details are:
31st March License fee Payable
for the year Payments made
Rs. Date Amount
Balance of Rs.2,60,000 is pending as on 31.3.2007.
Compute the amount of deduction available to the assessee under section 35ABB for the assessment years 2006-07 and 2007-08. Can any deduction be claimed under section 32 also?
4. (First Alternative)
Miss Charlie, an American national, got married to Mr. Radhey of India in USA on 2.3.06 and came to India for the first time on 16.3.06. She remained in India up till 19.9.06 and left for USA on 20.9.06. She returned to India again on 27.3.07. While in India, she had purchased a show room in Mumbai on 22.4.06, which was leased out to a company on a rent of Rs.25,000 p.m. from 1.5.06. She had taken loan from a bank for purchase of this show room on which bank had charged interest of Rs.97,500 upto 31.3.07. She had received the following gifts from her relatives and friends during 1.4.06 to 30.6.06 :
– From parents of husband
Fro married sister of husband
From two very close friends of her husband, Rs.1,51,000 and Rs.21,000 Rs.51,000
Determine her residential status and compute the total income chargeable to tax along with the amount of tax payable on such income for the Asst. Year 2007–08.
(a) A newly qualified Chartered Accountant Mr. Dhaval, commenced practice and has acquired the following assets in his office during F.Y. 2006-07 at the cost shown against each item. Calculate the amount of depreciation that can be claimed from his professional income for A.Y. 2007-08:
Sl. No. Description Date of
acquisition Date when put
to use Amount
Books (of which books being annual
publications are of Rs.12,000)
(Acquired from practising C.A.)
Fire extinguisher 27 Sept., 06
2 Oct., 06
2 Oct., 06
1 Apr., 06
1 Apr., 06
26 Sep., 06
1 Apr., 06 2 Oct., 06
4 Oct., 06
3 Oct., 06
1 Apr., 06
1 Apr., 06
4 Oct., 06
arose to use
8. Purchased practising CA’s office in April ’06 who had run it for 4 years, for Rs.5 lacs which includes Rs.2 lacs for goodwill and Rs.3 lacs for cost of furniture (included in 5 above)
Note: Depreciation is to be provided at the applicable rates.
(b) Simran, engaged in various types of activities, gives the following particulars of her income for the year ended 31.3.2007:
- (f) Profit of business of consumer and house–hold products
- Loss of business of readymade garments
- Brought forward loss of catering business which was closed in
- Asst. Year 2006–07
- Short–term loss on sale of securities and shares
- Profit of speculative transactions entered into during the year
- Loss of speculative transactions of Asst. Year 2002–03 not set off
- till Asst. Year 2006–07 50,000
Compute the total income of Simran for the A.Y. 2007–08.
5. Answer any four out of the following five sub–divisions, relating to the provisions of the Income–tax Act, 1961: 4×4=16
(a) Discuss briefly about the scheme to facilitate submission of return of income throughTax Return Preparers. (0)
(b) Briefly discuss about the provisions relating to deductibility of expenditure incurred in relation to income not includible in assessee’s total income. (0)
(c) How does the Income–tax Act, 1961 deal with conversion of a self-acquired property into the property of a Hindu Undivided Family? (0)
(d) What are the consequences of failure to deduct tax at source or pay the tax deducted at source to the credit of Central Government? (0)
(e) State the factors to be borne in mind relating to carry forward and set off of losses in case of change in constitution of firm or succession under section 78. (0)
6. Answer any five out of the following six sub–divisions:– 5×2=10
(a) Is an unincorporated association, formed after 1st June, 2006, liable to pay any service tax? (0)
(b) Is e–filing of service tax return permitted? (0)
(c) Should service tax be paid even if not collected from the client or service receiver? (0)
(d) Will the payment to a hotelier of Rs.10,000 on behalf of an architect by a service receiver be included in the value of taxable services? (0)
(e) Which is the most popular and common method for computing VAT liability and at what stage is the tax imposed? (0)
(f) Is it correct to state that VAT usually increases the retail price, as the tax is payable on the first sale price? (0)
7. Ajay Ltd. has agreed to render services to Mr. Guru. The following are the chronological events:
Contract for services entered into on 31.8.2006
Advance received in September, 2006 towards all services
Total value of services, billed in February, 2007
Above includes non-taxable services of
Balance amount is received in March, 2007
When does the liability to pay service tax arise and for what amount? Contract contains clear details of services; consideration and service tax are charged separately, as mutually agreed upon.
8. Answer any three out of the following four sub–divisions: 3×3=9
(a) An assesses who has collected service tax from a client is unable to perform the service. Briefly explain the situations in which and the conditions subject to which he can adjust the service tax relating to above, against his forthcoming service tax liability. (0)
(b) Can Vignesh & Co., providing services from different locations and billing the clients from each location, opt for centralized service tax registration? (0)
(c) Can it be said that if the taxable service is not capable of ascertainment, the same cannot form part of value of taxable services from May, 2006 onwards? (0)
(d) In case of import of services, is a recipient of such services in India liable to pay service tax? (0)