CA PE II Exam Papers Group II
Income Tax and Central Sales Tax November 2005
This Paper has 39 answerable questions with 1 answered.
Total No. of Questions— 6
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.
Questions of both the Sections have been given together without the Sections being mentioned in the question-paper. Candidates are advised to attempt all the required questions in the same answer-book.
Attempt all questions
Workings notes should form part of the answer. Wherever required, suitable assumptions may be made by the candidate.
1. (a) Mr. Ashok owns a property consisting of two blocks of identical size. The first block is used for business purposes. The other block has been let out from 1.4.2004 to his cousin for Rs. 10,000 p.m. The cost of construction of each block is Rs. 5 lacs (fully met from bank loan), rate of interest on bank loan is 10% p.a. The construction was completed on 31.3.2004. During the year ended 31.3.2005, he had to pay a penal interest of Rs. 2,000 in respect of each block on account of delayed payments to the bank for the borrowings. The normal interest paid by him in respect of each block was Rs. 42,000. Principal repayment for each block was Rs. 23,000. An identical block in the same neighbourhood fetches a rent of Rs. 15,000 per month. Municipal tax paid in respect of each block was Rs. 12,000.
The income from business prior to adjustment towards depreciation on any asset is Rs. 2,20,000. He follows Mercantile system of accounting.
Depreciation on equipments used for business is Rs. 30,000.
On 23.3.2005, he sold shares of B Ltd., listed share in BSE for Rs. 2,30,000. The share had been purchased 10 months back for Rs. 1,80,000. Security transaction tax paid may be taken as Rs. 220.
Brought forward business loss of a business discontinued on 12.1.2004 is Rs. 80,000. This loss has been determined in pursuance of a return of income filed in time and the current year is the seventh year.
The following payments were effected by him during the year:
(i) LIP of Rs. 20,000 on his life and Rs. 12,000 for his son aged 22, engaged as a software engineer and drawing salary of Rs. 25,000 p.m.
(ii) Mediclaim premium of Rs. 6,000 for himself and Rs. 5,000 for above son. The premiums were paid by cheque.
You are required to compute the total income for the assessment year 2005-06 and the tax payable. The various heads of income should be properly shown. Ignore the interest on bank loan for the period prior to 1.4.2004, as the bank had waived the same.
(b) Following is the Profit & Loss account of Mr. A, a dealer in shares and securities for the year ended on 31st March, 2005:
To Trading Expenses 62,60,000 By Sales 72,54,000
To Administrative Expenses 1,05,000 By Interest on FD With bank 16,500
To Financial Expenses 48,265 By Dividend from Indian Co. 64,360
To Demat and Delivery charges 4,350 By Interest on I.T. Refund 230
To Securities Transaction Tax 5,500 (A.Y. 2004-2005)
To Net Profit before depreciation 9,11,975
Compute the rebate available under Section 88E.
(c) Compute the total income of Mr. & Mrs. A from the following information:
(a) Salary Income (Computed) of Mrs. A Rs. 2,30,000
(b) Income from profession of Mr. A Rs. 3,90,000
(c) Income of minor son B from company deposit Rs. 15,000
(d) Income of minor daughter C from special talent Rs. 32,000
(e) Interest from bank received by C on deposit made out of her special talent Rs. 3,000
(f) Gift received by C on 30.09.2004 from friend of Mrs. A Rs. 2,500
Brief working is sufficient. Detailed computation under various heads of income is NOT required.
2. (First Alternative)
(a) In computing income under certain heads of income, method of accounting is irrelevant, while in some it is relevant. Comment. 4 (0)
(b) State the activities and operations, income from which is not deemed to accrue or arise in India. 4 (0)
(c) Mr. A is a resident Indian. During the F.Y. 2004-05, interest of Rs. 92,000 was credited to his Non-Resident (External) Account with the SBI. Rs. 20,000 being interest on fixed deposit with SBI was credited to his savings bank account during this period. He also earned Rs. 4,000 as interest on this savings account. Is Mr. A required to file return ofincome?
What will be your answer, if he owns one shop in Mumbai of area 130 sq. ft? 4 (0)
2. (Second Alternative)
(a) “Loss can be carried forward only by the person, who has incurred the loss” — Discuss. 4 (0)
(b) Briefly discuss about the provisions relating to claiming of exemption in respect of short – term capital gains, in order to reduce tax liability. 4 (0)
(c) Briefly discuss about the provisions relating to deductibility of interest on capital borrowed for the purpose of business or profession. 4 (0)
3. (a) Fill in the blanks having regard to the provisions of the Income – tax Act, 1961
(All sub – divisions relate to the assessment year 2005-06):
(i) The due date for filing of return under Section 139(1) by a company having a turnover of less than Rs. 40 lacs is ……………….. 1 (0)
(ii) No order of assessment or reassessment shall be made under Section 147 after the expiry of ……………….. from the end of ……………….. ½+½ (0)
(iii) Deduction under Section 80GGC in respect of contribution to approved political parties given by a local authority partly funded by the Government is ……………….. 1 (0)
(iv) Where a person transfers capital asset to a firm in which the he becomes partner, the full value of consideration in the context of capital gain computation, will be ……………….. 1 (0)
(v) The first item in the order of priority of set off as between current year capital expenditure on scientific research, current year depreciation and brought forward business loss is ……………….. 1 (0)
(b) State whether True or False, with reasons, having regard to the provisions of theIncome-tax Act, 1961 (Answers without reasoning will not be given any mark; all sub-divisions relate to the assessment year 2005-06): 5×2=10
(i) Where an urban agricultural land owned by an individual, continuously used by him for agricultural purposes for a period of two years prior to the date of transfer, is compulsorily acquired under law and the compensation is fixed by the State Government, resultant capital gain is exempt. (0)
(ii) Where the Commissioner of Income – tax is satisfied that the activities of the charitable trust, which has been accorded registration is not genuine, he can cancel the registrationby passing an order in writing. (0)
(iii) An existing assessee engaged in trading activities, can claim additional depreciation under Section 32(1)(iia) in respect of new plant acquired and installed in the trading concern, where the increase in value of such plant as compared to the approved base year is more than 10%. (0)
(iv) A Hindu Undivided Family resident in India having total income of Rs. 55,000 is eligible to claim eligible tax rebate under Section 88D. (0)
(v) Where an individual repays a sum of Rs. 30,000 towards principal and Rs. 14,000 as interest in respect of loan taken from a bank for pursuing eligible higher studies, the deduction allowable under Section 80E is Rs. 40,000, and not Rs. 30,000 (principal component only). (0)
4. Write short notes on any three of the following: 3×6=18
(a) Valuation of paid holidays for perquisite purposes under Section 17(2); (0)
(b) Deductibility of contributions for Rural Development Programmes under Section 35CCA; (0)
(c) Set off and carry forward of loss arising under the head “Income from other sources” (0)
(d) Powers of income – tax authorities under Section 131 as regards discovery, production of evidence, etc. (0)
5. (a) Choose the correct answer with regard to the provisions of the Central Sales – tax Act: 5×1=5
(i) The collection of Central Sales-tax is effected by
(i) the State where the goods are produced;
(ii) the State where the movement of goods begins;
(iii) the State where the goods are delivered;
(iv) the Central Government directly from the dealer.
(ii) The levy of Central Sales – tax is on
(i) purchase of goods;
(ii) sale of goods;
(iii) purchase or sale of goods;
(iv) None of the above.
(iii) G effected inter – state sale of declared goods to H, charging correct CST of 3%. G should obtain from H
(i) Form ‘D’
(ii) Form ‘C’
(iii) Form ‘G’
(iv) No form.
(iv) R of Coimbatore, Tamil Nadu sold to a Malaysian ship at kochi port in kerala, some goods for consumption on board the ship. Such sale will be
(i) inter–state sale;
(ii) export sale as it is a foreign ship;
(iii) intra–state sale;
(iv) sale in the course of import.
(v) A dealer engaged in effecting inter – state sale is required to get himself registered where his turnover exceeds
(i) Any amount
(ii) Rs. 1,00,000
(iii) Rs. 2,50,000
(iv) Rs. 3,00,000
(b) Fill up the blanks, having regard to the provisions of the Central Sales – tax Act:
(i) D, a dealer in Maharashtra has sold goods to G in Gujarat for which the sales tax rate in Maharashtra is 2% and the rate in Gujarat is 3%. The CST leviable is ……………. 1 (0)
(ii) The application for compulsory registration should be submitted by a dealer with in ……………… days of making an inter – state sale. 1 (0)
(iii) C of Karnataka sends goods to T of Tamil Nadu for doing some job work. T adds some materials of his own, completes the job and returns the same to C. The above transaction …………….
(attracts/does not attract) liability to CST. 1 (0)
(iv) The dealer aggrieved by an appealable order should normally file appeal within ………… days from the date of ……….. 1+1 (0)
(c) State with reasons whether the statements are true or false; as per the provisions of the CST Act: 5×1=5
(i) If a dealer applies for amendments to his certificate of CST registration, the amendment will be effective from the date on which the dealer makes an application for amendment. (0)
(ii) The certificate of CST registration is non – transferable. (0)
(iii) One Form ‘C’ issued by the buyer to seller can cover all transactions in one financial year. (0)
(iv) In case of penultimate seller making sales to the actual exporters, the actual exporters shall issue a certificate to the penultimate seller in Form H. (0)
(v) The directors of a private company in liquidation are jointly and severally liable personally for any sale tax liability of the company in liquidation. (0)
6. (a) What is meant by “document of title” in the context of inter – state sale under the CST Act? 3 (0)
(b) Mr. D, a first stage dealer in packing machinery in the State of Gujarat furnishes the following data:
(i) Total inter-state sales during FY 2004-05
CST not shown separately
(ii) Above sales include:
Excise duty 9,00,000
(Of this Rs. 50,000 is not shown separately in invoices)
Insurance charges incurred prior to delivery of goods 32,000
Installation and Commissioning charges shown separately 15,000
Incentive on sales received from manufacturer 30,000
Determine the turnover and CST payable, assuming that all transactions were covered by