CA PE II Question Papers Group II
Income Tax and Central Sales Tax May 2006
This Paper has 40 answerable questions with 0 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. Ram who does not maintain books of accounts for the year ended 31.3.2006 requests you to compute his total income and the tax payable thereon for the assessment year 2006–2007 from the following:
— 20,000 p.m.
(ii) Ram resides in Chennai paying a rent of Rs. 6,000 per month.
(iii) Ram is paid an Education allowance of Rs. 500 per month per child for all the three of his children. Actual expenses (tution fees only) amounts to Rs. 15,000, Rs. 10,000 and Rs. 5,000 respectively.
(iv) Employer’s contribution to Staff Group Insurance Scheme Rs. 5,440.
(v) He bought a heavy goods vehicle on 7.6.2005 and has been letting it on hire from the same date. He declares an income of Rs. 34,900 from the same.
(vi) Interest from Company deposits is Rs. 15,000 and bank interest is Rs. 5,000.
(vii) Interest is payable on bank loans availed for buying the truck and making company deposits as follows:
Company deposit Date of Loan
1 lakh Interest Rate
(viii) Loss carried forward arising from speculating in shares during the preceding previous year and eligible for setoff is Rs. 1,00,000.
(ix) Ram has invested Rs. 12,000 in notified equity linked saving scheme of UTI, Rs. 52,000 in notified infrastructure sector bonds, Rs. 9,000 as Life Insurance premium on his own life (sum assured Rs. 40,000) and Rs. 15,000 towards Pension fund of LIC.
(b) Mr. A who transfers land and building on 2.1.2006, furnishes the following information:
(i) Net consideration received Rs. 10 lakhs
(ii) Value adopted by stamp valuation authority, which was not contested by Mr. A Rs. 12 lakhs.
(iii) Value ascertained by Valuation Officer on reference by Assessing Officer Rs. 13 lakhs.
(iv) This land was distributed to Mr. A on the partial partition of his HUF on 1.4.1981. Fair market value of the land as on 1.4.81 was Rs. 1,10,000.
(v) A residential building was constructed on the above land by Mr. A at a cost of Rs. 3,20,000 (construction on 1.12.2002) during the Financial year 2002–2003.
(vi) Short–term capital loss incurred on sale of shares during the Financial year 2002–2003 Rs. 2,05,000.
Mr. A seeks your advice as to the amount to be invested in NABARD bonds so as to be exempt from clutches of capital gain tax. Cost information indices for the Financial years 1981–82, 2002–03 & 2005–06 are 100, 447 and 497 respectively.
(c) Following is the Profit and Loss account of Mr. A for the year ended 31–3–2006:
To Repairs on building
To amount paid to Scientific
approved u/s 35
To Banking cash transaction
To Net Profit 1,30,000
93,950 By Gross Profit
By I.T. Refund
By Interest from
By Dividends 6,01,000
Following additional informations are furnished:
(1) Repairs on building includes Rs. 95,000 being cost of raising a compound wall for the own business premises.
(2) Interest payments include interest payable outside India to a resident Indian on which TDS has not been deducted of Rs. 12,000 and penalty for contravention of Central Sales Tax Act of Rs. 24,000. Compute the income chargeable under the head ‘Profits and gains of business or profession’ of Mr. A for the year ended 31.3.2006 ignoring depreciation.
2. (First Alternative)
(a) The total income of Mrs. Z computed for the assessment year 2006–07 is Rs. 2,00,000, which includes the following:
Long–term capital gains
Winnings from lotteries
Short–term capital gains covered by Sec. 111 A —
Agricultural income earned by her was Rs. 50,000. Compute the tax payable by Mrs.Z.
(b) What is Slump sale? How is capital gain computed in case of a slump sale? 6 (0)
2. (Second Alternative)
(a) X is in possession of agricultural land situated within urban limits, which is used for agricultural purposes during the preceding 3 years by his father. On 4–4–2005 this land is compulsorily acquired by the Government of India on a compensation fixed and paid by it for Rs. 10 lakhs. Advise X as to the tax consequences, assuming that the entire amount is invested in purchase of shares. 4 (0)
(b) Elaborate on what are to be taxed as profits in lieu of salary. 4 (0)
(c) Mr. A. a citizen of India, left for USA for the purposes of employment on 1–05–2005. He has not visited India thereafter, Mr. A borrows money from his friend Mr. B who left India one week before Mr. A’s departure, to the extent of Rs. 10 lakhs and buys shares in X Ltd., an Indian company. Discuss the taxability of the interest charged @ 10% in B’s hands where the same has been received in New York. 4 (0)
3. (a) Fill up the blanks (Provisions relate to Income–tax assessment year 2006–07). 5×1=5
(i) For availing exemption under Section 10A, return of income should be filed by a corporate assessee on or before______ (0)
(ii) In case of an eligible assessee, imported second hand machinery never put to use by any person in India before, additional or accelerated depreciation is allowable at the rate of ______ on the actual cost of machinery. (0)
(iii) Fringe benefit tax ______ an allowable item of business expenditure. (0)
(iv) Where an individual has repaid in the second year, Rs. 20,000 towards principal and Rs. 60,000 towards eligible education loan from an approved bank, the deduction available under Section 80E is Rs. ______ (0)
(v) A person who incurs an expenditure Rs. ______ or more on electricity bill during the previous year is obliged to file the return of income based on economic indicators. (0)
(b) State True or False, with reasons (All sub–divisions relate to Income–tax assessment year 2006–07): 5×2=10
(i) Under section 35DDA, amortisation of expenditure incurred under eligible Voluntary Retirement Scheme at the time of retirement alone, can be done. (0)
(ii) Value of fringe benefit chargeable to tax under Chapter XII–H in the hands of the employer, is not to be treated as a perquisite under Section 17(2), in the hands of the employee. (0)
(iii) Zero coupon bonds of eligible corporation, held for more than 12 months, will be long–term capital assets. (0)
(iv) In the case of a dealer in shares, income by way of dividend is taxable under the head “Profits and gains of business or profession”. (0)
(v) Mr. Y who is a physically handicapped minor (suffering from a disability of the nature specified in Section 80U) earns bank interest of Rs. 50,000 and Rs. 60,000 from marking bags manually by himself. The total income of Mr. Y shall be computed in his hands separately. (0)
4. Write short notes on any three, with regard to the provisions of the Income – tax Act, 1961: 3×6=18
(a) Procedure for registration of charitable trusts under Section 12AA. (0)
(b) Tax treatment of recovery of unrealized rent allowed as deduction in earlier year, under Section 25A. (0)
(c) Special provisions under Section 44DA for computing income by way to royalty, fee for technical services, etc. in case of non–residents. (0)
(d) Power of Income–tax authority to collect information during survey, under Section 133B. (0)
5. (a) Choose the most appropriate and correct answer with regard to the provisions of the Central Sales–tax Act: 5×1=5
(i) Which of the following is not declared goods?
(a) Imported cotton
(b) Cotton yarn waste
(c) Raw unginned cotton
(d) Ginned cotton.
(ii) The term sale includes:
(a) mortgage (b) pledge
(c) hypothecation (d) None of the above.
(iii) The following acts are punishable under the Act:
(a) False representation by a dealer that he is registered.
(b) Collection of taxes by an unregistered dealer in contravention of Sec. 9A.
(c) Failure by a person to get himself registered as required u/s 7 of the Act.
(d) All of the above.
(iv) A Penultimate sale is considered to be in the course of export only, if the dealer selling the goods furnishes a declaration in
(a) Form C (b) Form D
(c) From F (d) Form H
(v) Place of business does not include
(a) a warehouse
(b) a godown
(c) any other place where the dealer stores his goods
(d) dealer’s residence.
(b) Fill in the blanks in the right of the provisions of the CST Act: 5×1=5
(i) The dealer’s turnover is the _______ received and receivable by him in respect of Sales of any goods in the course of Interstate trade. (0)
(ii) Sales or purchases of ascertained goods shall be deemed to be _______ a State, if the goods were within that state at the time the _______ of sale was made. (0)
(iii) Sales subsequent to the first one made to the registered dealer or Government _______ shall not be liable to tax. (0)
(iv) The rate of CST applicable to goods exempt from State Sales Tax is _______ (0)
(v) The State from which _______ commences shall be the _______ State empowered to assess, collect and enforce payment of CST. (0)
(c) State with reasons whether the following statements are True or False: 5×1=5
(i) The Government of Andhra Pradesh selling outmoded model of its computer to the Government of Tamilnadu, is a dealer. (0)
(ii) Charcoal treated as declared goods. (0)
(iii) Sales tax is leviable on sale of stocks, shares and securities traded by a dealer in shares. (0)
(iv) A new certificate of registration has to be obtained, if the dealer changes the nature of his business. (0)
(v) Relief to special economic zone is available in respect of any class/es of goods. (0)
6. (a) Y of Mumbai purchases declared goods from a registered dealer in Nagpur paying sales tax at 3%. Subsequently, the commodity was sold to a dealer in Chennai. Y collected CST on the Inter–state sale; he wants refund of tax paid on sale within State (i.e. on purchases effected from Nagpur). Is he entitled to the same? 3 (0)
(b) An order of penalty has been imposed on Rahim, a registered dealer. Rahim is in a difficult financial position. He wishes to file appeal before the Appellate Authority. He wants to know whether he can obtain stay against the order of penalty. Advise Rahim. 3 (0)
(c) L gave notice of appointment as liquidator of Dissolve Ltd. to the concerned Sales Tax Officer. The officer sent an order to L intimating the amount due from Dissolve Ltd. and instructions L that such amount should have priority over all other debts. Advise L. 4 (0)