CA PE II Question Papers Group II
Income Tax and Central Sales Tax November 2006
This Paper has 33 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. Rajesh is serving in a public limited company as General Manager (Finance). His total emoluments for the year ended 31st March, 2006 are as follows:
Basic Salary Rs. 5,40,000
HRA (Computed) Rs. 1,80,000
Transport allowance Rs. 12,400
Apart from the above, his employer has sold the following assets to him on 1st January, 2006:
(i) Laptop computer for Rs.20,000 (Acquired in September, 2004 for Rs.1,20,000).
(ii) Car 1800 cc for Rs.3,20,000 (purchased in April, 2003 for Rs.8,50,000).
He also owns a residential house, let out for a monthly rent of Rs.15,000. The fair rental value of the property for the let out period is Rs.1,50,000. The house was self-occupied by him from 1st January, 2006 to 31st March, 2006. He has taken a loan of Rs.20 lacs for the construction of the property, and has repaid Rs.1,05,000 (including interest Rs.40,000) during the year.
Mr. Rajesh sold shares of different Indian companies on 14th April, 2005:
Name Sale value
(per share) Purchase price
(per share) Acquired on No. of shares
A Ltd. Rs. 150 Rs. 120 2nd May, 2003 200
B Ltd. Rs. 82 Rs. 65 16th April, 2004 125
Sale proceeds were subject to brokerage of 0.1% and securities transaction tax of 0.075% on the gross consideration. He received I.T. refund of Rs.5,750 (including interest Rs.750) relating to the Asst. Year 2004-05.
Compute the total income of Mr. Rajesh for the Assessment Year 2006–07.
(b) Mr. Malik owns a factory building on which he had been claiming depreciation for the past few years. It is the only asset in the block. The factory building and land appurtenant thereto were sold during the year. The following details are available.
Building completed in September, 2001 for 10,00,000
Land appurtenant thereto purchased in April, 2000 for 12,00,000
Advance received from a prospective buyer for land in May, 2001,
forfeited in favour of assessee, as negotiations failed 50,000
WDV of the building block as on 1.4.2005 8,74,800
Sale value of factory building in November, 2005 8,00,000
Sale value of appurtenant land 16,00,000
The assessee is ready to invest in long-term specified assets under section 54EC, within specified time.
Compute the amount of taxable capital gain for the assessment year 2006-07 and the amount to be invested under section 54EC for availing the maximum exemption.
Cost inflation indices are as under —
Financial Year Cost inflation index
2. (First Alternative)
(a) Mr. A is an individual carrying on business. His stock and machinery were damageed and destroyed in a fire accident.
The value of stock lost (total damageed) was Rs.6,50,000. Certain portion of the machinery could be salvaged. The opening WDV of the block as on 1-4-2005 was Rs.10,80,000.
During the process of safeguarding machinery and in the fire fighting operations, Mr. A lost his gold chain and a diamond ring, which he had purchased in April, 2002 for 1,20,000. The market value of these two items as on the date of fire accident was Rs.1,80,000.
Mr. A received the following amounts from the insurance company:
(i) Towards loss of stock Rs. 4,80,000
(ii) Towards damagee of machinery Rs. 6,00,000
(iii) Towards gold chain and diamond ring Rs. 1,80,000
You are requested to briefly comment on the tax treatment of the above three items under the provisions of the Income–tax Act, 1961.
(b) Briefly discuss about the exceptions to the rule that income of an assesses for a previous year will be charged to tax in the subsequent assessment year. 5 (0)
2. (Second Alternative)
(a) Discuss briefly about the deductibility of interest on loan taken for higher education, under section 80E of the Income – tax Act, 1961. 6 (0)
(b) What are the documents/prescribed transactions, relating to which an allottee of PAN, should quote his PAN? 6 (0)
3. (a) State with reasons, whether the following statements are true or false (All sub – divisions relate to income – tax assessment year 2006-07): 5×2=10
(i) In the case of an artificial juridical person, no surcharge is payable where the total income exceeds Rs.10,00,000. (0)
(ii) A non – Indian company is treated as resident, only if the control and management of its affairs is situated wholly in India during the previous year. (0)
(iii) In order to be eligible to claim deduction under section 80C, investment/contribution/ subscription etc. in eligible or approved modes, should be made from out of incomechargeable to tax. (0)
(iv) Partnership firms deriving loss need not file return of income. (0)
(v) Where an assessee engaged in business is obligated to deduct tax at source pertaining to interest payment in India during the earlier year and has failed to do so, but deducts and pays the same belatedly, during the current year, he can claim the said interest as deductible business expenditure in the current year. (0)
(b) Fill up the blanks (All sub – divisions relate to income – tax assessment year 2006-07): 5×1=5
(i) As per section 2(47), …….. or…………………. of a zero coupon bond will be treated as “transfer” for the purpose of capital gains tax. (0)
(ii) An assessee, after sale of house property, receiving arrears of rent, ………(is/is not) chargeable to tax; the same computed in the stipulated manner, shall be chargeable to tax as…… (income from other sources/income from house property/question does not arise since there is no chargeability to tax). (0)
(iii) A motor car is the only asset in a block. Cost Rs.2,00,000. Rate of depreciation is 15%. 20% is disallowed for estimated personal use. WDV of the block is Rs…………. (0)
(iv) Mr. A gifts cash of Rs.1,00,000 to his brother’s wife Mrs. B. Mr. B gifts cash ofRs.1,00,000 to Mrs. A. From the cash gifted to her, Mrs. B invests in a fixed deposit, incomethere from is Rs.10,000. Aforesaid Rs.10,000 will be included in the total income of ………. (0)
(v) The time limit for filing revised return where assessment has not been completed is …………… (0)
4. Write short notes on any three of the following: 3×6=18
(a) Exemption for retrenchment compensation under section 10(10B). (0)
(b) Carry forward and set off of unabsorbed depreciation. (0)
(c) Cost of acquisition of self-generated assets, in the context of capital gains. (0)
(d) Power to transfer cases under section 127. (0)
5. (a) Discuss whether the following statements are true or false, as per the provisions of the Central Sales – tax Act: 5×2=10
(i) Definition of “Sales tax law” includes “Value added tax law”. (0)
(ii) The term “works contract” has not been defined. (0)
(iii) For the penultimate sale to be deemed as a sale in the course of export, it is possible only if a declaration in prescribed form is furnished by the dealer selling goods. (0)
(iv) The applicable rate of tax where undeclared goods are sold in an inter – state sale to a registered dealer, if the purchases of such goods is not covered in dealer’s registration certificate, is 4% or the State sales tax rate, whichever is lower. (0)
(v) Transfer of goods on payment of hire charges, without transfer of property in the goods, will still constitute sale. (0)
(b) Answer the following with regard to the provisions of the Central Sales – tax Act, 1956 5×1=5
(i) “Crossing the customs frontiers of India” means crossing the limits of the area of customs station in which imported or exported goods are ordinary kept
(a) after clearance by customs authorities
(b) before clearance by customs authorities
(c) before being loaded into the ship or carrier
(d) None of the above.
(ii) For any trade, commerce, manufacture, etc. to be treated as “business”
(a) profit or gain should accrue from such trade, commerce, etc. in all years
(b) profit or gain should accrue from such trade, commerce, etc. after atleast first five years
(c) profit or gain need not accrue from such trade, commerce, etc.
(d) None of the above.
(iii) The burden of proving that transfer of goods is otherwise than by way of sale, lies on –
(a) dealer who claims exemption
(b) assessing authority who alleges that it is a taxable sale
(c) the carrier who moves the goods
(d) None of the above.
(iv) Amendment of certificate of registration can be made
(a) only upon an application made by the assessee
(b) by the Assessing authority suo motu
(c) on a application from assessee, or by the assessing authority suo motu on information received from any other source
(d) None of the above.
(v) Inter – state sale of stationery to the following class of dealer is liable to tax at the normal rate of 4% or the State Government rate, whichever is lower:
(a) Government Department issuing Form D
(b) Manufacturing company issuing Form C
(c) Any dealer, provided appropriate form is obtained
(d) None of the above.
6. Write short notes on any two of the following, with reference to the provisions of the CST Act: 5×2=10
(a) Sale price (0)
(b) Sale to personnel, consular or diplomatic agent of any foreign diplomatic mission (0)
(c) Difference between a sale for export and sale in the course of export. (0)