CWA ICWA Question Papers Inter Group I
Applied Direct Taxes December 2010
This Paper has 45 answerable questions with 1 answered.
Time Allowed : 3 Hours Full Marks : 100
The figures in the margin on the right side indicate full marks
Wherever required, the candidate may make suitable assumptions and
state them clearly in the answer.
Working notes should form part of the relevant answer.
All questions relate to the assessment year 2010 – 11 unless stated otherwise in the question.
Answer Question No. 1 which is compulsory and any five from the rest.
1. (a) Fill up the blanks: 1×12=12
(i) Medical insurance premium paid otherwise than in _____________ is eligible for deductionunder section 80D of the Income–tax Act, 1961. (0)
(ii) Deemed individual is ____________ (liable to tax/not liable to tax) under section 2(22)(e) of the Income–tax Act, 1961. (0)
(iii) Expenditure incurred towards demerger is deductible in _____________ equal annual instalments under section 35DD of the Income–tax Act, 1961. (0)
(iv) Arrear rent is taxable after deducting _____________ % as per section 25B of the Income–tax Act, 1961. (0)
(v) Amount received towards permission for putting up hoarding at the top of the building is taxable under the head ___________. (0)
(vi) The cost of acquisition of 100 bonus shares, where the original shares (100 nos.) were acquired for Rs.30,000 is ___________. (1)
(vii) Income–tax rates are not prescribed by the _____________ Act, but by the _____________ Act of each year. (0)
(viii) It is obligatory to pay advance tax where the amount of tax is Rs. ________________ or more. (0)
(ix) While effecting the tax deduction at source, education cess and special higher education cess totalling 3% ______________ (should/need not) be also deducted from the amount due or payable to the deducted. (0)
(x) The term “asset” is defined in clause ___________ of section 2 of the Wealth–tax Act, 1957. (0)
(xi) In the case of an individual or a HUF, a plot of land not exceeding ____________ sq. meters in area is exempt under section 5(vi) of the Wealth–tax Act, 1957. (0)
(xii) In computing the net wealth of an individual, the value of assets, which on the valuation date, are held by a minor child who is a married daughter of such individual, __________________ (shall/shall not ) be included. (0)
(b) Choose the correct alternative: 1×5=5
(i) Mr.L bought a motor cycle on 10th August 2009 for Rs.3 lacs and used it in his business. This is the only asset in the block. 20% of the usage is for personal purposes. The WDV of the block as on 31–3–2010 is:
(D) None of the above.
(ii) The following is not taxable as income under the head “Salaries”:
(A) Commission received by a full-time director;
(B) Remuneration received by a partner;
(C) Allowances received by an employee;
(D) Free accommodation given to an employee.
(iii) Following Form Number is to be used for filing the return of income by an individualhaving business income:
(A) Form No. 1;
(B) Form No. 2;
(C) Form No. 4;
(D) Form No. 4A;
(iv) Income received in India in previous year is taxable in the hands of:
(C) Non ordinarily resident;
(D) All above.
(v) Following is not a capital receipt:
(A) Dividend on investment;
(B) Bonus shares;
(C) Sale of know–how;
(D) Compensation received for vacating business place.
(c) State with reasons whether the following statements are True of False (Answers without reasons are not eligible for any credit): 1×8=8
(i) Political parties governed by section 13 A of the Income–tax Act, 1961 have to file their returns of income within the time limit prescribed under section 139(1) even if there is no income chargeable to tax under the Act. (0)
(ii) ‘Gross total income’ means aggregate of income computed under various heads and after allowing deduction under Chapter VI–A. (0)
(iii) Municipal tax in respect of staff quarters is deductible only if it is paid, in computing business income. (0)
(iv) Amount received under Keyman insurance policy is not exempt under section 10(10D) of the Income-tax Act, 1961. (0)
(v) Market value of donation given in kind is also eligible for deduction under section 80G of the Income–tax Act, 1961. (0)
(vi) Amount received under Reverse Mortgage Scheme is taxable as income under the head ‘income from other sources’. (0)
(vii) Advertisement in any souvenir, brochure, pamphlet or the like published by a political party is not deductible under section 37(2B) of the Income–tax Act, 1961. (0)
(viii) Vacant side held as stock–in–trade is not liable for wealth tax for 12 years from the end of the year in which it was acquired. (0)
2. (a) Janak received the following gifts during the financial yeai 2009–10:
Cash gift from father–in–law
Cash gift from friends on the occasion of marriage
Gift by way of wrist watch from a friend. Value of the watch
Shares received as gift from wife’s friend. Market value as on the date of gift Rs.25,000
State the taxability of each item above. Calculation of total amount liable to tax is not required.
(b) Parvez(P) Ltd. confers of electricity benefit to its employee Mi Ashvvin, Annual consumption as per meter reading was 3200 units. Determine the value of perquisite in the following cases:
(i) Electricity meter is the name of Mr. Ashwin and the rate of electricity is Rs. 5 per unit paid by Parvez(P) Ltd. to the State Electricity Board (Give brief reason).
(ii) Electricity meter is in the name of Parvez(P) Ltd. and the rate of electricity charged by the State Electricity Board is Rs.5 per unit. Is this chargeable in all situations?
(iii) Parvez(P) Ltd. is a power generating company. The manufacturing cost is Rs. 1.90 per unit but supplied to public @ Rs.5 per unit. However, it charges Re.1 per unit from its employees.
(c) Discuss the conditions to be fulfilled for the applicability of section 35AD of the Income–tax Act, 1961. 5 (0)
3. (a) Ramesh owns a house at Hyderabad. Its municipal valuation is Rs. 24,000. He incurred the following expenditure in respect of the house property:
(i) Municipal Tax at 20%;
(ii) Fire insurance premium Rs.2,000; and
(iii) Land revenue Rs.2,400.
He had taken bank loan of Rs.25,000 at 16% per annum on April 1, 2007; the whole amount is still unpaid.
The house was completed on April 1, 2009.
Find the income from house property for the assessment year 2010-11 for the following situations:
(i) If the assessee uses house for self-occupation throughout the previous year, and
(ii) If the house is let out for residential purpose on monthly rent of Rs. 2,500 iron April 1. 2009 to December 31, 2009 and self and self occupied for the remaining period.
(b) Mr. Ramesh, aged 62, paid Rs.4,800, Rs.11,000 and Rs.28,000 on 15–9–2009, 12–12–2009 and 15–3–2010 respectively as advance tax instalments. He filed return of income for the assessment year 2010–11 showing total income of Rs.5,57,400; he is entitled to tax credit of Rs.12,003 on account of tax deducted at source. Ascertain the interest, if any, chargeable under section 234C of the Income–tax Act. 1961. 5 (0)
(c) What is the income–tax treatment of consequence of repurchase or buy back of shares or specified securities by a company? 5 (0)
4. (a) Following are the details of income of Mr. Subramani for the financial year 2009–2010:
Income from property in Sri Lanka remitted by the tenant to the assessee
in India through SBI
Profit from business in India
Loss from business in Sri Lanka (whose control and management
of business wholly remained in India)
Dividend from shares in foreign companies received outside India
Interest on deposits in Indian companies
Determine the total income in terms of the Income–tax Act, 1961 in the following situations:
(i) Resident and ordinarily resident of India;
(ii) Resident but not ordinarily resident of India;
(b) The question whether a particular income is income from salary or is income from business depends upon whether the contract is a contract of service or is a contract for service. Discuss. Also explain with the help of one example. 6 (0)
5. (a) Manish owned a land located in Chennai–Bangalore highway in Thambaram Municipal Corporation limits, which was acquired by NHAI in the financial year 2009–10 for Rs.10,00,000. The land had been purchased by Manish on 2–4–1980 for Rs.10,000. The fair market value of the land as on 1–4–1981 was Rs.19,000.
Yet another piece of urban land located in Chennai purchased in April, 2006 for Rs.25 lakhs was sold by him in February, 2010 for Rs.35 lakhs, but the sale deed thereof, was not registered till 31–3–2010. The possession was given to the buyer on 31.1.2010 and the sale deed was finally registered on 16–4–2010. The value adopted by the Stamp Valuation Authority was Rs.38 lakhs. Manish paid 2% of the sale consideration towards brokerage. Manish deposited Rs.10 lakhs in Capital Gain Deposit Account of SBI on 20–11–2010 in order to avail exemption under section 54F of the Income–tax Act, 1961 subsequently by constructing a residential house.
Cost inflation indices are 632 for the FY 2009–10, 519 for the FY 2006–07 and 100 for the FY 1981–82.
Compute the capital gain chargeable to tax arising as a result of these transactions.
(b) One of the exceptions to the rule that the income of the previous year shall be assessed in the subsequent assessment year is the shipping business of non–resident. Discuss briefly the assessment aspect of such income from shipping business. 5 (0)
6. (a) Devender, aged 55, resident in India, furnishes the following information for the previous year ended 31–3–2010:
House property income (Net)
Capital gains (short–term)
Capital gains (long–term)
Income from horse race
Income from card games
Additional information are as follows:
Brought forward business loss for AY 2002–03
Unabsorbed depreciation for AY 2008–09
Long–term capital loss for AY 2007–08
Loss from horse race suffered in AY 2007–08
Speculative loss for AY 2006–07 18,500
Devender has taken a life insurance policy for his major son working in a software company for a salary of Rs.5 lacs per annum. He has paid premium of Rs.60,000 in cash for a capital sum assured of Rs.2,00,000/-. He has paid PPF of Rs.70,000 by raising a hand loan from his friend.
Calculate total income and tax liability. State the items to be carried forward.
(b) Discuss the provisions of the Income–tax Act, 1961 requiring quoting of PAN mandatory in the context of TDS rates and filing of declarations by the deductees. Also discuss the related TDS areas relating to mandatory quoting of PAN. 5 (0)
7. (a) Ravan has furnished the following information as on 31–3–2010
(i) Cash in hand Rs.75,000;
(ii) Cash at bank Rs.10,00,000;
(iii) Residential house (loan taken to purchase this house Rs,5,00,000) Rs.45,00,000;
(iv) Land in rural area (within 5 kms from Bhopal municipality) Rs.48,00,000;
(v) Land in urban area (constructed not permitted under the law, loan taken to purchase this land Rs.3,00,000) Rs.28,00,000;
(vi) Motor car for personal use Rs.14,00,000;
(vii) Jewellery Rs.6,00,000;
(viii) Aircraft for personal use (loan taken to purchase aircraft Rs.20,00,000) Rs.1,00,00,000;
(ix) Farm house situated within 20 kms from local limits of municipal corporation Rs.24,00,000 and
(x) One let–out residential house given on rent throughout year (loan taken to construct this house Rs.2,00,000) Rs.20,00,000.
Ascertain the net wealth as on 31–3–2010 and the wealth tax payable for the assessment year 2010–11.
(b) Is e–filing of income–tax return mandatory for all assessees? Also state the assessees for whom the same is mandatory. 3 (0)
(c) Can a revised return of income be further revised? 2 (0)
8. Answer any three of the following; 5×3=15
(a) Discuss the tax issues including cost of acquisition and period of holding, determined in the hands of the shareholder determined after demerger, covering deemed dividend and capital gains. (0)
(b) What is meant by “arm’s length price” in the context of transfer pricing provisions? Name the six methods used for computing the arm’s length price. (0)
(c) Mrs. Sukanya is a qualified cost accountant. She is a salaried employee in a firm of cost accountants in which Mr. Ashok (her husband) is a partner. Mr. Ashok’s share in the firm is 10%. His younger brother holds 10% share in this firm. Mrs. Sykanya draws a salary of Rs.18,000 per month from the firm. This is however paid in kind and not in cash. Mr. Ashok’s income by way of sitting fees from the various boards of the companies in which he is an independent director is Rs.3,50,000 Will Mrs, Sukanya’s income be clubbed with that of Mr. Ashok under section 64 of the Income–tax Act, 1961? (0)
(d) Narang Textiles Ltd. purchased a machinery from Germany for Euro 1,00,000 on 3.9.2009 through a term loan from Fortune Bank Ltd. The exchange rate on the date of acquisition was Rs.65. The assessee took a forward exchange rate on 05.10.2009 when the rate specified in the contract was Rs.67 per USD. Compute depreciation for the assessment years 2009–10 and 2010–11. Ignore additional depreciation. (0)
(e) Discuss the wealth tax consequences of (i) Conversion by an individual of his self–acquired property into joint family property, and (ii) Gift by way of book entries. (0)