CWA ICWA Question Papers Inter Group I Applied Direct Taxes June 2010

CWA ICWA Question Papers  Inter Group I

Applied Direct Taxes June 2010



This Paper has 44 answerable questions with 2 answered.
Syllabus 2008
Time Allowed : 3 Hours Full Marks : 100
The figures in the margin on the right side indicate full marks
Answer Question No. 1 which is compulsory and any five from the rest.
Working notes should form part of the answer.
Wherever required, the candidate can make suitable assumptions and
state the same clearly in the answer.
1. (a) Fill up the blanks: 7
(i) Sec. 139(1) applies to all persons whether they are _____________ or ________________. (1)
(ii) Receipts from TV serial shooting in Farm house ____________ agricultural income. (1)
(iii) Sec. ______________ defines various income which are chargeable to tax under the head “Profits and gains of business or profession ” (0)
(iv) For the applicability of clubbing provisions of the Wealth Tax Act, 1957, the expression ‘child’ includes _______ child and __________ child. (0)
(v) The rate of tax in case of Minimum Alternate Tax has been increased to _______ % with effect from Assessment year 2010—11. (0)
(vi) The basis of chargeability under the head ‘ income from house property ’ is _________. (0)
(vii) _____________ salary is taxable, while ________________ against salary is not taxable. (0)
(b) (i) “Capital Gains arises on sale of Capital Assets” is — Comment. 2×5 (0)
(ii) Income earned by an Association of Trade Unions is not taxable.— Comment. (0)
(iii) Non–allowing of interest to rectification order is appealable.– Discuss. (0)
(iv) Undertaking in the context of “DEMARGER COMPANY” indicates any part of undertaking or a unit or division of an undertaking or a business activity taken as a whole including individual assets or liabilities or combination of both.—Comment. (0)
(v) Wealth Tax is a Socialistic Tax.— Discuss. (0)
(c) State with reasons whether the following statements are True or False(answers without reasoning will not receive any credit): 1×8
(i) An assessee owns 11 trucks. One truck is always kept as a spare vehicle and is never plied on the road. Since only 10 vehicles are piled on the road at any given point of time, the provisions of section 44AE of the Income Tax Act, 1961, can be availed by the assessee. (0)
(ii) Mr. Janak has received as gift, gold bullion bars worth Rs. 70,000 from his friend on his birthday on 15.3.2010. The same is not to be treated as income from other sources. (0)
(iii) Mr. Saravanan follows mercantile system of accounting. On 13.3.2010, he has received from the State Government, in respect of lands acquired, interest on enhanced compensation of Rs. 1,50,000 which includes a sum of Rs. 20,000 relatable to this year. The amount assessable is Rs. 20,000. (0)
(iv) The period for setting off the MAT credit under section 115JB is seven years. (0)
(v) The rate of TDS applicable for payment made on 28.2.2010 to non-individual sub-contractor, as per section 194C, is 2%. (0)
(vi) Only in the TDS certificate furnished by the deductor, quoting the PAN of deductor is compulsory and not in other correspondences between the deductor and the deductee. (0)
(vii) An individual himself has to sign the return of wealth and whatever be the contingency, cannot authorize another persons to sign on his behalf. (0)
(viii) A company owns a plot of urban land comprising of area of 500 square metres. Exemption is not available in respect of this asset under the provision to section 5(vi) of the Wealth Tax Act, 1957. (0)
2. (a) Discuss whether the expenditure incurred by an assessee to remove an encumbrance be claimed as a deduction under section 48, while computing the capital gains, in the following cases:
(i) Where the mortgage was created by the assessee himself;
(ii) Where the mortgage was created by the previous owner.
5 (0)
(b) Ramesh an individual, is engaged in manufacture of fertilizers. He is following mercantile system of accounting. He borrowed loans from Tamil Nadu Industrial Development Corporation and Indian Bank and has not paid interest as detailed below:
(i) Tamil Nadu Industrial Development Corporation
(P.Y.2008—09 & 2009—10) 15,00,000
(ii) Indian Bank (P.Y. 2009—10) 30,00,000
Both Tamil Nadu Industrial Development Corporation and Indian Bank, while rephasing the loan facilities of Ramesh during the year ended 31.3.2010, converted the above outstanding interest due to them from Ramesh as a loan repayable in 30 equal installments. During the year ended 31.03.2010, Ramesh paid 4 installments to Tamil Nadu Industrial Development Corporation and 3 installments to Indian Bank.
Ramesh claimed the entire interest of Rs. 45,00,000 as an expenditure with computing the income from fertilizer business. Discuss whether his claim is valid and if not what amount of interest, if any, allowable, while computing the business income.

6 (0)
(c) What are the due dates for filing the return of incomes as envisaged by section 139(1) of the Income Tax Act. 1961? 4 (0)
3. (a) During the year ended 31.3.2010, Mr. Subramani has following income and the brought forward losses:
Particulars Rs.
Short—term capital gain on sale of shares
Long—term capital loss of A.Y.2008—09
Short—term capital loss of A.Y.2009—10
Long—term capital gain
Income from lotteries
Cost of lottery tickets purchased
Loss from betting
Income from card games 2,60,000
Briefly compute the gross total income and loss eligible for carry forward in the hands of Mr. Subramani for the A.Y.2010—11. 7 (0)
(b) Discuss the allowability of the following expenditure while computing income under the head ”Profit and gains of business or profession”
(i) Expenses incurred on partly convertible debentures, and 2 (0)
(ii) Expenditure incurred on MS office software. 2 (0)
(c) (i) If two or more persons jointly own a property and if their shares are definite and ascertainable, can the income from such property be taxed as income of an association of persons? 2 (0)
(ii) 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, is the resultant capital gain chargeable to tax? 2 (0)
4. (a) Mr. Srinivasan, aged 66 years, furnishes the following particulars for the year ending 31.3.2010:
(i) Life Insurance premium paid Rs. 40,000, actual capital sum of the policy assured for Rs. 1,50,000;
(ii) Contribution to Public Provident Fund Rs. 50,000 in the name of father;
(iii) Tuition fees payment Rs.5,000 each for 3 sons pursuing full time graduation course in Mumbai; Tuition fee paid for daughter pursuing Ph.D. in Melbourne University, Australia Rs. 3.50 lakhs;
(iv) Housing loan principal repayment Rs. 30,000 to HDFC Bank. This property is under construction at Bangalore as on 31.03.2010;
(v) Principal repayment of housing loan taken from a relative Rs. 60,000. The property is self—occupied and situated at Chennai;
(vi) Deposit under Senior Citizens Savings Scheme Rs.15,000;
(vii) Five year deposits in an account under Post Office Time Deposit Scheme Rs. 20,000;
(viii) Investment in National Saving Certificate Rs. 25,000;
(ix) Subscription to bonds issued by NABARD Rs. 30,000.
Compute the quantum of eligible deduction under section 80C of the Income Tax Act, 1961 for A.Y.2010—11. 7 (0)
(b) Briefly explain marginal relief allowable while computing tax payable by certain assessees. 3 (0)
(c) Discuss whether there is any exemption for voluntary contributions received by electoral trusts, Can an assessee giving such donation claim the same as deduction? 5 (0)
5. (a) Compute the total income of Mr. Pankaj Dhimani from the information given below:
Particulars Rs.
Net income for house property
Income from business(before providing for depreciation)
Short—term capital gain on sale of shares
Long—term capital loss from sale of property (brought forward A.Y.2009—10)
Income from integrated activities of growing tea crops and manufacturing tea
Dividends from Indian companies carrying on agricultural operations
Current year depreciation
Brought forward business loss(loss incurred six years ago)
Expenditure incurred on medical treatment of dependant with severe disability 1,75,000
7 (0)
(b) Is it correct to say that section 50C can be invoked only in situations in which transfer of land building or both takes place through a registered deed of conveyance and that the section cannot be invoked where the no registered deed of conveyance, like in power of attorney transactions and agreements to sell?—Discuss. 4 (0)
(c) What are the due dates for payment of advance income tax by corporate assessees? 4 (0)
6. (a) Kidwai Club is a private members club which provides entertainment to its members by offering accommodation, library, reading room, etc. The club also earned income by letting out its marriage hall to non—members by making them as temporary members. The club contends that the “doctrine of mutuality” would apply in such a case and hence, its income would not be taxable. Discuss the correctness or otherwise of the contention of the assessee club. 4 (0)
(b) Mrs. Hemalatha, working in a public sector company, opted for voluntary retirement scheme and received Rs. 7 lakhs as VRS compensation. she claimed relief under section 10(10C) and in respect of the balance amount of Rs. 2 lakh, she claimed under section 89(1). Advise Mrs. Hemalatha as to correctness of the aforesaid tax treatment. 7 (0)
(c) In the following cases, state the head of income under which the relevant receipt is to be assessed, along with reasons:
(i) Vibhisana let out his property to Bharath. Bharath sublets it. How is subletting receipt to be assessed in hands of Bharath?
(ii) Ashok has constructed a house on a leasehold land. He has let–out the said property and has treated the rent from such property under the head “Income from other sources” and deducted expenses on repairs, security charges, insurance and collection charges in all amounting to 35% of receipts.
2+2 (0)
7. Write short notes on any three of the following: 5×3
(a) Capital gains on buy back of shares; (0)
(b) Restriction under section 79 of the Income Tax Act, 1961 for carry forward and set off losses in case of certain companies; (0)
(c) Deduction under section 80RRB of Income Tax Act, 1961 towards royalty of a patient; (0)
(d) Wealth escaping assessment; (0)
(e) Liability of charitable trusts under Wealth Tax Act, 1957. (0)
8. (a) Royal Construction Ltd., engaged in promoting residential houses, flats, etc. furnishes the following particulars of its wealth as on 31st March, 2010;
Particulars Rs.
Land in rural area(within 7 kms. from the local limits of a municipality) on which construction is permissible 45,00,000
Land in urban area (on which construction is not permitted) 35,00,000
Land in urban area (held as stock—in—trade for 8 years) 35,00,000
Motor cars(including one imported car worth Rs. 5 lakhs) 12,00,000
Gold jewellery 21,00,000
Shares in private limited companies 9,20,000
Cash at bank 2,30,000
Guest house and land appurtenant thereto in rural area 12,00,000
Cash in hand 45,00,000
Residential flats of identical size provided to three employees for their use near factory in rural area(Salaries of one such employee exceed Rs. 5,00,000 p.a.) 27,00,000
Residence provided to Managing Director
(whose salary is Rs. 8,00,000 p.a.) 22,00,000
Flats constructed remaining unsold 40,00,000
The company has taken the following loans:
For purchase of gold jewellery 10,00,000
For flats constructed remaining unsold 10,00,000
Compute the Company‘s net wealth as on 31.3.2010. (Brief note on treatment of each item is required).
12 (0)
(b) State the Elements/Sources of Income Tax Law. 3 (0)

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