ICSI Exam papers Direct and Indirect Taxation Law and Practice
Final Group 3
Direct and Indirect Taxation Law and Practice
Time allowed : 3 hours
Maximum marks : 100
Total number of questions : 8
NOTE : All references to sections mentioned in Part-A of Question Paper relate to the
Income-tax Act, 1961 and the relevant Assessment Year 2008-09 unless stated otherwise.
(Answer ANY TWO questions from this part.)
1. A company claims deduction of certain expenditures in computation of its total income
under the Income-tax Act, 1961. Consider the allowability or otherwise of the following
expenditures giving brief reasons for your answers :
(i) Payments made by the company for sponsoring a sports tournament.
(ii) Water pollution treatment plant installed permanently in the factory in compliance with statutory requirements.
(iii) As a holding company, it has borrowed money and advanced the same to its
subsidiary in whose business it has deep interest. The subsidiary uses the same
for its business. The company claims interest paid on such borrowings as a deduction.
(iv) Expenditure incurred for earning share income from a firm.
(v) Provision made in the accounts of the company on a scientific basis in respect of
liabilities estimated to arise under warranty provided to customers in respect of
products sold. (4 marks each)
2. (a) Explain briefly special provisions made under the Income-tax Act, 1961 regulating
tax incidence on capital gains in case of demerger. (7 marks)
(b) What are the special provisions regarding computation of tax on non-resident
sportsman being foreign citizen and non-resident sports association ? Are these
assessees required to file their return of income ? (7 marks)
(c) Discuss briefly whether the following returns can be revised under section 139(5)
of the Income-tax Act, 1961 :
(i) Return of loss filed under section 139(3);
(ii) Belated return filed under section 139(4);
(iii) Revised return filed under section 139(5);
(iv) Defective or incomplete return filed under section 139(9);
(v) Return filed knowing it to be false; and
(vi) Return filed for the assessment year 2006-07, assessment of which is yet to
be completed. (1 mark each)
3. (a) A company wants to issue ‘sweat equity shares’ to its key employees. Explain
briefly the concept and its tax implications on the recipient and the company. (5 marks)
(b) Briefly discuss the legal propositions in case of any conflict between the provisions
of the Double Tax Avoidance Agreement (DTAA) and the Income-tax Act, 1961. (5 marks)
(c) Ronnie Ltd. is engaged in the manufacture of steel. On the basis of the following
particulars of its properties as on 31st March, 2008, compute the net wealth of
Ronnie Ltd. for the assessment year 2008-09 :
Rs. in Lakhs
Guest house situated in a rural area 40
Residential flat provided to a director whose salary
is Rs.2 lakh per annum 10
Urban land on which no construction is permitted as
per municipal laws 30
Cars used for business of the company 8
Cash balance as per books 2.50
Bank balance as per books of account 7
Aircraft used for the business of the company 800
Note : 1. Loans taken for purchase of — (i) Urban land : Rs.40 lakh; and
(ii) Aircraft : Rs.300 lakh.
2. Outstanding fringe benefit tax liability : Rs.2 lakh. (10 marks)
(Answer ANY FOUR questions from this part.)
4. (a) Sunil is engaged as a management consultant by Rana Sugar Ltd. His duty is to
advise the company on matters relating to production, marketing, etc. Service tax
is demanded from him under the category of ‘management consultant’ on the
professional charges paid to him by Rana Sugar Ltd. Sunil filed objections to the
demand by contending that he cannot be considered as a ‘management consultant’
as he does not possess any professional qualification in the area of management
and therefore cannot be asked to pay service tax under the category of management
consultant. Is the stand of Sunil justified ? Give your views in the light of
decided case law, if any. (5 marks)
(b) Mercury Wires Ltd. filed the bill of entry in respect of an imported consignment
on 19th August, 2002. The goods were found to be in order when examined on
25th August, 2002. After payment of duty, the proper office gave the out of charge
order on 25th August, 2002 itself. When the importers went to take delivery of the
goods on 2nd September, 2002, they found the packages in torn condition and two
packages had been pilfered. They filed refund claim in respect of the packages
pilfered. The claim was rejected by the customs authority on the ground that
pilferage had taken place after the grant of out of charge order. Decide with the
help of decided case law, if any, whether rejection of the claim of the importers
is in accordance with law. (5 marks)
(c) Star Laminates Ltd. manufactured laminate sheets. In the process of manufacture
a solution named, ‘Rasol’ whose life was short and which was also not marketable
came into being. The Assistant Commissioner of Excise issued notice to the
assessee demanding duty on ‘Rasol’ for the reasons that ‘Rasol’ is included in the
Tariff Schedule and hence dutiable. The assessee has filed objection to the demand
by contending that no duty can be demanded only because of inclusion of a commodity
in the Tariff Schedule, if it is not marketable or capable of being marketed. Decide
the issue with the help of decided case law, if any. (5 marks)
5. (a) Re-write the following sentences after filling-up the blank spaces with appropriate
(i) Manufacturer-exporter can clear goods for export without payment of duty
under Rule 19 of the Central Excise Rules, 2002 by issuing _________ in
prescribed form UT-1.
(ii) The _________ of taxable services provided from outside India and received in
India shall make an application for registration.
(iii) According to section 2(3) of the Customs Act, 1962, baggage includes
unaccompanied baggage but does not include __________.
(iv) ___________ implies the assessee being authorised to pay a pre-determined
sum to the Excise Department, at fixed periodical intervals, instead of paying
duty on a consignment-to-consignment basis.
(v) Capital goods intended for use in any 100% export-oriented unit (EOU) can
be warehoused for a period of ______ years from the date on which the proper
officer has made an order under section 60 of the Customs Act, 1962 permitting
the deposit of the goods in the warehouse.
(vi) Submission of _________ to prove stock transfer is mandatory under the Central
Sales Tax Act, 1956. (1 mark each)
(b) Examine whether the following activity amounts to ‘manufacture’ within the meaning
of section 2(f) of the Central Excise Act, 1944 :
(i) Conversion of aluminium ingots into aluminium billets by process of re-melting
and adding other alloys. These billets were captively consumed by the assessee
for production of irrigation pipes and also being sold in the open market.
(ii) Crushing of betel nuts and processing them with spices and oils.
(iii) Conversion of sugar into big crystals. (3 marks each)
6. (a) What are the sales that are exempted from tax under the Central Sales
Tax Act, 1956 ? (5 marks)
(b) Explain the provisions of section 4A of the Central Excise Act, 1944 relating to
valuation of goods on the basis of their retail sale price. (4 marks)
(c) Define ‘Indian customs waters’ and explain its significance under the Customs
Act, 1962. (4 marks)
(d) How do you determine the value of ‘taxable service’, where the consideration
received is not wholly or partly consisting of money ? (2 marks)
7. (a) The following information is furnished by Kanha on 8th February, 2007 in respect
of articles of jewellery imported from USA :
FOB value $20,000
Exchange rate $1 = Rs.44
Air freight $4,500
Insurance charges Not known
Landing charges Rs.1,000
Basic customs duty 10%
Excise duty chargeable on similar
goods in India as per tariff rate 16%
Additional duty of customs u/s 3(5) of
the Customs Tariff Act, 1975 As applicable.
Calculate the total customs duty payable by Kanha. (7 marks)
(b) Krishna, a manufacturer of dutiable as well as exempted goods, supplies the
following information for the month of January, 2007 :
(i) Price of exempted goods cleared from the factory : Rs.200 lakh.
(ii) Assessable value of dutiable goods cleared (Rate of duty 16%) : Rs.150 lakh.
(iii) CENVAT credit of input ‘P’ (used only in the manufacture of exempted goods) : Rs.24 lakh.
(iv) CENVAT credit of input ‘Q’ (used only in the manufacture of dutiable goods) :
(v) CENVAT credit of common input ‘R’ (used in the manufacture of exempted as
well as dutiable goods but no separate accounts are maintained in respect of such input ‘R’) : Rs.18 lakh.
Compute the amount of excise duty payable by Krishna for the month of January, 2007. (5 marks)
(c) Bhaskar Trading Company reported aggregate sales of Rs.35,00,000 which include the following :
(i) Excise duty : Rs.9,00,000
(ii) Deposit for returnable containers : Rs.6,00,000
The rate of sales tax is 3%. However, it was not shown separately in the sales
invoices. Compute the tax liability under the Central Sales Tax Act, 1956. (3 marks)
8. (a) State, with reasons in brief, whether the following statements are correct or incorrect :
(i) Service tax for the month of March has to be paid by 31st March.
(ii) The claim for refund of service tax has to be filed within six months from the relevant date.
(iii) Any person effecting inter-State sale can collect tax in respect of such sale even if he is not registered under the Central Sales Tax Act, 1956.
(iv) Appeals against orders of Commissioner (Appeals) relating to duty drawback
cannot be filed before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT).
(v) Settlement Commission can entertain an application of an assessee only if the additional amount of customs duty accepted as payable exceeds Rs.2 lakh.
(vi) CENVAT credit can be taken on the basis of bill of lading. (2 marks each)
(b) State the basic conditions to be fulfilled for exemption to ‘penultimate sale for export’ under the Central Sales Tax Act, 1956.