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  IPCC May 2011

ICAI-IPCC May 2011 Tax Paper Solved (As per A.Y.2011-12)



Question 1(a)

On 21.3.2010, Mr. Janak gifted to his wife Mrs. Thilagam 200 listed shares which had been bought by him on 19.4.2009 at Rs.2,000 per share. On 1.6.2010, bonus shares were allotted in the ratio of 1:1. All these shares were sold by Mrs. Thilagam as under:

Date of Sale

Manner of Sale

No. of Shares

Net Sales value (Rs.)

21.5.2010

Sold in recognized stock exchange, STT paid

100

2,20,000

21.7.2010

Private sale, to an outsider

All bonus shares

1,25,000

28.2.2011

Private sale, to her friend Mrs. Hema (Market value on this date was Rs.2,10,000)

100

1,70,000

Briefly state the income-tax consequences in respect of the sale of the shares by Mrs. Thilagam, showing clearly the person in whose hands the same is chargeable, the quantum and the head of income in respect of the above transactions. Detailed computation of total income NOT required.

Net sales value represents the amount credited after all taxes, levies, brokerage, etc., and the same may be adopted for computing the capital gains.

Solution

Sale of 100 shares

Since shares are sold through recognized stock exchange after holding for more than 12 months (including period of holding of previous owner), hence capital gain, if any, arises on such transfer is exempt u/s 10(38)

 

Sale of bonus shares

Since shares are not sold through recognized stock exchange, hence short term capital gain of Rs.125000 arises on such transfer is taxable in the hands of Mrs.Thilagam. It is to be noted that:

a. Cost of acquisition of bonus shares shall be Nil

b. In case of accretion of assets transferred by the spouse, clubbing provisions are not applicable.

 

Sale of remaining 100 shares

Computation of capital gain

Particulars

Amount

Sale Consideration

170000

Less: Index cost of acquisition [Rs.100 * 2000 * 711 / 632]

225000

Long Term Capital Loss

55000

Such long term capital loss shall be treated as loss of Mr. Janak.


 

Question 1(b)

Nathan Aviation Ltd. is running two industrial undertakings, one in a SFZ (Unit S) and another in a normal area (Unit N). The brief summarized details for the year ended 31.3.2011 are as under :                                                                         

(Rs. in lacs)

 

S

N

Domestic turnover

10

100

Export turnover

120

Nil

Gross profit

20

10

Less : Expenses and depreciation

7

6

Profits derived from the unit

13

4

The brought forward business loss pertaining to Unit N is Rs.2 lacs. Briefly compute the business income of the assessee.

Solution

Computation of business income of Nathan Aviation Ltd. for the A.Y. 2011-12

Particulars

Amount

Amount

Unit S

 

 

Profit from Unit

1300000

 

Less:  Exemption u/s 10AA [Rs.13 lakh * 120 lakh / 130 lakh]

1200000

100000

Unit N

 

 

Profit from Unit

 

400000

Current year business income

 

500000

Less: Brought forward business loss

 

200000

Business Income

 

300000



Question 1(c)

Pareesh & Co., is a partnership firm engaged in the business of recruitment and supply of labourers. The firm, which had rendered taxable services to the tune of Rs.20.2 lacs in the financial year 2009-10, furnishes the following details pertaining to the half year ended on 30.9.2010 :                                                                                                          

(i)      Amounts collected from companies for pre-recruitment Rs.2,50,000 screening.

(ii)     Amounts collected from companies for recruitment of

Permanent Staff
3,00,000
Temporary Staff
4,00,000
(iii)    Advances received from prospective employers                         1,00,000

for conducting campus interviews in college

Wherever applicable, service tax has been charged separately and received from clients. Compute the value of taxable services rendered and the service tax payable by the assessee for the relevant half year.

Solution

Computation of value of taxable services

Particulars

Details

Amount

Amount collected from companies for pre-recruitment screening

 

250000

Amount collected from companies for recruitment of

 

 

-       Permanent Staff

 

300000

-       Temporary Staff

 

400000

Advance received from prospective employers for Conducting campus interviews in college

 

100000

Value of taxable services

 

1050000

Tax on above

Rounded off

108150

-       Service Tax

Rs. 1050000 * 10%

105000

-       Education Cess

Rs. 105000 * 2%

2100

-       SHEC

Rs. 105000 * 1%

1050


 

Question 1(d)

The following are details of purchases, sales, etc. effected by Vasudha & Co. a registered dealer, for the year ended 31.3.2011 :                                                                              

Particulars

Amount (Rs.)

Purchase of raw materials within State, 1000 units, inclusive of VAT levy at 6%

5,30,000

Inter-State purchases of raw material, inclusive of CST at 2%

2,04,000

Import of raw materials, inclusive of customs duty of Rs.35,000

4,35,000

Capital goods purchased on 1.5.2010, inclusive of VAT levy at 10% (input credit to be spread over 2 financial years)

3,30,000

Other manufacturing expenses

1,50,000

Sale of taxable goods within State, inclusive of VAT levy at 4%

7,28,000

Sale of goods within State, exempt from levy of VAT (Goods were manufactured from the Inter-State purchase of raw materials)

1,20,000

Closing stock as on 31.3.2011 was 100 units of raw materials purchased within the State

 

Input credit is allowed only on raw materials used in manufacture of taxable goods, Compute the VAT liability of the dealer for the year ended 31.3.2011.

Solution

Computation of VAT liability

Particulars

Amount

Amount

Output VAT payable on sale of taxable goods within State [Rs.728000 / 104% * 4%]

 

28000

Less: VAT Input available

 

 

Input VAT Credit on purchase of raw material [ Rs.530000 * 6% / 106%]

30000

 

Input VAT Credit on Capital Goods [Rs.330000 * 10% / 110%] / 2

15000

45000

Input Credit carried forward

 

17000

Notes

Input Credit is not available against payment of CST and custom duty.



Question 2(a)(i)

Miss Vivitha paid a sum of 5000 USD to Mr. Kulasekhara, a management consultant practicing in Colombo, specializing in project financing. The payment was made in Colombo. Mr. Kulasekhara is a non-resident. The consultancy related to a project in India with possible Ceylonese collaboration. Is this payment chargeable to tax in India in the hands of Mr. Kulasekhara, since the services were used in India?

Solution

As per sec.9(1)(vii), following income by way of fees for technical service shall be deemed to accrue or arise in India and hence shall liable to tax in India –

Fee for technical services payable by

Condition

The Government

Nil

A resident person

Such services must not be utilised in -

·         business or profession carried on by such person outside India; or

·         earning any income from any source outside India

A non-resident person

Such services must be utilized in -

·         business or profession carried on by such person in India; or

·         earning any income from any source in India.

In the instant case, the payment has been received from a person resident in India and relates to a project in India, hence such payment is liable to tax in India.


 

Question 2(a)(ii)

Mr. Praveen Kumar has furnished the following particulars relating to payments made towards scientific research for the year ended 31.3.2011.                

 

 

(Rs. in lacs)

(i)

Payment made to K Research Ltd.

20

(ii)

Payment made to LMN College

15

(iii)

Payment made to OPQ College

10

 

Note : K Research Ltd. and LMN College are approved research institutions and these payments are to be used for the purposes of scientific research

 

(iv)

Payment made to National Laboratory

8

(v)

Machinery purchased for in-house scientific research

25

(vi)

Salaries to research staff engaged in in-house scientific research

12

Compute the amount of deduction available under section 35 of the Income-tax Act, 1961 while arriving at the business income of the assessee.

Solution

Computation of deduction u/s 35 to Praveen Kumar for the A.Y.2011-12                                                                     

                      Rs. In lakh

Particulars

As per Sec.

Amount

Deduction

Payment made to K Research Ltd.

35(1)(iia)

20.00

25.00

Payment made to LMN College

35(1)(ii)

15.00

26.25

Payment made to OPQ College

NA

10.00

Nil

Payment made to National Laboratory

35(2AA)

8.00

14.00

Machinery purchased for in-house scientific research

35(1)(iv)

25.00

25.00

Salaries to research staff engaged in in-house research

35(1)(i)

12.00

12.00

Deduction available u/s 35

 

 

102.25


 

Question 2(b)

During the year ended 31.3.2010, Kohli & Co., running a coaching centre has collected a sum of Rs.10.2 lacs as service tax. Rs.70,000 was met through Cenvat credit and the balance was paid by cheque on various dates. The details pertaining to the quarter ended 30.6.2010 are as under :                                                                                        

Particulars

Amount (Rs.)

Value of free coaching rendered

20,000

Coaching fees collected from students (Service tax collected separately)

14,50,000

Advance received from a college for coaching their students, on 30.6.2010. However, no coaching was conducted and the money was returned on 12.4.2011

3,00,000

Determine the service tax liability for the quarter and indicate the date by which the service tax has to be remitted by the assessee.

Solution

Computation of service tax liability

Particulars

Details

Amount

Value of free coaching rendered

 

Nil

Coaching fees collected from students

 

1450000

Advance received from college

 

300000

Value of taxable services

 

1750000

Tax on above

Rounded off

180250

-       Service Tax

Rs. 1750000 * 10%

175000

-       Education Cess

Rs. 175000 * 2%

3500

-       SHEC

Rs. 175000 * 1%

1750

Due date of the payment of service tax (electronically) is 6th July, 2010.

It is assumed that all receipts do not include service tax.


 

Question 2(c)

Which variant of VAT is most widely used in the world and why? Are some services also included in the VAT net by such countries?

Solution

Refer page 20.5


 

Question 3(a)

Mr. Vidyasagar, resident individual aged 64, is a partner in Oscar Musicals & Co., a partnership firm. He also runs a wholesale business in medical products. The following details are made available for the year ended 31.3.2011:                                     

 

 

Rs.

Rs.

(i)

Interest on capital received from Oscar Musicals & Co., at 15%

 

1,50,000

(ii)

Interest from bank on fixed deposit (Net of TDS Rs.1,500)

 

13,500

(iii)

I.T. refund received relating to asst. year 2009-10 including interest of Rs.2,300

 

34,500

(iv)

Net profit from wholesale business

Amounts debited include the following:

 

5,60,000

 

Depreciation as per books

34,000

 

 

Motor car expenses

40,000

 

 

Municipal taxes for the shop

7,000

 

 

(For two half years; payment for one half year made on 12-6-2011 and for the other, on 14.11.2011)

 

 

 

Salary to manager for whom single cash payment was made for

21,000

 

(v)

The WDV of the assets (as on 1.4.2010) used in above wholesale business is an under :

 

 

 

-       Computers

1,20,000

 

 

-       Motor car (20% used for personal use)

3,20,000

 

(vi)

LIP paid for major son

60,000

 

 

PPF of his wife

70,000

 

 

Long-term infrastructure bonds (Approved)

30,000

 

Compute the total income of the assessee for the assessment year 2011-12. The computation should show the proper heads of income. Also compute the WDV of the different blocks of assets as on 31.3.2011.

Solution

Computation of total income of Dr. Shuba for the A.Y. 2011-12

Particulars

Workings

Details

Details

Amount

Profits & gains of business or profession

 

 

 

 

 

 

 

 

 

Interest on capital from Oscar Musical & Co.

150000 / 15% * 12%

120000

 

 

Net profit from wholesale business

 

560000

680000

 

Add: Expenses disallowed

 

 

 

 

Depreciation as per books of account

 

34000

 

 

Motor Car expenses

40000 * 20%

8000

 

 

Municipal Tax paid

Not paid within due date of furnishing return

3500

 

 

Salary to manager paid in cash [Sec. 40A(3)]

 

21000

66500

 

Less: Depreciation allowed

 

 

746500

 

-       Computer

 

72000

 

 

-       Motor Car

 

38400

110400

636100

Income from other sources

 

 

 

 

Interest on Fixed Deposit

 

 

15000

 

Interest on IT Refund

 

 

2300

17300

Gross Total Income

653400

Less: Deduction under chapter VIA

 

U/s 80C (LIP of major son + PPF) [(Rs.60000 + Rs.70000), subject to maximum of Rs.100000]

100000

U/s 80CCF [Long term infrastructure bond, subject to maximum of Rs.20000]

20000

Total Income (Rounded off u/s 288A)

533400

Notes

Computation of depreciation u/s 32

Particulars

Computer

Motor Car

Rate of Depreciation

60%

15%

W.D.V. as on 1/4/2010

120000

320000

Add: Purchase during the year

Nil

Nil

 

120000

320000

Less: Sale during the year

Nil

Nil

 

120000

320000

Depreciation

72000

48000

Less: Personal Use

 

9600

Allowable Depreciation u/s 32

72000

38400


 

Question 3(b)

 I.    Where any transaction of taxable service is entered into with an associated enterprise, receipt of service tax is not material for levy of service tax. Explain with reasons, whether you agree or disagree with this statement

II.    Briefly discuss about the adjustment of excess amount of service tax paid in case of renting of immovable property service, owing to property tax payment.

Solution

 I.    Refer Page No.19.7

II.    As per Rule 6(4C) of the Service Tax Rules, 1994, where the person liable to pay service tax in respect of services provided or to be provided in relation to renting of immovable property, has paid to the credit of Central Government any amount in excess of the amount required to be paid towards service tax liability for a month or quarter, as the case may be, on account of non-availment of deduction of property tax paid in terms of notification No.24/2007-Service Tax, dated the 22nd May, 2007, from the gross amount charged for renting of the immovable property for the said period at the time of payment of service tax, the assessee may adjust such excess amount paid by him against his service tax liability within one year from the date of payment of such property tax. The details of such adjustment shall be intimated to the Superintendent of Central Excise having jurisdiction over the service provider within a period of fifteen days from the date of such adjustment.


 

Question 3(c)

M/s. Staruss & Co., a registered dealer under the local VAT law, having stock of goods purchased from outside the State, wishes to opt for the Composition Scheme. Advise him whether the same is possible. Will the VAT chain be broken if the dealer opts for the said scheme?

Solution

Refer Page No.20.24


 

Question 4(a)

The following are the details relating to Mr. Srivatsan, a resident Indian, aged 57, relating to the year ended 31.3.2011:                                                                                                          

 

Rs.

Income from salaries

2,20,000

Loss from house property

1,90,000

Loss from cloth business

2,40,000

Income from speculation business

30,000

Loss from specified business covered by section 35AD

20,000

Long-term capital gains from sale of urban land

2,50,000

Long-term capital loss from sale of listed shares in recognized

 

Stock exchange (STT paid)

1,10,000

Loss from card games

32,000

Income from betting

45,000

Life Insurance Premium paid

1,20,000

Compute the total-income and show the items eligible for carry forward.

Solution

Computation of total income of Mr. Srivatsan for the A.Y. 2011-12

Particulars

Details

Amount

Amount

Salaries

 

220000

 

Less: Loss under the head Income from House Property

 

150000

70000

Income from House Property

 

(190000)

 

Less: Adjusted with Long term capital gain from sale of urban land

40000

 

 

Less: Adjusted with income under the head Salaries

150000

190000

Nil

Profits and gains of business or profession

 

 

 

Income from cloth business

 

(240000)

 

Income from speculation business

 

30000

 

 

 

(210000)

 

Less: Adjusted with Long term capital gain from sale of urban land

 

210000

Nil

Capital Gains

 

 

 

Long term capital gain from sale of urban land

 

250000

 

Less: Loss under the Profits and gains of business or profession

210000

 

 

Less: Loss under the head Income from House Property

40000

250000

Nil

Income from Other Sources

 

 

 

Income from betting

 

 

45000

Gross Total Income

115000

Less: Deduction u/s 80C [Deduction is not allowed from betting income]

70000

Total Income

45000

1.        Loss of specified business u/s 35AD Rs.20000

2.        Long term capital loss on sale of listed shares is not to be adjusted as gain from the same is exempted u/s 10(38)

3.        Loss from card games cannot be adjusted.


  

Question 4(b)

State the provisions which enable the Central Government to make rules for administering service tax. For what purposes are such rules made? Name any four such rules issued by the Central Government so far.

Solution

As per sec. 94 of the Finance Act, 1994, the Central Government may, by notification in the Official Gazette, make rules on the following matters for carrying out the provisions of this Chapter:

(a)   collection and recovery of service tax u/s 66 and 68;

(b)   the determination of amount and value of taxable service u/s 67;

(c)    the time and manner and the form in which application for registration shall be made u/s 69;

(d)   the form, manner and frequency of the returns to be furnished u/s 70 and the late fee for delayed furnishing of such return

(e)    the manner of provisional attachment of property u/s 73C;

(f)     publication of name of any person and particulars relating to any proceeding u/s 73D;

(g)   the form in which appeal u/s 85 or u/s 86(6) may be filed and the manner in which they may be verified;

(h)   the manner in which the memorandum of cross-objections u/s 86(4) may be verified;

(i)     the credit of service tax paid on the services consumed for providing a taxable service in case where the services consumed and the service provided fall in the same category of taxable service;

(j)      the credit of service tax paid on the services consumed or duties paid or deemed to have been paid on goods used for providing a taxable service;

(k)    the manner of recovery of any amount due to the Central Government u/s 87;

(l)     provisions for determining export of taxable services;

(m)  grant of exemption to, or rebate of service tax paid on, taxable services which are exported out of India;

(n)   rebate of service tax paid or payable on the taxable services consumed or duties paid or deemed to have been paid on goods used for providing taxable services which are exported out of India;

(o)   the date for determination of rate of service tax and the place of provision of taxable service;

(p)   rebate of service tax paid or payable on the taxable services used as input services in the manufacturing or processing of goods exported out of India u/s 93A;

(q)   any other matter which by this Chapter is to be or may be prescribed.

Further Refer Page No. 19.1


 

Question 4(c)

What is meant by input tax credit in the context of VAT provisions? How does input tax credit help in achieving the essence of VAT?

Solution

Refer Page No. 20.14


 

Question 5(a)

Mr. Rakesh purchased a house property on 14th April, 1979 for Rs.1,05,000. He entered into an agreement with Mr. B for the sale of house on 15th September, 1982 and received an advance of Rs.25,000. However, since Mr. B did not remit the balance amount, Mr. Rakesh forfeited the advance. Later on, he gifted the house property to his friend Mr. A on 15th June, 1986.

Following renovations were carried out by Mr. Rakesh and Mr. A to the house property:

 

Amount (Rs)

By Mr. Rakesh during FY 1979-80

10,000

By Mr. Rakesh during FY 1983-84

50,000

By Mr. A during FY 1993-94

1,90,000

The fair market value of the property as on 1-4-1981 is Rs.1,50,000/-

Mr. A entered into an agreement with Mr. C for sale of the house on 1st June, 1995 and received an advance of Rs.80,000. The said amount was forfeited by Mr. A, since Mr. C could not fulfill the terms of the agreement.

Finally, the house was sold by Mr. A to Mr. Sanjay on 2nd January, 2011 for a consideration of Rs.12,00,000.

Compute the capital gains chargeable to tax in the hands of Mr. A for the assessment year 2011-12.

Solution

Computation of capital gain in the hands of Mr. A for the A.Y. 2011-12

Particulars

Working

Details

Amount

Sale consideration

 

 

1200000

Less: Expenses on transfer

 

 

Nil

Net sale consideration

 

 

1200000

Less: I) Indexed cost of acquisition

(Rs.150000 – Rs.80000) * 711/140

355500

 

         ii) Indexed cost of improvement

 

 

 

-       incurred by Mr. Rakesh

Rs.50000 * 711/116

306466

 

-       incurred by Mr. A

Rs.190000 * 711/244

553648

1215614

Long Term Capital Gain

(15614)

Notes

1.     Cost of acquisition is taken as actual cost of acquisition (i.e. Rs.105000) or fair market value as on 1/4/81 (i.e. Rs.150000) whichever is higher. Further, advance money being received and forfeited by previous owner shall not be subtracted from the cost of acquisition. However, advance money forfeited by the assessee shall be reduced from the cost of acquisition.

2.     In case of cost of acquisition, index benefit is available from the year in which asset was first held by Mr. A. However, in case of cost of improvement, index benefit is available from the year in which such cost was incurred. Further, to be noted that any expenses incurred for improvement before 1-4-1981 shall be ignored.


 

Question 5(b) & (c)

(b)  Briefly explain the provisions relating to advance payment of service tax.

(c)  What are the major deficiencies of VAT system in India?

Solution

b. Refer page No.19.20

c. Refer Page No.20.4



Question 6(a)

Harish Jayaraj Pvt. Ltd. is converted into Harish Jayaraj LLP on 1-1-2011.

The following particulars are available to you:                                                      

 

 

(Rs.)

(i)

WDV of land as on 1-4-2010

5,00,000

(ii)

WDV of machinery as on 1-4-2010

3,30,000

(iii)

Patents acquired on 1-6-2010

3,00,000

(iv)

Building acquired on 12-3-2009 for which deduction was allowed under section 35 AD.

7,00,000

(v)

Above building was revalued as on the date of conversion into LLP as

12,00,000

(vi)

Unabsorbed business loss as on 1-4-2010 (A. Y. 2007-08)

9,00,000

Though the conversion into LLP took place on 1-1-2011, there was disruption of business and the assets were put into use by the LLP only from 1st March, 2011 onwards.

The company earned profits of Rs.8 lacs, prior to computation of depreciation.

Assuming that the necessary conditions laid down in section 47 (xiiib) of the Income-tax Act, 1961 have been compiled with, explain the tax treatment of the above in the hands of the LLP.

Solution

Computation of depreciation if no conversion has taken place

Particulars

Amount

Machinery [Rate 15%]

 

W.D.V. as on 1/4/2010

330000

Add: Purchase during the year

Nil

 

330000

Less: Sale during the year

Nil

 

330000

Depreciation [Rs.330000 * 15%]

49500

Patent [Rate 25%]

 

W.D.V. as on 1/4/2010

Nil

Add: Purchase during the year

300000

 

300000

Less: Sale during the year

Nil

 

300000

Depreciation [Rs.300000 * 25%]

75000


Allocation of depreciation between Harish Jayaraj Pvt Ltd. and Harish Jayaraj LLP

The depreciation shall be allocated in the ratio of number of days the assets were used by them:

 

Calculation of allowable depreciation to Harish Jayaraj Pvt Ltd.

Particulars

Amount

Depreciation on machinery

 

(Assets are used by the company from 1/4/10 to 31/12/10 i.e. 275 days, hence depreciation shall be allowed for 275 days)

 

- Rs.49500 * 275 / 306

44485

Depreciation on Patent

 

Patent has been used by it from 01/06/10 to 31/12/10 i.e. 214 days, hence depreciation shall be allowed for 214 days

 

- Rs.75000 * 214 / 245

65510

Depreciation allowable u/s 32

109995

 

Calculation of allowable depreciation to Harish Jayaraj LLP

Particulars

Amount

Depreciation on machinery

 

(Assets are used by the LLP from 1/3/11 to 31/03/11 i.e. 31 days, hence depreciation shall be allowed for 31 days)

 

- Rs.49500 * 31 / 306

5015

Depreciation on Patent

 

Patent has been used by it from 01/03/11 to 31/03/11 i.e. 31 days, hence depreciation shall be allowed for 31 days

 

- Rs.75000 * 31 / 245

9490

Depreciation allowable u/s 32

14505

 

Computation of total income of the Harish Jayaraj Pvt Ltd.

Particulars

Amount

Net profit before depreciation

800000

Less: Depreciation

109995

 

690005

Less: Brought forward loss

690005

Total Income

Nil

Note: Balance brought forward loss of Rs.209995/- is allowed to be adjusted by LLP



Question 6(b)

Nigamanth Cargo Handlers P. Ltd. is a cargo handling agency, in existence since 2003. For the quarter ended 31-3-2011, total collections for handling cargo (excluding service tax) was Rs.32,00,000. The same included the following receipts also:                                   

 

(Rs.)

(i) Handling of cargo containing life saving drugs

2,00,000

(ii) Handling of export cargo

3,00,000

(iii) Handling of cargo for storage in cold storage

1,00,000

(iv) Towards providing service of packing together with transportation of cargo

4,00,000

Ascertain the quantum of taxable cargo handling services for the quarter ended 31-3-2011. Wherever applicable, service tax was charged separately and received in full.

Solution

Computation of service tax liability

Particulars

Details

Amount

Handling of cargo containing life saving drugs

 

200000

Handling of export cargo

 

Nil

Handling of cargo for storage in cold storage

 

Nil

Towards providing service of packing together with transportation of cargo

 

400000

Value of taxable services

 

600000

Tax on above

 

61800

-       Service Tax

Rs. 600000 * 10%

60000

-       Education Cess

Rs. 60000 * 2%

1200

-       SHEC

Rs. 60000 * 1%

600


 

Question 6(c)

How can a Chartered Accountant help a client in the handling of VAT audit called for by the Department and in conducting external audit of VAT records?

Solution

Refer Page No.20.25



Question 7(a)(1)

Specify the persons who are authorized to sign and verify under section 140, the return of income filed under section 139 of the Income-tax Act, 1961 in the case of:

      I.        Political party;

     II.        Local authority;

    III.        Association of persons, and

    IV.        Limited liability Partnership (LLP).

Solution

Refer Page No.17.7


 

Question 7(a)(2)

The following details have been furnished by Mrs. Hemali, pertaining to the year ended 31-3-2011: 

(i)      Cash gift of Rs.51,000 received from her friend on the occasion of her “Shastiaptha Poorthi”, a wedding function celebrated on her husband completing 60 years of age. This was also her 25th wedding anniversary.

(ii)     On the above occasion, a diamond necklace worth Rs.2 lacs was presented by her sister living in Dubai.

(iii)    When she celebrated her daughter’s wedding on 21-2-2011, her friend assigned in Mrs. Hemali’s favour, a fixed deposit held by the said friend in a scheduled bank; the value of the fixed deposit and the accrued interest on the said date was Rs.51,000.

Compute the income, if any, assessable as income from other sources.

Solution

Computation of income from other sources of Mrs. Hemali for the A.Y. 2011-12

Particulars

Amount

Gift from friend

51000

Gift of diamond necklace from sister (Being a relative)

Nil

Gift of fixed deposit (as gift is received by her and not by her daughter)

51000

Income from Other Sources

102000

Note: It may be argued that fixed deposit is not covered u/s 56(2)(vii) as it is neither covered under the purview of money nor under property.


Question 7(a)(3)
During the financial year 2010-11, the following payments/expenditure were made/incurred by Mr. Yuvan Raja, a resident individual (whose turnover during the year ended 31-3-2010 was Rs.39 lacs):

(i)      Interest of Rs.12,000 was paid to Rehman & Co., a resident partnership firm, without deduction of tax at source;

(ii)     Interest of Rs.4,000 was paid as interest to Mr.R. D. Burman, a non-resident, without deduction of tax at source;

(iii)    Rs.3,00,000 was paid as salary to a resident individual without deduction of tax at source;

(iv)    He had sold goods worth Rs.5 lacs to Mr. Deva. He gave Mr. Deva a cash discount of Rs.12,000 later. Commission of Rs.15,000 was paid to Mr. Vidyasagar on 2-7-2010. In none of these transactions, tax was deducted at source.

Briefly discuss whether any disallowance arises under the provisions of section 40(a)(i)/40(a)(ia) of the Income-tax Act, 1961.

Solution

(i)      Mr. Yuvan Raja is not liable to deduct tax at source u/s 194A as his turnover of the preceding financial year does not exceed the limit specified u/s 44AB

(ii)     The assessee is liable to deduct tax at source u/s 195 on payment made to a non-resident, hence, Rs.4000 being interest paid to non-resident shall be disallowed.

(iii)    Salary is not covered u/s 40(a)(ia), hence such payment is allowed.

(iv)    There is no provision for deducting tax at source on discount. Further, Mr. Yuvan Raja is not liable to deduct tax at source u/s 194H as his turnover of the preceding financial year does not exceed the limit specified u/s 44AB



Question 7(b)

State the due dates for filing of service tax returns. Will the delayed filing of service tax return result in payment of any late fee? If so, how much?

Solution

Refer Page No. 19.27


 

Question 7(c)

Briefly list out the contents of VAT invoices

Solution

Refer Page No.20.20


For Solution to Theoretical Question: Refer respective Page of Our Published Book for CA IPCC