IPCC Nov 2010 Tax Paper Solved (As per A.Y.2011-12)

Question 1	Question 2
Question 3	Question 4
Question 5	Question 6
Question 7

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Question 1

(a) Mr. Soohan submits the following details of his income for the assessment year 2011-12

Income from salary	3,00,000.00
Loss from let out house property	40,000.00
Income from sugar business	50,000.00
Loss from iron ore business b/f (discontinued in 2004-05)	1,20,000.00
Short term capital loss	60,000.00
Long term capital gain	40,000.00
Dividend	5,000.00
Income received from lottery winning (Gross)	50,000.00
Winning in card games	6,000.00
Agricultural income	20,000.00
Long term capital gain from shares (SST paid)	10,000.00
Short term capital loss under section 111	10,000.00
Bank interest	5,000.00

Calculate gross total income and losses to be carried forward.

Solution

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

Particulars	Details	Amount	Amount
Salaries			300000
Income from house property			(40000)
Profits and gains of business or profession
Income from sugar business		50000
Less: Brought forward loss from Iron-ore business		500001	Nil
Capital gains
Long term capital gain		40000
Long term capital gain from shares (STT Paid)	10000
Less: Exempt u/s 10(38)	10000	Nil
		40000
Short term capital loss	400002
Short term capital loss u/s 111A	Nil3	40000	Nil
Income from Other Sources
Dividend	5000
Less: Exempt u/s10(34)	5000	Nil
Winning from Lottery		50000
Winning in card games		6000
Agricultural Income	20000
Less: Exempt u/s10(1)	20000	Nil
Bank Interest		5000	61000
Gross Total Income			321000
Loss to be carried forward for subsequent assessment years:  -       Loss from iron ore business Rs.70000 -       Short term capital loss Rs.20000 -       Short term capital loss u/s 111A Rs.10000

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(b) Mr. A is a proprietor of Akash Enterprises having 2 units. He transferred on 1-4-2010 his unit 1 by way of slump sale for a total consideration of Rs.25 Lacs. The expenses incurred for this transfer were Rs.28000/-. His Balance Sheet as on 31.3.2010 is as under: 

Liabilities	Total Rs.	Assets	Unit 1 Rs.	Unit 2 Rs.	Total Rs.
Own Capital	15,00,000	Building	12,00,000	2,00,000	14,00,000
Revaluation Reserve	3,00,000	Machinery	3,00,000	1,00,000	4,00,000
(for building of unit 1)		Debtors	1,00,000	40,000	1,40,000
Bank loan	2,00,000	Other assets	1,50,000	60,000	2,10,000
(70% for unit 1)
Trade creditors	1,50,000
(25% for unit 1)
TOTAL	21,50,000	TOTAL	17,50,000	4,00,000	21,50,000

Other information:

(i)        Revaluation reserve is created by revising upward the value of the building of unit 1.

(ii)       No individual value of any asset is considered in the transfer deed.

(iii)      Other assets of unit 1 include patents acquired on 1.7.2008 for Rs.50,000/- on which no depreciation has been charged.

Compute the capital gain for the assessment year 2011-12.

Solution

Computation of capital gains for the A.Y. 2011-12

It is assumed that undertaking is owned by Mr. A for more than 3 years hence the gain on transfer shall be liable to long term.

Calculation of cost of acquisition (i.e. Net worth)

Particulars	Workings	Details	Amount
Value of asset taken over
Building	Rs.12000001 - Rs.300000 (Revaluation)	900000
Machinery	WDV as per I.T. Act	300000
Patent	WDV as per I.T. Act	28125
Debtors	Book value of non-depreciable assets	100000
Other Assets	Book value of non-depreciable assets	100000	1428125
Less: Value of liabilities taken over
Creditors	25% of Rs.150000	37500
Bank Loan	70% of Rs.200000	140000	177500
Net worth (cost of acquisition)			1250625

 

¹ It is assumed that written down value of asset as per books and as per Income-tax are same after ignoring revaluation, if any.

² Written Down Value of Patent should be:

Particulars	Amount
Patent purchased	50000
Less: Depreciation for F.Y. 2008-09 @ 25%	12500
Written down value as on 01-04-209	37500
Less: Depreciation for F.Y. 2009-10 @ 25%	9375
Written down value as on 01-04-2010	28125

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			Rs.
(i)	Amount received being 10% of the assignment fees on 31st March, 2011 for the upgradation and enhancement of software services to be rendered during the financial year 2011-12.		6,00,000
(ii)	Services provided to UNICEF, an International Organisation in Gandhinagar, for analysis, design and programming of latest information technology software.		5,00,000
(iii)	Services billed to clients (In one of the bill amounting to Rs.3,00,000 service tax was not charged due to conflicting nature and in another bill the firm failed to recover the service tax from the client, which was charged separately, due to insolvency of the client, the bill details are as under:		3,00,00,000
		Rs.
	Being the charges for right to use IT software	8,00,000
	Service tax @ 10%	80,000
	Education cess @ 2%	1,600
	Secondary & Higher education cess @ 1%	800
		8,82,400
(iv)	Amount received for services rendered during current financial year (excluding payment for 2 bills in item (iii) above for which payment received during current financial year)		1,04,78,500

Service tax and education cess have been charged separately in all the bills except wherever mentioned when it is not so charged separately.

Compute the value of total taxable services and service tax payable thereon for the year ended 31-3-2011, assigning reason in brief to the treatment of all items.

Solution

Computation of value of taxable services

Particulars	Reason	Details	Amount
Advance received in March 2011 for upgradation and enhancement service	Tax is payable on receipt basis		600000
Services provided to UNICEF	Services provided to approved inter-national organization is exempt		Nil
Services provided to client without charging service tax	Service tax is required to be paid even though it is not charged to client	Rs.300000/110.30%	271985
Services provided to client from whom service tax is not recovered	Service tax is required to be paid even though it is not recovered from client	Rs.800000/110.30%	725295
Other services	Tax is payable on receipt basis		10478500
Value of taxable services			12075780
Tax on above	Rounded off		1243805
-       Service Tax	Rs. 12075780 * 10%		1207578.00
-       Education Cess	Rs. 1207578 * 2%		24151.56
-       SHEC	Rs. 1207578 * 1%		12075.78

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(d) Mr. Rajesh is a registered dealer and gives the following information. You are required to compute the net tax liability and total sales value under Value Added Tax:

Rajesh sells his products to dealers in his State and in other States.

The profit margin is 15% of cost of production and VAT rate is 12.5% of sales.

(i)     Intra State purchases of raw material Rs.2,50,000/- (excluding VAT @ 4%)

(ii)    Purchases of raw material from an unregistered dealer Rs.80,000/- (including VAT @ 12.5%)

(iii)   High seas purchases of raw material are Rs.1,85,000/- (excluding custom duty @ 10% of Rs.18,500)

(iv)   Purchases of raw materials from other States (excluding CST @ 2%) Rs.50,000/-

(v)    Transportation charges, wages and other manufacturing expenses excluding tax Rs.1,45,000/-

(vi)   Interest paid on bank loan Rs.70,000/-

Solution

Computation of Sale Price and Output VAT

Particulars	Amount
Intra-State purchase of raw material	250000
Purchase of raw material from unregistered dealer	80000
High Sea purchase of raw material (including customs duty)	203500
Purchase of raw material from other State (including CST)	51000
Transportation charges, wages and other manufacturing expenses	145000
Other manufacturing expenses incurred	70000
Cost of production	799500
Add: Profit earned @ 15% on Rs.799500	119925
Sale Price	919425
VAT @ 12.5% on sales	114928

Notes

1.     Since, the customs duty paid on imports is not a VAT; it will form part of cost of input.

2.     Since, the credit of tax paid under VAT is available; it shall not be included in the cost of input.

3.     Credit/set-off for tax paid on inter-State purchases is not allowed.

Computation of VAT payable by Rajesh

Particulars	Details	Amount
VAT on sale price		114928
Less: Set-off of VAT on purchases
- On imports	Nil
- On local purchases [Rs.250000 * 4%]	10000	10000
Net VAT payable by Rajesh		104928

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Question 2

(a)  (i) Which income of Sikkimese individual is exempted from tax under section 10 (26AAA)?

(ii) How will you calculate the period of holding in case of the following assets?

(1)     Shares held in a company in liquidation

(2)     Bonus shares

(3)     Flat in a co-operative society

(4)     Transfer of a security by a depository (i.e., demat account)

(b) How can an assessee adjust the excess payment of service tax against his liability of service tax for subsequent periods? What is the basic condition for it?

(c) What record should be maintained under VAT system by a registered dealer?

Solution

a.	i. Refer Page No. 14.6 of Taxpoint Book for CA-IPCC
	ii.	1. Refer Page No. 7.3 of Taxpoint Book for CA-IPCC
		2. Refer Page No. 7.49 of Taxpoint Book for CA-IPCC
		3. Refer Page No. 7.5 of Taxpoint Book for CA-IPCC
		4. Refer Page No. 7.21 of Taxpoint Book for CA-IPCC
b.	Refer Page No. 19.17 of Taxpoint Book for CA-IPCC
c.	Refer Page No. 20.21 of Taxpoint Book for CA-IPCC

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Question 3(a)

Dr. Shuba is medical practitioner. Her age is 64 as on 1 Jan 2011. The receipts and payments account of 2010-11 of her is as under:

To		By
Balance B/f	10,000	Purchase of commercial vehicle before 30 Sep. 2010	4,00,000
Receipts from sale of Medicine	2,50,000	Drawing	2,50,000
Consultation fee	50,000	Deposit in bank for 5 years	1,50,000
Visiting fee	2,00,000	Surgical instrument purchased before 30 Sep. 2010	50,000
Lecturers	5,000	Instalment of loan paid	1,21,000
Family pension	2,80,000	(including interest Rs.22,333)
Saving bank interest	1,000	Medical insurance premium	32,000
Loan from bank	3,00,000	Instalment of housing loan
Share from HUF	50,000	(Principal component Rs.48,000)	1,08,000
Agriculture income	1,00,000	Advance tax paid	20,000
Income from lottery	35,000	Purchase of medicine	47,000
(net after deduction of TDS @ 30%)		Payment for medical journal	5,000
		Vehicle expenses	50,000
		Balance C/f:	48,000
Total	12,81,000	Total	12,81,000

Other relevant information is as under:

(i)      She resides in her own house which was constructed in 1999 with a loan from LIC Housing of Rs.10,00,000 out of which Rs.6,00,000 was still due. She got it refinanced form SBI on 01.04.10 at the rate of 10%. One fourth portion of the house is used for clinic purposes.

(ii)     She invested in term deposit Rs.1,50,000 in Bank of Baroda on 01.07.10 for a period of 5 years in the name of her minor daughter at 9% interest p.a.

(iii)    She purchased a commercial vehicle on 1 July 2010 at Rs.4,00,000. A loan of Rs.3,00,000 was taken to buy the van at 8% interest. One fourth use of vehicle is estimated to be personal.

(iv)    She paid medical insurance premium for herself of Rs.16,000 and for mother Rs.16,000. Her mother is dependent on her.

(v)     She got her share from HUF’s income of Rs.50,000.

Solution

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

Particulars	Workings	Details	Details	Amount
Income from house property
Net Annual Value			Nil
Less: Deduction u/s
24(a) Standard Deduction	30% of NAV	Nil
24(b) Interest on loan	75% (Rs.600000 * 10%)	45000	45000	(45000)
Profits & gains of business or profession
Receipt from sale of medicine		250000
Consultation fees		50000
Visiting fees		200000	500000
Less: Expenses allowed
Vehicle Expenses	75% of Rs.50000	37500
Payment for medical journal		5000
Interest on car loan	75% of Rs.22333	16750
Interest on housing loan	25% (Rs.600000 * 10%)	15000
Purchase of medicine		47000
Depreciation on surgical equipments	Rs.50000 * 15%	7500
Depreciation on vehicle	75% (Rs.4000002 * 15%)	45000	173750	326250
Income from other sources
Lecturers Fees			5000
Share from HUF	Exempt u/s 10(2)		Nil
Agricultural Income	Exempt u/s 10(1)		Nil
Winning from lottery	Rs.35000/70%		50000
Family Pension		280000
Less: Standard Deduction	Lower of 1/3rd of pension or Rs.15000	15000	265000
Bank interest			1000
Interest income of minor daughter	Rs.150000 * 9% * 9/12	10125
Less: Exemption u/s 10(32)		1500	8625	329625
Gross Total Income				610875
Less: Deduction under chapter VIA
U/s 80C (Repayment of housing loan & Bank deposit for 5 years) [(75% of Rs.48000 + Rs.150000), subject to maximum of Rs.100000]				100000
U/s 80D [Rs.15000 + Rs.16000]				31000
Total Income (Rounded off u/s 288A)				479880

Notes

1.     It is assumed that installment of loan paid (Rs.121000) during the year includes installment of car loan.

2.     Commercial Vehicle acquired on or after 01-01-2009 and put to use before 01-10-2009 is eligible for depreciation @ 50%. However, in the instant case, such vehicle is put to use after giving date, hence depreciation @ 15% is allowed.

3.    It is assumed that Deposit in bank for 5 years is eligible for deduction u/s 80C.

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Question 3(b) & (c)

b. Write a note in brief on provisional payment of service tax. 

c. State the Variants of VAT. Present them in schematic diagram and explain each one briefly.

Solution

b. Refer Page No.19.20 of Taxpoint Book for CA-IPCC

c. Refer Page No. 20.5 of Taxpoint Book for CA-IPCC

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Question 4

a.	i.	Explain the consequences of not deducting tax and paying to Govt. account under section 201 of the Income Tax Act, 1961.
	ii.	Can a political party claim exemption of its income under Section 13A of the Incoem tax Act, 1961?
b.	How will a taxable service be valued when the consideration thereof is not wholly or partly in terms of money?
c.	State with reasons in brief whether the following statements are correct or incorrect with reference to the provision of Value Added Tax.
	i.	It is permitted to issue ‘tax invoice’ inclusive of VAT i.e. aggregate of sales price & VAT.
	ii.	A registered dealer is compulsorily required to get its books of accounts audited under VAT Laws of different states irrespective of limit of turnover.

Solution

a.	i. Refer Page No.18.1
	ii. Refer Page No.13.17
b.	Refer Page No.19.6
c.	i.	No, Refer Page No.20.20
	ii	No, Refer Page No.20.21

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Question 5

From the following details find out the salary chargeable to tax for the assessment year 2011-12

Mr. X is a regular employee of Rama & Co. in Gurgaon. He was appointed on 01.01.10 in the scale of 20000-1000-30000. He is paid 10% D.A. & Bonus equivalent to one month pay. He contributes 15% of his pay and D.A towards his recognized provident fund and the company contributes the same amount.

He is provided free housing facility which has been taken on rent by the company at Rs.10,000 per month. He is also provided with following facilities:

(i)      Facility of laptop costing Rs.50,000.

(ii)     Company reimbursed the medical treatment bill of his brother of Rs.25,000, who is dependent on him.

(iii)    The monthly salary of Rs.1,000 of a house keeper is reimbursement by the company.

(iv)    A gift voucher of Rs.10,000 on the occasion of his marriage anniversary.

(v)     Conveyance allowance of Rs.1,000 per month is given by the company towards actual reimbursement.

(vi)    He is provided personal accident policy for which premium of Rs.5,000 is paid by the company.

(vii)   He is getting telephone allowance @ Rs.500 per month.

(viii)  Company pays medical insurance premium of his family of Rs.10,000.

Solution

Computation of taxable salary of Mr. X for the A.Y.2011-12

Particulars	Working	Details	Amount
Basic	Rs.20000 * 9 + Rs.21000 * 3		243000
Bonus			21000
Allowances
DA	10% of basic salary	24300
Telephone Allowance		6000	30600
Perquisites
Rent free accommodation	15% of Rs.294300 or 120000, whichever is lower	44145
Laptop facility	Exempt	Nil
Reimbursement of medical bill	25000
Less: Exempt	15000	10000
Salary of house keeper		12000
Gift	In excess of Rs.5000	5000
Reimbursement of conveyance expenses	Exempt	Nil
Personal Accidental policy	Exempt	Nil
Medical Insurance Premium	Exempt	Nil	71145
Contribution to RPF	15% of (Rs.243000 + Rs.24300)	40095
Less: Exempt upto 12%	12% of (Rs.243000 + Rs.24300)	32076	8019
Taxable Salary			373464

It is assumed that

-       DA forms part of retirement benefits.

-       Gift voucher is not convertible into cash

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Question 5(b) & (c)

(b)  What do you mean by e-filling of returns? Is there any facility of e-filling of service tax returns? If yes, then which of the services are eligible for this facility?

(c)  What are the conditions to be fulfilled by the dealer accepting the composition scheme under the Value Added Tax?  

Solution

b. Refer Page No.19.27 of Taxpoint Book for CA-IPCC

c. Refer Page No.20.24 of Taxpoint Book for CA-IPCC

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Question 6(a)

Sai Ltd. has a block of assets carrying 15% rate of depreciation, whose written down value on 01.04.2010 was Rs.40 lacs. It purchased another asset of the same block on 01.11.2010 for Rs.14.40 lacs and put to use on the same day. Sai Ltd. was amalgamated with Shirdi Ltd. with effect from 01.01.2011

You are required to compute the depreciation allowable to Sai Ltd. & Shirdi Ltd. for the previous year ended on 31.03.2011 assuming the assets transferred to Shirdi Ltd. at Rs.60 lacs.

Solution

Computation of depreciation if there were no amalgamation

Particulars	Amount
W.D.V. as on 1/4/2010	4000000
Add: Purchase during the year	1440000
	5440000
Less: Sale during the year	Nil
	5440000
Depreciation [Rs.4000000 * 15% + 1440000 * 15% * ½]	708000

Allocation of depreciation between Sai Ltd. and Shirdi Ltd.

The depreciation of Rs.708000 is to be allocated in the ratio of number of days the assets were used by the amalgamating company  and the amalgamated company.

 

Calculation of allowable depreciation to Sai Ltd.

Particulars	Amount
Depreciation on assets held as on 01/04/2010
Assets are used by Sai Ltd. from 1/4/10 to 31/12/10 i.e. 275 days, hence depreciation shall be allowed for 275 days
- Rs.4000000 * 15% * 275 / 365	452055
Depreciation on newly acquired assets
New assets has been used by it from 01/11/10 to 31/12/10 i.e. 61 days, hence depreciation shall be allowed for 61 days
- Rs.1440000 * 15% * ½ * 61 / 151	43629
Depreciation allowable u/s 32	495684

 

Calculation of allowable depreciation to Shirdi Ltd.

Particulars	Amount
Asset of Sai Ltd. used by the Shirdi Ltd. from 1/1/11 to 31/3/11 i.e. 90 days.  Depreciation for such period [Rs. Rs.4000000 * 15% * 90 / 365 + Rs.1440000 * 15% * ½ * 90 / 151]	212316

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Question 6(b) & (c)

(b)  State with reasons in brief whether the following statements are correct or incorrect with reference to the provisions of Service Tax.

(i)   The scope of taxable service shall include any service provided or to be provided to business entity, by any other business entity, in relation to advice, consultancy or assistance in any branch of law including service provided by way of appearance before any court, tribunal or authority.

(ii)  Service tax provisions are not applicable in Jammu and Kashmir because State Government concurrence was not obtained in respect of Finance Act, 1944.

(c)  Mention the purchases which are not eligible for input tax credit (any eight items) under Value Added Tax

Solution

a)     i. False, Refer Page No. 19.37                  ii. Refer Page No.19.3

b)     Refer page 20.15 of Taxpoint Book for CA-IPCC

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Question 7

Mr. Shah, an Accounts Manager, has retired from JK Ltd. on 15.1.2011 after rendering services for 30 years 7 months. His salary is Rs.25,000/- p.m. upto 30.9.2010 and Rs.27,000/- thereafter. He also gets Rs.2,000/- p.m. as dearness allowance (55% of it is a part of salary for computing retirement benefits). He is not covered by the Payments of Gratuity Act, 1972. He has received Rs.8 lacs as gratuity from the employer company.

Solution

Workings

1.     Completed year of service is 30 years.

2.     Salary here means Basic + Dearness Allowance + Commission on turnover, being last 10 months average just preceding the month of retirement, as shown below:

Particulars	1	2	3	4	5	6	7	8	9	10	Total
	Mar	Apr	May	June	July	Aug	Sept	Oct	Nov	Dec
Basic	25000	25000	25000	25000	25000	25000	25000	27000	27000	27000	256000
D.A. (55%)	1100	1100	1100	1100	1100	1100	1100	1100	1100	1100	11000
Commission	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil
Total											267000
Average salary  = Rs.267000 / 10 months											26700

 

Computation of taxable gratuity for the A.Y. 2011-12

Particulars	Details	Amount
Gratuity received		800000
Less: Minimum of the following is exempted as per Sec 10(10)(iii) :
a)     Actual gratuity received	800000
b)     Statutory Amount	1000000
c)     ½ * completed year of service * salary p.m. [1/2 * 30 * 26700]	400500	400500
Taxable Gratuity		399500

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Question 7(a)(ii)

State under which heads the following incomes are taxable:

Income	Head
Rental income in case of dealer in property	Income from house property
Dividend on shares in case of a dealer in shares	Income from other sources
Salary by partner from his partnership firm	Profits and gains business or profession
Rental income of machinery	Income from other sources1
Winnings from lotteries by a person having the same as business activity	Income from other sources
Salaries payable to a Member of Parliament	Income from other sources
Receipts without consideration	Income from other sources
In case of retirement, interest on employee’s contribution if provident fund is unrecognized	Income from other sources

¹ If assessee is engaged in the business of renting of plant and machinery, then it will be taxable under the head ‘Profits and gains business or profession’.

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Question 7(a)(iii)

Explain briefly the applicability of Section 22 for chargeability of income tax for:

(i)   House property situated in foreign country and

(ii)  House property with disputed ownership.

Solution

Refer Page No. 5.3 of Taxpoint Book for CA-IPCC

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Question 7(b)

Shashwat Hotels Pvt. Ltd has given the following information for F.Y.2010-11. You are required to compute the taxable services under Service Tax Act the tax thereon for FY 2010-11 without assigning any reason for the treatment.     

(i)   Reception room and vehicle parking space were let out for a film shooting for 3 months. The charges received for this Rs.5 Lacs.

(ii)   The conference hall was let out to a Gujarati Samaj Trust for a week for a music competition for Rs.50,000/-

(iii)  The hotel was booked by a customer for 3 days for a marriage function. The room booking charges were received in advance (excluding service tax) in the same year of Rs.50,000/-. The electricity charges separately billed Rs.20,000/-, hire charges including catering charges for 3 days billed of Rs.3,25,000/- after deducting the advance.

(iv)  During the year, the conference hall was let out to MNO Ltd. The charges received were as under:

       Hall rent Rs.4 Lacs, computer & projector systems charges Rs.25,000/-, electricity charges Rs.30,000/-. Hall rent includes charges for snacks and cold drinks Rs.50,000/-

(v)   The hotel garden was let out to a political party for 2 days for a meeting. The charges received Rs.25,000/-

The hotel charges 10% service charges which are later distributes as tips to employees.

The above charges are excluding service tax. All the charges have been received in FY 2010-11.

The hotel has already been registered under Service Tax Act in F.Y. 2009-10.

Solution

Now, the given taxable service is not covered in the syllabus of IPCC.

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Question 7(c)

Compute the Vat amount payable by Mr. Shyam, who purchased goods from a manufacturer on payment of Rs.16,000 (including VAT) and earned 20% profit on purchase price. VAT rate on both purchases and sales is 4%.

Solution

Computation of Invoice Value

Particulars	Amount
Cost of goods purchase excluding VAT [Rs.416000 / 104%]	400000
Add: Profit [20% of Rs.400000]	80000
Turnover	480000
Add: VAT [Rs.480000 * 4%]	19200
Invoice Value	499200

 

Computation of VAT liability

Particulars	Amount
Output VAT	19200
Less: Input VAT Credit [Rs.416000 / 104% * 4%]	16000
VAT Payable	3200

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