CA IPCC Nov 2009 Tax Paper Solved

IPCC Nov 2009

CA IPCC Nov 2009 Tax Paper Solved

1.	From the following details compute the total income of Siddhant of Delhi and tax payable for the assessment year 2011-12
		Rs.
	Salary including dearness allowance	3,35,000
	Bonus	11,000
	Salary of servant provided by the employer	12,000
	Rent paid by Siddhant for his accommodation	49,600
	Bills paid by the employer for Gas, electricity and water provided free of cost at the above flat	11,000
	Siddhant was provided with company's car (self-driven) also for personal use and it is not possible to detremine expenditure on personal use and all expenses were borne by the employer.
	Siddhant purchased a flat in a Co-operative Housing Society for Rs.4,75,000 in April 1990, which was financed by a loan from Life Insurance Corporation of India of Rs.1,60,000 @ 15 % interest, his own saving of Rs.85,000 and a deposit from a nationalized bank for Rs.2,50,000 to whom this flat was given on lease for ten years. The rent payable was Rs.3,500 p.m . The following particulars are relevant :
	a) Municipal Taxes Paid	4,300 p.a
	b) Society charges for passage Lights, watchman's salary	1,900 p.a
	c) Insurance	860
	d) He earned Rs.2,700 in share speculation business and lost Rs.4,200 in cotton Speculation business.
	e) In the year 2004-05, he had gifted Rs.30,000 to his wife and Rs.20,000 to his son who was aged 11. The gifted amounts were advanced to Mr. Rajesh, who was paying interest @ 19% p.a.
	f) Siddant received a gift of Rs.25,000 each from four friends
	g) He contributed Rs.5,600 to Public Provident Fund and Rs.4,000 to Unit Linked Insurance Plan.
	h) He received national award for humanitarian work from the Central Government in the form of land whose fair market value is Rs. 5,00,000 as on 31-03-2011.

Solution

Computation of total income of Siddhant for A.Y.2011-12

Particulars	Details	Amount	Amount
Salaries
Salary including D.A.		3,35,000
Bonus		11,000
Perquisites
Salary of servant provided by the employer		12,000
Gas, electricity and water facility		11,000
Car faccility [Rs.1,200 * 12] [It is assumed that cubic capacity of car does not exceed 1.6 ltr)		14,400	3,83,400
Income from House Property
Gross Annual Value [Rs.(3,500 * 12) - (Rs.1900)]		40,100
Less: Municipal Tax		4,300
Net Annual Value		35,800
Less: Deduction u/s 24
a) Standard Deduction [30% of Net Annual Value]	10,740
b) Interest on loan [Rs.1,60,000 * 15%]	24,000	34,740	1,060
Profits & Gains of Business or Profession
Profit from share speculation business		2,700
Loss from cotton speculation business		4,200
Carried forward to next year [Sec. 73]		1,500
Income from Other Source
Interest on loan received by his wife being clubbed u/s 64(1)(iv)		5,700
Interest on loan received by his minor son being clubbed u/s 64(1A)	3,800
Less: Exemption u/s 10(32)	1,500	2,300
Gifts received from friends		1,00,000
Award received from Central Government [Exempt u/s 10(17A)]		Nil	1,08,000
Gross Total Income			4,92,460
Less: Deduction u/s 80C
PPF	5,600
ULIP	4,000	9,600
Less: Deduction u/s 80GG [Being lower of the followings]
Rs.2,000 p.m.	24,000
25% of Adjusted GTI [ i.e., 25% of Rs.(4,92,460 - 9,600)]	1,20,715
Rent paid - 10% of Adjusted GTI [ Rs.49,600 - 10% of Rs.(4,92,460 - 9,600)]	1,314	1,314	10,914
Total Income (Rounded off u/s 288A)			4,81,550
*Tax on above [103% of (Rs.1,60,000 0% + Rs.3,21,550 * 10%)] (Rounded off)**			33,120

2(a)	From the following particulars of Pankaj for the previous year ended 31-3-2011 compute the income under the head Income from other sources:
			Rs.
	i)	Directors Fee from a Company	10,000
	ii)	Interest on bank Deposits	3,000
	iii)	Income from undisclosed source	12,000
	iv)	Winning from Lotteries (Net)	35,000
	v)	Royalty on a book written by him	9,000
	vi)	Lectures in seminars	5,000
	vii)	Interest on loan given to a relative	7,000
	viii)	Interest on Debentures of a Company (listed on a Recognized Stock Exchange )	3,600
	ix)	Interest on post Office Saving Bank Account	500
	x)	Interest on Government Securities	2,200
	xi)	Interest on Monthly Income Scheme of Post Office	33,000
		He had paid Rs. 1,000 for typing the manuscript of book written by him

Solution

Computation of income from other sources of Mr. Pankaj for A.Y. 2011-12
		Rs.	Rs.
i)	Directors Fee from a Company		10,000
ii)	Interest on bank Deposits		3,000
iii)	Income from undisclosed source		12,000
iv)	Winning from Lotteries [Rs.35,000/70%]		50,000
v)	Royalty on a book written by him	9,000
	Less: Expenses	1,000	8,000
vi)	Lectures in seminars		5,000
vii)	Interest on loan given to a relative		7,000
viii)	Interest on Debentures of a Company (listed on a Recognized Stock Exchange) [Tax is not required to be deducted]		3,600
ix)	Interest on post Office Saving Bank Account [Exempt u/s 10(15)]		Nil
x)	Interest on Government Securities		2,200
xi)	Interest on Monthly Income Scheme of Post Office		33,000
	Income from Other Sources		1,33,800

2(b)	Mr.Raman is a co-owner of a house property along with his brother
	Municipal value of the property	Rs.1,60.000
	Fair Rent	Rs.1,50,000
	Standard Rent under the Rent Control Act	Rs.1,70,000
	Rent received	Rs.15,000 p.m.
	The loan for the construction of this property is jointly taken and the interest charged by the dank is Rs 25,000 out of which Rs 21,000 have deen paid. Interest on the unpaid interest is Rs 450. To repay this loan, Raman and his brother have taken a fresh loan interest charged on this loan is Rs 5,000.
	The Municipal Taxes of Rs 5,100 have been paid by the tenant
	Compute the income from this property chargeable in the hands of Mr. Raman for assessment Year 2011-12.

Solution
Computation of income from house property of Mr. Raman for A.Y. 2011-12

Particulars	Details	Amount
Reasonable Expected Rent
Municipal Value		1,60,000
Fair Rent		1,50,000
Higher of the above [A]		1,60,000
Standard Rent [B]		1,70,000
Reasonable Expected Rent [Lower of A and B] [C]		1,60,000
Annual Rent [D]		1,80,000
Gross Annual Value [Higher of C and D]		1,80,000
Less: Municipal Tax [As not paid by		Nil
Net Annual Value		1,80,000
Less: Deduction u/s 24
(a) Standard Deduction [30% of Net Annual Value]	54,000
(b) Interest on loan [Rs.25,000 + Rs.5,000]	30,000	84,000
Income from House Property		96,000
Share of Mr. Raman [Rs.90,000 / 2]		48,000

2(c)

Compute the net taxable capital gains of Smt. Megha on the basis of the following information:

A house was purchased on 1-5-1998 for Rs.4,50,000 and was used as a residence by the owner. The owner had contracted to sell this property in June 2008 for Rs.10 lacs and had received an advance of Rs.70,000 towards sale. The intending purchaser did not proceed with the transaction and the advance was forfeited by the owner. The property was sold in April, 2010 for Rs.15,00,000. The owner, from out of sale proceeds, invested Rs.4 lacs in a new residential house in January 2011.

Solution
Computation of capital gains of Smt. Megha

Particulars	Details	Amount
Full Value of Consideration		15,00,000
Less: Expenses on transfer		Nil
Net Consideration		15,00,000
Less: Indexed Cost of Acquisition [(Rs.4,50,000 - Rs.70,000) * 711/351]	7,69,774
Less: Indexed Cost of Improvement	Nil	7,69,774
Long Term Capital Gain		7,30,256
Less: Exemption u/s 54		4,00,000
Taxable Long Term Capital Gain		3,30,256

3	Mr. Rajat submits the following information for the financial year ending 31.3.2011. He desires that you should (a) compute the total income; and (b) ascertain the amount of losses that can be carried forward:
	Particulars	Amount
	He has two houses:
	House I: After all statutory deduction net annual value	72,000
	House II: Current year loss	30,000
	He has three proprietary businesses:
	Textile business:
	- Discontinued from 31.10.10 current year loss	40,000
	- Brought forward business loss of the year 07-08	95,000
	Chemical business:
	- Discontinued from 1.3.09 hence no profit/loss	Nil
	- Bad debts allowed in earlier years recovered during this year	35,000
	- Carried forward business loss for the assessment year 09-10	50,000
	Leather business:
	- Profit for the current year	1,00,000
	Short term capital gains	60,000
	Long term capital loss	35,000
	Contribution to LIC towards Premium	10,000

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

Particulars	Details	Amount
Income from house property
House I	72,000
House II- current year loss	30,000	42,000
Profits and gains of business or profession
Textile business	(40,000)
Chemical business	35,000
Leather business	1,00,000
	95,000
Less: Brought forward loss of textile business	95,000	Nil
Capital Gains
Short term capital gains		60,000
Gross Total Income		1,02,000
Less: Deduction u/s 80C [LIC Premium]		10,000
Total Income		92,000
Losses to be carried forward: a. Business loss of Rs.50,000 of A.Y. 2009-10 is to be carried forward u/s 72. b. Long term capital loss of Rs.35,000 for A.Y. 2011-12 is to be carried forward u/s 74

4	Answer any three of the following:
	a.	Explain the consequences of failure to deduct tax at source and payment of the same to the Government Account under the Income tax Act, 1961
	b.	What are the circumstances under which the Assessing Officer can make reference to the Valuation Officer under section 55A of the Income tax Act, 1961 ?
	c.	Explian the concept of reverse mortgage and discuss its tax implications.
	d.	Discuss briefly on carry forward and set off of losses in the case of change in Constitution of Firm or Succession.

Solution

a.	Refer page 16.20
b.	Refer page 7.73
c.	Refer page 7.8 and 14.8
d.	Refer page 6.69

5	Answer the following:
	a.	Should service tax be paid even if it is not collected from the client or service receiver ?
	b.	Mr. Raja is a multiple service provider and files only a single return. State with reasons whether he can do so?
	c.	Explain the term 'Vocational Training Institute' under the provisions of Service Tax.
	d.	State with reason in brief whether the following statement is true of false with reference to the provisions of Service Tax Mr. Salim, an architect has received the fees of Rs.4,48,500 after the deduction of income tax of Rs.51,500. The Service Tax is payable on Rs.4,48,500.

Solution

a.	Yes, Refer page 19.13
b.	Refer page 19.19
c.	Refer page 19.26
d.	False, Service tax is required to be paid on gross amount.

6(a)	Rosy Tours Co. has arranged three package tours, during the financial year 2010-11. The particulars of the services and charges are as under:
	i.	Tour 1: April 2010 - Charges received Rs.3.5 lacs The package includes transporation, accomodation, food, tourist guide and entry fees for monuments.
	ii.	Tour 2: October 2010 - Charges received Rs.6.5 lacs The package includes transporation and accommodation for stay
	iii.	Tour 3: December 2010 - Charges received Rs.4 lacs The charges are solely for arranging accommodation for stay. However, the bills issued to the clients do not mention it clearly that charges are solely for arranging the accommodation for stay.
	All the charges are excluding service tax. The rate of service tax is 10% + education cess. Compute the taxable services and tax thereon.

Solution
Computation of service tax liability

Tour	Fees Received	Abetment		Taxable Value
		Rate	Amount
(1)	(2)	(3)	*4 = (2) (3)**	5 = (2) - (4)
Tour 1 - Package Tour	3,50,000	75%	2,62,500	87,500
Tour 2 - Other than package tour	6,50,000	60%	3,90,000	2,60,000
Tour 3	4,00,000	Nil as the bills issued to the client does not mention it clearly that the charges are solely for arranging the accommodation for stay.		4,00,000
Total Taxable Value of Services				7,47,500
Service tax @ 10%				74,750
Add: Education Cess				1,495
Add: SHEC				748
Service Tax & Cess Payable				76,993

6(b)	Answer the following:
	a.	Whether export service provided by service provider is excluded for the purpose of payment of service tax .
	b.	List the documents to be submitted alongwith the first service tax return.
	c.	What is the due date for payment in case of e-payment of Service Tax?

Solution

a.	Yes
b.	Refer page 19.18 & 19.19
c.	Refer page 19.13

7	Answer the following:
	a.	What are the different rates under VAT systems?
	b.	Under what circumstances registration can be cancelled under VAT
	c.	Briefly explain the income variant of VAT
	d.	State with reason in brief whether the following statement is true of false with reference to the provisions of Value Added Tax The VAT rate on sale of lottery ticket is 4%.

Solution

a.	Yes, Refer page 20.16
b.	i) Discontinuance of business; ii) Transfer of business; iii) Transfer of business to new location; iv) Annual turnover of the dealer falls below the basic exemption limit.
c.	Refer page 20.5
d.	False, Refer page 20.17.

8(a)

Mr. X, a manufacturer sells goods to Mr.B, a distributor for Rs.2,000 (excluding of VAT) Mr.B sells goods to Mr. K a wholesale dealer for Rs.2,400. The wholsesale dealer sells the goods to a retailer for Rs.3,000, who ultimately sells to the consumers for Rs.4,000. Compute the tax liability input credit availed and tax payable by the manufacturer, distributor, wholesale dealer and retailer under invoice method assuming VAT rate @ 12.50%.

Solution
Computation of tax liability

Dealer	VAT Rate	Value without VAT	Vat	In p u t T a x Cr e dit	Balance payable
X	12.5%	2,000	250	Nil	250
B	12.5%	2,400	300	250	50
K	12.5%	3,000	375	300	75
Retailer		4,000	500	375	125
Total VAT Payable to the Government					500

8(b)	Answer the following:
	a.	What are the different stages of VAT? Can it be said that entire burden falls on the final consumer?
	b.	Discuss filing of Return under VAT
	c.	List out six purchases which are not eligible for input tax credit.

Solution

a.	Refer page 20.1
b.	Refer page 20.16
c.	Refer page 20.16

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