PAPER – 7 DIRECT AND INDIRECT TAXATION

SUGGESTED ANSWERS
SECTION-A

1.
(i) (D)
(ii) (B)
(iii) (A)
(iv) (C)
(v) (A)
(vi) (A/ B/ C/ D)
(vii) (D)
(viii) (B)
(ix) (C)
(x) (C)
(xi) (A)
(xii) (B)
(xiii) (B)
(xiv) (A)
(xv) (B)

SECTION – B
2. (a)
Nature of expenditure and receipts
(i) Even though the salary is paid out of the capital account balance by the company, it will be treated as
revenue expenditure in the hands of the company and it is a revenue receipt in the hands of the
employee.

(ii) Whether any income is received in lumpsum or in instalments, it will not make any difference as
regards its nature. Thus, for the employee receiving lumpsum salary, it will be a revenue receipt.

(iii) The amount spent on purchase of car by Mr. Desai is a capital expenditure for him and whereas the
receipt from sale of car by Mr. Dhawal is a revenue receipt for him.

(iv) Even if the benefit will last for more than one accounting year, such expenditure will be treated as
revenue expenditure in the hands of Shreya.

(v) The damages/ compensation is directly linked with the procurement of a capital asset, i.e., factory
building. It is not a receipt in the course of profit earning process. Therefore, the amount received by
ABC Ltd. is a capital receipt.

Alternative answer:
Since there is a view that the compensation received is a benefit arising from business taxable under
section 28(iv) if any candidate answers with such reason that it is a revenue receipt due credit of 1
mark has to be given.

However, for the builder, it will be a revenue expenditure.

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2. (b)
Computation of income from salary in the hands of Mr. Kaul ₹
Basic Salary 9,50,000
Dearness Allowance 1,14,000
Taxable Gratuity 9,65,385
Taxable Leave Encashment 2,15,800
Taxable commuted pension 3,00,000
Total 25,45,185
Less: Standard Deduction 50,000
Taxable salary 24,95,185

3. (a)
Computation of Income from House Property chargeable in the hands of Mr Ramesh
for the Assessment Year 2024-25
₹
Expected rent for the whole year 8,50,000
Actual rent receivable for the let-out period 7,00,000
Unrealised rent is not deductible from actual rent in this case as Ramesh has not instituted any legal
proceedings for recovery of the unpaid rent. Hence, one of the conditions laid out in rule 4 of the
Income-tax rules, 1962 has not been fulfilled.
Gross Annual Value (GAV) 8,50,000
(Expected rent or Rent received, whichever is higher)
Less: - Municipal taxes 90,000
Net Annual Value (NAV) 7,60,000
Less: - Standard deduction under section 24of the Income-tax Act, 1961 2,28,000
Less: - Interest paid on loan 35,000
Income from House Property 4,97,000

3. (b)
Computation of business income of T and U & Co.
Particulars ₹ ₹
Net profit as per Profit and Loss account 2,87,000
Add: Expenses not allowed
General expenses of Rs. 40,000 without deduction of TDS (30% disallowed) 12,000
Interest to partners (Disallowed as it is not authorised by partnership deed) 3,00,000
Depreciation debited to Profit and Loss account 42,000
Salary paid to partner debited to Profit and Loss account 6,40,000
9,94,000
12,81,000
Less:
Depreciation as per Income-tax Rules 54,000
Unabsorbed Depreciation 40,000
Income taxable under the head “House property” 3,60,000
4,54,000
Book-profit for the calculation of salary to partner 8,27,000
Salary allowable (minimum of the following):
Actual salary 6,40,000
Maximum allowed: (₹3,00,000 @90% ) + (₹5,27,000 @60%) 5,86,200
Allowed amount of salary to partners 5,86,200
Business income 2,40,800
Less: Brought forward business loss 20,000
Income under the head “Profits and gains of Business or profession” 2,20,800

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4. (a)
Computation of capital gain in the hands of Mrs Parul for the Assessment Year 2024-25
₹ ₹
Actual sale consideration 86,00,000
Value adopted for stamp duty 80,00,000
Value adopted for stamp duty 86,00,000
Less: - Brokerage paid on transfer 86,000
Net sale consideration 85,14,000
Less: - Indexed cost of acquisition 3,13,770
Long term capital gain 82,00,230
Less: - Exemption under section 54EC 50,00,000
(But restricted to ₹ 50,00,000)
Taxable Long term capital gain 32,00,230

4. (b)
Computation of income from other sources in the hands of Mr. Ajit for the AY 2024-25
Particulars ₹ ₹
Amount received from evaluation of answer books of professional examinations 70,000
Less: Expenses 1,200
Net income 68,800
Interest on income-tax refund 7,000
Cash gift received from his friend on his marriage anniversary 76,000
Gift received on marriage is exempt but on anniversary is taxable since it is more than Rs
50,000, entire amount is taxable
Amount received from his son, Mr. Abhijit Nil
Amount received from letting out of residential house property Nil
Dividend received (gross) from listed Indian companies 65,000
Less: Interest maximum allowed is 20% of dividend amount 13,000
52,000
Income from other sources 2,03,800

5. (a)
Computation of total income of Mr Sumeet for the AY 2024-25
Particulars ₹ ₹
Income from salary 10,00,000
Income from house property
Less: Loss from self-occupied – not allowed to be set off against income from any 3,40,000
other head under default tax regime
Income from Business/ profession
Income from speculative business of shares (Since no delivery is taken) 4,50,000
Less: Loss from other speculative business 4,50,000
Capital Gains
Long term capital gains 1,30,000
Less: Short term capital loss on sale of depreciable asset 1,30,000
Other Sources
Lottery income 55,000
Total income 10,55,000
Losses to be carried forward
(i) Loss from other speculative business upto AY 2028-29 (4 AYs) 8,60,000
(ii) Short term capital loss upto AY 2032-33 (8 AYs) 2,30,000
(iii) Brought forward business loss up to AY 2029-30 (8 AYs) 33,000
(iv) House property loss – cannot be carried forward under default tax regime. Nil

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Alternative
Income from the business of buying and selling shares of listed companies (without delivery of shares) is not a
speculation business [proviso to section 43(5)]. Therefore, a student may treat ₹ 4,50,000 as regular business
income and set off brought forward business loss of ₹ 33,000 (of AY 2021-22). In such case, loss from other
speculative business ₹ 13,10,000 is eligible for carry forward without any reduction or set off. The brought
forward business loss of AY 2021-22 ₹ 33,000 is fully set off against ₹ 4,50,000 being income from business
(non- speculative). In such case, the brought forward business loss since fully set off has no amount to be carried
forward. Taking note of these, this alternative answer is presented.
Computation of total income of Mr Sumeet for the AY 2024-25
Particulars ₹ ₹
Income from salary 10,00,000
Income from house property
Less: Loss from self-occupied – not allowed to be set off against income from any 3,40,000
other head under default tax regime
Income from Business/ profession
Income from buying and selling shares – not speculation business. 4,50,000
Less: Brought forward business loss of AY 2021-22 33,000
Income from Business 4,17,000
Capital Gains
Long term capital gains 1,30,000
Less: Short term capital loss on sale of depreciable asset 1,30,000
Nil
Other Sources
Lottery income 55,000
Total income 14,72,000
Losses to be carried forward
(i) Loss from other speculative business up to AY 2028-29 (4 AYs) 13,10,000
(ii) Short term capital loss upto AY 2032-33 (8 AYs) 2,30,000
(iii) Brought forward business loss – set off fully Nil
(iv) House property loss – cannot be carried forward under default tax regime. Nil

5. (b)
Computation of total income of Mr Ram for the for the Assessment Year 2024-25
Regular provision Section115 BAC
₹ ₹
(i) Income from House Property (let out)
Rent Received 7,80,000 7,80,000
Less: - Standard deduction under section 24 2,34,000 2,34,000
Less: - Interest on loan 2,10,000 2,10,000
3,36,000 3,36,000
Income from House Property (Self-Occupied)
Rent Received Nil Nil
Less: - Interest on loan 2,00,000 (2,00,000) Nil Nil
Income from House Property 1,36,000 3,36,000
(ii) Income from Business
Income from Ram Enterprises (computed) 9,60,000 9,60,000
Gross total income 10,96,000 12,96,000
Less: - Deductions under Chapter VI-A
Deduction under section 80C
Housing loan principal repaid 1,50,000 Not eligible
Total Taxable Income 9,46,000 12,96,000
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 Tax liability 1,01,700 1,09,200
Add: Health & Education cess @ 4% 4,068 4,368
Tax and cess payable 1,05,768 1,13,568
In the instant case, tax liability under default tax regime under section 115BAC is higher, hence it is advisable to
Mr Ram should opt out of section 115BAC (or opt old regime).

6. (a)
Concept and features of indirect taxation
(i) Tax on goods and services – Indirect tax is levied at the time of supply or manufacture or purchase or sale or
import or export of goods. Further, it is also levied on supply.
(ii) Burden – Tax, being indirect tax paid by the seller, shall be recovered by the seller from the buyer. Thus, one
can say that burden of indirect tax is shifted from seller to buyer and ultimately borne by the consumers of such
goods and services.
(iii) Inflationary in nature – Cost of goods and services increases due to levy of indirect taxes thus,indirect taxes
promote inflation.
(iv) Social welfare – It is a useful tool to promote social welfare by checking the consumption of harmful goods or
sin goods through higher rate of tax.
(v) Wider tax base – Majority of goods and services are liable to indirect tax with very low threshold limits, so tax
base is much wider in case of indirect tax in comparison to direct tax.
(vi) Regressive in nature – All persons (rich or poor) will bear equal wrath of tax on goods or services consumed
by them irrespective of their ability. In other words, indirect tax does not create any difference between rich and
poor. Poor people are also required to pay equal percentage of tax on certain goods and service of mass
consumption. Thus, it may increase the disparities between rich and poor.
(vii) No pinch – Seller (the person on which indirect tax is levied) does not perceive a direct pinch of tax as it is
recovered by him from the buyer and then he is paying to the Government. On the other hand, since it is inbuilt
in the price of goods, the ultimate payer (i.e, the buyer) pay without knowing that he is paying any tax to the
Government.

6. (b)
Members of the GST Council
The GST Council shall consist of the following members, namely: -
(a) The Union Finance Minister is the Chairperson;
(b) The Union Minister of State, in-charge of Revenue of finance is the member;
(c) The Minister In-charge of finance or taxation or
any other Minister nominated by each State Government are the members.

The recommendations that can be made by GST Council are as under: -

(i) the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in
the goods and services tax;
(ii) the goods and services that may be subjected to, or exempted from the goods and services tax;
(iii) model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied on
supplies in the course of inter-State trade or commerce under article 269A and the principles that govern the
place of supply;
(iv) the threshold limit of turnover below which goods and services may be exempted from goods and services tax;
(v) the rates including floor rates with bands of goods and services tax;
(vi) any special rate or rates for a specified period, to raise additional resources during any natural calamity or
disaster;
(vii) special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur,
Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and any other matter
relating to the goods and services tax, as the Council may decide.

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7. (a)
Reverse charge and forward charge
(i) General statement:
As per section 9(3) of the CGST Act, 2017, if services are supplied by a recovery agent to a banking company
or financial institution or a non-banking financial company (NBFC)located in a taxable territory, then GST is
payable on reverse charge basis by recipient.

Factual answer:
In the first case, the recipient i.e., Money Save Bank shall be liable to pay GST under reverse charge
for services provided by Ms Sakshi as a recovery agent.

In the second case, services are being supplied by a recovery agent to a car dealer and not to a banking
company or financial institution or a non-banking financial company (NBFC).

Thus, service provider i.e. recovery agent Sakshi is liable to pay GST under forward charge.

(ii) As per section 9(3) of the CGST Act, 2017, if services are provided by an individual Direct Selling Agent
(DSA) other than body corporate, partnership or limited liability partnership firm to any banking company or
non-banking financial company (NBFC) located in a taxable territory, then the GST is payable on reverse
charge basis by recipient.

In the given case, Prakash is an individual providing services as direct selling agent to a banking company i.e.,
Dhanwan Bank. Therefore, the recipient i.e., Dhanwan Bank is liable to pay GST under reverse charge.

7. (b)
Computation of Value of Taxable Supply of services for Self & Family Life Insurance Company
₹
Premium from new policy subscribers 12,50,000
Renewal premium 9,37,500
Premium for Only Risk Cover policies 30,00,000
Single premium on annuity policies 9,50,000
Life micro-insurance policies Nil
[Exempt vide Entry 36 of Notification no.12/2017-CT (Rule)]
Total value of taxable supply of service 61,37,500
Explanation for treatment of various items:
As per rule 32(4) of the CGST Rules, 2017, the value of supply of services in relation to life insurance business,
when the amount allocated for investment/savings on behalf of the policy holder is not intimated to the policy
holder at the time of supply of service, is-

(i) in case of single premium annuity policies, 10% of single premium charged from the policy holder;

(ii) in all other cases, 25% of the premium charged from the policy holder in the first year and

(iii) 12.5% of the premium charged from the policy holder in subsequent years;

(iv) in case the entire premium paid by the policy holder is only towards the risk cover in life insurance, the
premium so paid (i.e. 100%).

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8. (a)
Computation of Input tax credit available with Shyam Ltd for the month of May, 2024
SN Particulars ₹
(i) Routine maintenance of cars manufactured by Shyam Ltd. 40,500
(ITC is eligible since such services are used in course or furtherance of business)
(ii) Capital goods (out of five items, invoice for one item was missing and GST paid on that item 42,500
was ₹ 2,500 (₹ 45,000 - ₹ 2,500)
(ITC cannot be taken on missing invoice. The registered person should have the invoice in its
possession to claim ITC)
(iii) Inputs consisting of four lots, out of which three lots were received during the month (When Nil
inputs are received in lots/instalment, ITC can be availed only on receipt of last lot/instalment)
(iv) Travel benefits extended to employees on vacation under statutory obligation (ITC shall be 7,500
allowed on travel benefits extended to employees on vacation since it is obligatory for an
employer to provide the same to its employees under any law for the time being in force).
(v) Machinery purchased in respect of which depreciation is claimed under Income-tax Act 1961 Nil
on the tax component (ITC is not available since depreciation has been claimed on the GST/tax
component)
(vi) Repair services for office building, cost of repairs is charged to Profit and Loss Account 48,000
(Repairs are revenue in nature, hence, input tax credit shall be available)
Input tax credit (ITC) available 1,38,500

8. (b)

Computation of the total customs duties and integrated tax payable by Palak Trade Ltd
Price of the Machine UK Pound 10,000
Royalties relating to imported goods payable by buyer as a condition of sale UK Pound 500
Design and engineering charges paid to Consultancy firm in UK UK Pound 300
FOB value UK Pound 10,800
Cost of machine @ ₹ 104 per UK Pound ₹ 11,23,200
Rate of exchange notified by CBIC on the date of presentation of bill of entry is considered.
Add: -Air freight, loading, unloading & handling charges associated with the delivery of the ₹ 2,08,000
imported goods to the place of importation
Add: - Insurance charges ₹ 12,636
(If insurance charges are not ascertainable, the same shall be added @ 1.125% of
FOB value of the goods)
CIF Value/Assessable value ₹ 13,43,836
Basic custom duty @ 20% ₹ 2,68,767.20
Add: - Social Welfare Surcharge (SWS) ₹ 26,876.72
Total for Integrated Tax leviable under section 3 (7) ₹16,39,479.92
Add: - Integrated tax ₹ 1,96,737.59
Total Customs Duty Payable ₹ 2,95,643.92

____________________

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-
 PAPER – 7 : DIRECT AND INDIRECT TAXATION
SUGGESTED ANSWERS
SECTION-A
1.
(i) (C)
(ii) (C)
(iii) (B)
(iv) (D)
(v) (A)
(vi) (D)
(vii) (B)
(viii) (D)
(ix) (C)
(x) (B)
(xi) (A)
(xii) (B)
(xiii) (B)
(xiv) (C)
(xv) (B)

SECTION – B
2. (a)
Residential status of Vijay
During the financial year 2023-24, Vijay remained in India for more than 182 days or more.
His stay in India during 4 previous years preceding the previous year 2023-24 was 142 days. He does not
satisfy the second basic condition.
He was non-resident in F.Y.2020-21, F.Y.2021-22 and F.Y.2022-23 and does not satisfy the status of
being non-resident in 9 out of 10 previous years preceding the previous year 2023-24.
Also, his stay in India was not less than 729 days in 7 previous years preceding the previous year 2023-24.
He satisfies both the additional conditions.
Therefore, his residential status is ‘resident and ordinarily resident’.
D
Total Income 17,50,000

2. (b)
Income from salary chargeable in the hands of Mrs Simran
₹
Basic salary 8,80,000
Dearness allowance 2,20,000
Bonus 87,500
Employer’s contribution to RPF 26,400
Perquisite of motor car 7,200
Hostel expenses allowance for 2 children 2,800
Education facility for 2 children in a school maintained by employer 48,000
Gross salary 12,71,900
Less: - Standard deduction under section 16(ia) 50,000
Total taxable salary 12,21,900

1
3. (a)
In the given case there are three options -
1. Take H1 and H3 as self-occupied and H2 as Deemed to be Let Out.
2. Take H2 and H3 as self-occupied and H1 as Deemed to be Let Out.
3. Take H1 and H2 as self-occupied and H3 as Deemed to be Let Out.
Income under the head house property of Shri Aradhya:
H1 and H2 and H1 and
H2 H1 H3
Particulars H3 H3 H2
(DLO) (DLO) (DLO)
(S/O) (S/O) (S/O)
Gross Annual Value Nil 3,00,000 Nil 2,50,000 Nil 6,50,000
Less: Municipal Tax Nil 52,500 Nil 37,500 Nil 1,12,500
Net Annual Value Nil 2,47,500 Nil 2,12,500 Nil 5,37,500
Less: Deductions u/s
24(a) Standard Deductions(30% of NAV) Nil 74,250 Nil 63,750 Nil 1,61,250
24(b) interest on loan 2,00,000 1,50,000 2,00,000 70,000 30,000 2,50,000
Total Deduction 2,00,000 2,24,250 2,00,000 1,33,750 30,000 4,11,250
Income from house property (2,00,000) 23,250 (2,00,000) 78,750 (30,000) 1,26,250
Total income from house property (1,76,750) (1,21,250) 96,250
Total income under the head income from house property as per Option 1 is: -1,76,750,
Shri Aradhya should consider H2 as DLO property and H1 and H3 as S/O.

3. (b)
(i) Under section 44AD, for eligible business, where the amount or aggregate turnover of the amounts received
during the previous year, in cash, does not exceed 5% of the total turnover or gross receipts, a threshold
limit of ₹ 3,00,00,000 will apply.
Since his cash receipts during the previous year does not exceed 5% of the total turnover i.e., 4.52% and
His total turnover for the financial year 2023-2024 is below ₹ 3,00,00,000, i.e.,₹ 2,99,00,000,
he is eligible for presumptive taxation scheme under section 44AD in respect of his retail trade business.
(ii) Realized by cash ₹ 13,50,000 during the previous year @ 8% ₹1,08,000
Realized balance ₹ 2,85,50,000 through prescribed electronic modes on or before the due date ₹17,13,000
for filing the return specified in section 139(1) @ 6%
Income from retail trade, applying the presumptive tax provisions under section 44AD ₹18,21,000

4. (a)
Capital gain in the hands of Kavita for the Asst. Year 2024-25
D D
Sale of urban vacant land:
Sale consideration 75,00,000
Value of land for stamp duty purposes 80,00,000
Since the difference between the sale consideration and value for stamp duty 75,00,000
purposes is less than 10%,
Actual sale consideration to be adopted as deemed sale consideration.
Less: Indexed cost of acquisition 41,76,000
33,24,000
Sale of agricultural land:
Since the land is located within 6 kms from the local limits of municipality and
the population as per the preceding census is more than 1 lakh but less than 10
lakhs, it is a capital asset liable for capital gain (loss) upon transfer.
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 Sale consideration 40,00,000
Less: Indexed cost of acquisition 26,10,000
13,90,000
47,14,000
Less: Deduction under section 54 EC
As the investment was made on 25.03.2024 which is more than 6 months from the date of
transfer in respect of urban vacant land, no deduction would be considered against such long-
term capital gain.
However, the agricultural land sold in March, 2024 is eligible for the exemption limited to 13,90,000
the capital gain. Thus, the deposit of Rs.30 lakhs would however entitle the taxpayer to claim
only Rs.13.90 lakhs as deduction.
Long-term capital gain 33,24,000

4. (b)
Income from Other Sources of Mrs Bharti for the A.Y. 2024-2025
₹ ₹
(i) Dividend received from co-operative society 15,000
(ii) Winning from game show ‘Kaun Banega Punji-Pati” (Net of taxes) 1,25,000
(iii) Family pension received from employer of deceased husband 60,000
Less: - Standard deduction under section 57 15,000 45,000
(iv) She purchased a painting for ₹ 65,000, although fair market value (FMV) was Nil
₹ 80,000
Difference does not exceed ₹ 50,000, hence not taxable
(v) Rent of a factory building along with plant and machinery i.e., composite rent 95,000
Less: - Repairs 2,000
Insurance 2,500
Depreciation on factory building 5,000
Depreciation on plant & machinery 3,500 82,000
(vi) Rent received from a vacant plot of land 80,000
(vii) Interest received on loan given to relative 7,500
Income taxable under the head Income from other sources 3,54,500

5. (a)
Total Income of Mr. Anupreet for the A. Y. 2024 - 25
Amount Amount
Particulars
(D) (D)
Salary income 5,00,000
Less: Loss from other sources 3,00,000
Less: Loss from house property 2,00,000 Nil
Profit from speculation business 6,00,000
Less: C/f loss of speculation business 3,50,000
Less: Loss from non-speculation business 2,50,000 Nil
Profit from STCG 40,000
Less: Loss from non-speculation business 40,000 Nil
Total taxable income NIL
List of items to be c/f :
1. Unabsorbed depreciation (P.Y. 2015-16) 1,65,000
2. Loss from non-speculation business. 10,000
3. Loss from LTCG 1,50,000
4. Loss from house property 20,000

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5. (b)
Total income of Mr Pawan for the A.Y.2024-2025
Regular provision Section115 BAC
₹ ₹
(i) Income from House Property 42,000 42,000
(ii) Income from Business 5,36,000 5,40,000
(iii) Income from other sources 1,60,000 1,61,000
Gross total income 7,38,000 7,43,000
Less: - Deductions under 55,000 Not eligible
Chapter VI-A
Deduction under section 80G 20,000 Not eligible
Total Taxable Income 6,63,000 7,43,000
Tax liability 45,100 29,300
Add: - Health & Education cess @4% 1,804 1,172
Tax and cess payable 46,904 30,472
In the instant case, tax liability under default tax regime under section 115BAC is lower, hence it is
advisable to must opt for default tax regime under section 115BAC.

6. (a)
Difficulties and limitations in pre-GST regime
(i) In pre-GST regime, Indian indirect tax was highly fragmented. Centre and States were separately taxing the goods
and services. There were many taxes like excise duty, service tax, VAT, CST, purchase tax, entertainment tax,
octroi.
(ii) In addition, there was multiplicity of rates, laws and procedures. This caused heavy compliance burden.
(iii) Imposition of tax on tax was another serious problem. For example, VAT was levied on value that included excise
duty.
(iv) Input tax credit chain broke as goods moved from one State to another, resulting in hidden cost for their business.
(v) Further, pre-GST, there were tax nakas at every inter-state border, creating bottlenecks in inter-state transport of
goods.
(vi) As a result, logistics sector remained inefficient and it adversely affected the businesses.
(vii) Every State was effectively a distinct market for the industry as well as consumer.
(viii) Industry’s choice of locating factories or warehouses was heavily influenced by the prevailing tax regime than pure
business consideration.

To curb all these, Goods and Services Tax (GST) was introduced in the system with the idea of One Nation One
Tax.

6. (b)
GST Network (GSTN)
A common platform is needed which could act as a clearing house and verify the claims and inform the respective
government to transfer the funds. This is possible with the help of a strong IT infrastructure. Accordingly,
government has established common GST electronic portal, a website managed by goods and services Network
GSTN for the tax payer and common IT infrastructure for central and states.

GSTN (a non-profit government owned organisation) is a special purpose Vehicle. The functions of the GSTN.
Would Inter Alia include:
1. Facilitating registration
2. Forwarding the returns to central and state authorities
3. Competition and settlement of IGST
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 4. Matching of tax payment details with banking network
5. Providing various NIS reports to the central and the state governments based on the tax sphere written
information
6. Providing analysis of tax payers’ profile
7. Running the matching engine for matching reversal and reclaim of input tax credit

Salient features of GST

1. Incorporated in March 2013 as section 25- 100 percent government owned company with paid up capital of
10,00,00,000
2. Two function as a common pass through portal for tax payers
 Submit registration application
 File returns
 Make tax payments

3. To develop back end modules for states

4. Infosys Ltd appointed as managed service provider
5. Appointed more than 70 GST Suvidha providers.

7. (a)
(i) A registered person, whose aggregate turnover in the preceding financial year does not exceed ₹ 150 lakh,
will be eligible to opt for payment of tax under the composition scheme.
However, a registered person of Uttarakhand whose aggregate turnover in the preceding financial year
does not exceed ₹ 75 lakh, will be eligible to opt for payment of tax under the composition scheme.
Mrs Pooja is not eligible to opt for composition levy for current financial year since her aggregate
turnover exceed ₹ 75 lakh i.e. ₹ 95 lakh (₹ 50 lakh + ₹ 45 lakh) in preceding financial year.

(ii) If a business is ineligible to opt for composition scheme, then all other business registered under the same
PAN shall automatically ineligible for the composition scheme.
Therefore, Mrs Pooja is not eligible for composition scheme only for fancy store and normal scheme for
foot wear show room.

(iii) Restaurant services and fancy store are eligible for the composition scheme.
Hence, Mrs Pooja is eligible for composition scheme, since, her aggregate turnover does not exceed ₹ 75
lakh i.e. ₹ 65 lakh (₹ 30 lakh + ₹ 35 lakh) in preceding financial year.

7. (b)
Time of supply for goods
Time of supply for goods will be earlier of-
 Date of issue of invoice by the supplier or
 The last date on which he is required to issue the invoice

In present case: For advance. For balance.

Date of issue of invoice. 20th June. 20th June.
The last date on which he is
Required to issue the invoice. 16th May. 16th May.

Advance on goods is not taxable at the time of receipt. So accordingly for the whole invoice amount of ₹ 75,000
the time of supply will be 16 May.
5
Time of supply of services:
If in above case if it would have been supply of service, the time of supply will be In present case, advance for
Service will be taxable on receipt of advance as advance of ₹ 25,000 received on 7thMay time of supply for ₹
25,000 will be 7thMay.

As the invoice is not issued within the period prescribed under section 31 that is within 30 days the time of supply
for balance ₹ 50,000 will be earlier of:
Date of provision of service 16th May
Date of receipt of payment. 20th June.

Show time of supply for ₹ 50,000 will be 16th May.

8. (a)
(i) Every supplier becomes liable to registration if his turnover exceeds the applicable threshold limit i.e. ₹ 40 lakh in a
financial year. Since in the given case, the turnover of Parwati Utensil Trader exceeded ₹ 40 lakh on 1st October,
2023, it becomes liable to registration on said date.

Further, since the application for registration has been submitted within 30 days from such date, the registration
shall be effective from the date on which the person becomes liable to registration.
Therefore, the effective date of registration is 1st October, 2023.

(ii) Since in the given case, the turnover of Hardik Service exceeds the applicable threshold limit i.e. ₹ 20 lakh on 25th
September, 2023, it becomes liable to registration on said date.

Further, since the application for registration has been submitted after 30 days from the date such person becomes
liable to registration, the registration shall be effective from the date of grant of registration.
Therefore, the effective date of registration is 10th November, 2023.

8. (b)
Assessable value of machine imported by Shyam Trade Company
FOB value of the Machine US $ 25,000
Add: - Licence fee relating to imported goods, the buyer was required to pay in US $ 500
USA
Customs FOB value US $ 25,500
Value in rupees ₹ 19,12,500
Add: - Air freight, loading, unloading & handling charges associated with the ₹ 2,25,000
delivery of the imported goods to the place of importation
Add: - Insurance charges paid to the insurer in India (Actual insurance charges paid are ₹ 8,000
includible in the assessable value)
Assessable value ₹ 21,45,500

__________________________

6
 PAPER – 7 : DIRECT AND INDIRECT TAXATION
SUGGESTED ANSWERS
SECTION-A
1.
(i) (A)
(ii) (A)
(iii) (D)
(iv) (B)
(v) (C)
(vi) (D)
(vii) (C)
(viii) (B)
(ix) (D)
(x) (C)
(xi) (D)
(xii) (B)
(xiii) (C)
(xiv) (B)
(xv) (D)

SECTION – B

2. (a)
Total income of Savitri for the assessment year 2023-24:
(i) Resident and ordinarily resident D 17,20,000
(ii) Resident but not ordinarily resident D 9,20,000
(iii) Non-resident D 9,20,000

2. (b)
Income from salary chargeable in the hands of Mr Sahil D 3,22,600
Alternate Answer: D 3,27,600

3. (a)
Income from House Property chargeable in the hands of Mr. Gaurav D 76,900

3. (b)
Income from Business and Profession D 1,81,920

4. (a)
Capital gains in the hands of Manoj for the AY 2023-24 D 22,25,000 (Long term)

4. (b)
Income from Other Sources of Ms Sonali for the A.Y. 2023-24 D 1,19,200

1
5. (a)
Total Income D 7,02,000
Total amount of losses to be carried forward to A.Y.2023-24 D 90,000

5. (b)
Total income of Mrs Jyoti for the A.Y.2023-2024
Regular provision Section115 BAC
₹ ₹
Total Taxable Income 6,02,000 10,12,000
Tax and cess payable 34,216 80,496

Advise:
In the instant case, tax liability under alternative tax regime under section 115BAC is higher, hence it is
advisable NOT to opt for new scheme.

6. (a)
Concept and Features of Indirect Taxes

1 Tax on goods and services :

Indirect tax is levied at the time of supply or manufacture or purchase or sale or import or export of
goods. Further, it is also levied on supply.
2 Burden :
Tax, being indirect tax paid by the seller, shall be recovered by the seller from the buyer. Thus, one can
say that burden of indirect tax is shifted from seller to buyer and ultimately borne by consumers of such
goods or services.
3 Inflationary in nature :
Cost of goods and services increases due to levy of indirect tax thus indirect taxes promote inflation.
4 Social welfare :
It is useful tool to promote social welfare by checking the consumption of harmful goods or sin goods
through higher rate of tax.
5 Wider Tax Base :
Majority of goods and services are liable to indirect tax with very low threshold limits, so tax base is
much wider in case of indirect tax in compare to direct tax.
6 Regressive in Nature:
All persons (rich or poor) will bear equal wrath of tax on goods or service consumed by them
irrespective of their ability. In other words, indirect tax does not create any difference between rich and
poor. Poor people are also required to pay equal percentage of tax on certain goods and service of mass
consumption. Thus, it may increase the disparities between rich and poor.
7 No pinch:
Seller (the person on which indirect tax is levied) does not perceive a direct pinch of tax as it is
recovered by him from the buyer and then he is paying to the Government. On the other hand, since it is
inbuilt in the price of the goods, the ultimate payer (i.e. buyer) pay it without knowing that he is paying
any tax to the Government.

2
6. (b)
(i) Benefits of GST to Business and industry
 Easy Compliance: A robust and comprehensive IT system would be the foundation of the GST regime
in India. Therefore, all tax-payer services such as registrations, returns, payments, etc. would be
available to the taxpayers online, which would make compliance easy and transparent.
 Uniformity of tax rates and structures: GST will ensure that indirect tax rates and structures are
common across the country, thereby increasing certainty and case of doing business. In other words,
GST would make doing business in the country tax neutral, irrespective o the choice of place of doing
business.
 Removal of cascading: A system of seamless tax-credits throughout the value-chain, and across
boundaries of States, would ensure that there is minimal cascading of taxes. This would reduce hidden
costs of doing business.
 Improved competitiveness: Reduction in transaction costs of doing business would eventually lead to
an improved competitiveness of the trade and industry.
 Gain to manufacturers and exporters: The subsuming of major Central and State taxes in GST,
complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax
(CST) would reduce the cost of locally manufactured goods and services. This will increase the
competitiveness of Indian goods and services in the international market and give boost to Indian
exports. The uniformity in tax rates and procedures across the country will also go a long way in
reducing the compliance cost.

(ii) Central and State Governments

 Simple and easy to administer: Multiple indirect taxes at the Central and State levels are being
replaced by GST. Backed with a robust end-to-end IT system, GST would be simpler and easier to
administer then all other indirect taxes of the Centre and State levied so far.
 Better controls and leakage: GST will result in better tax compliance due to a robust IT infrastructure.
Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition,
there is an inbuilt mechanism in the design of GST that would be incentive tax compliance by traders.
 Higher revenue efficiency: GST is expected to decrease the cost of collection of tax revenues of the
Government, and will therefore lead to higher revenue efficiency.
 Boost to ‘Make in India’ initiative: GST will give major boost to the ‘Make in India’ initiative of
government of India by making goods and services produced in India competitive in the national as well
as international market.

7. (a)

(i) In case of services supplied by an insurance agent to any person carrying on insurance business, GST is
liable to be paid under reverse charge by such person carrying on insurance business, located in the
taxable territory.
Therefore, in the given case, GST is payable under reverse charge by the recipient of service i.e.,
Insurance Company.
(ii) In case of services provided by a business facilitator to a banking company, GST is liable to be paid
under reverse charge by such banking company, located in taxable territory.
Services provided by a business facilitator to a banking company with respect to accounts in its rural
area branch are exempt from GST. Thus, services provided by him in respect of urban area branch of the
bank will be taxable.
Therefore, in the given case, GST is payable under reverse charge by the recipient of service i.e.,
Banking Company.

3
 (iii) In case of services supplied by a director of a company/body corporate to the said company/body
corporate, GST is liable to be paid under reverse charge by such company/body corporate, located in
taxable territory.
Therefore, in the given case, GST is payable under reverse charge by the recipient of service i.e., XYZ
Company Ltd.

7. (b)
Value of taxable supply made by Happy Enterprises D 12,47,500

8. (a)
Total ITC (Input Tax Credit) D 5,73,000

8. (b)

Conditions to impose Countervailing Duty on Subsidized articles

a. Any country or territory pays, or bestows, directly or indirectly, any subsidy upon the manufacture or
production therein or the exportation therefrom of any article including any subsidy on transportation of
such article;
b. Such article is imported into India;
c. Such article is imported directly / indirectly from the country of manufacture, production; and
d. Thearticleisimportedinthesameconditionaswhenexportedfromthecountryofmanufactureorproduction or
has been changed in condition by manufacture, production or otherwise.

Quantum of duty:-
The Central Government may impose a countervailing duty not exceeding the amount of such subsidy.

Duration of imposition:-
Such duty shall be in force for 5 years (unless revoked earlier) from the date of its imposition.
However, it can be further extended for another 5 years.

_________________________

4
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.

SECTION – A (Compulsory)
1) Choose the correct option: [15x2=30]

(i) Which of the following is an agriculture income?

(a) Dividend paid by a company out of its agriculture income
(b) Share of Profit of a Partner from a firm engaged in an agriculture operation
(c) Income from supply of water by a assessee from a tank in its agriculture land
(d) Interest received by a money lender in the form of agricultural produce

(ii) Mr. Pratik, aged 48 years and a resident in India, has a total income of ₹6,50,00,000, comprising long
term capital gain taxable @20% under section 112 of ₹55,00,000, short term capital gain taxable
@15% under section 111A of ₹65,00,000 and other income of ₹5,30,00,000. What is the tax liability
for A.Y.2025-26 under the default tax regime?
(a) ₹2,27,48,700
(b) ₹2,48,68,870
(c) ₹2,40,15,870
(d) ₹2,18,68,700

(iii) Which of the following receipt is taxable under the head ‘Income from Other Sources’?
(a) Uncommuted pension received from ex-employer
(b) Rental income from house property
(c) Income on transfer of rural agro land
(d) Income from racing establishment

(iv) While computing taxable interest on delayed compensation, a standard deduction is allowed @
(a) 50%
(b) 30%
(c) 15%
(d) Nil

(v) When income of a minor is clubbed, assessee will get deduction u/s 10(32) of:
(a) ₹ 1,500 per child
(b) Income clubbed subject to maximum of ₹ 1,500 per child
(c) Such deduction is not available u/s 10(32) but u/s 10(33)
(d) ₹ 2,000 per child

1
Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
(vi) TDS is not required to be deducted u/s 194A if the amount of interest on loan does not exceed:
(a) ₹ 5,000
(b) ₹ 2,500
(c) ₹ 7,500
(d) ₹ 20,000

(vii) When did GST come into effect in India?

(a) 1st July 2016
(b) 1st April 2016
(c) 1st June 2017
(d) 1st July 2017

(viii) Who is empowered to make law for matters contained in List I of Schedule VII of the Constitution of
India?
(a) State Government
(b) Central Government
(c) Both Central and State Government
(d) None of the above

(ix) Person who is liable to be registered u/s 22 or 24 shall apply for registration in every such State or
Union Territory in which he is so liable within:
(a) 30 days from the date on which he becomes liable to registration
(b) 15 days from the date on which he becomes liable to registration
(c) 7 days from the date on which he becomes liable to registration
(d) None of the above

(x) Which of the following activities or transactions shall be treated neither as supply of goods nor a
supply of services?
(a) Sale of land and building
(b) Lease of land
(c) Rent of building
(d) All of the above

(xi) For which of the following goods, the manufacturer is not allowed to opt for composition scheme:
(a) Pan masala
(b) Ice cream
(c) Topical and manufactured tobacco substitutes
(d) All of the above

(xii) Under which article of the Constitution of India, GST council has been constituted?
(a) 246
(b) 246A
(c) 279A
(d) 265

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION

(xiii) Which of the following is a taxable event for imported goods?

(a) Date on which the goods cross the customs barrier
(b) Date of presentation of bill of entry
(c) Date of entry into Indian territorial waters
(d) Unloading of imported goods at the customs port

(xiv) For the purpose of computing IGST on imported goods, one of the following shall not be included in
the value for computation:
(a) GST Compensation Cess
(b) Social Welfare Surcharge
(c) Anti-dumping duty
(d) None of the above
(xv) Where the transport charges are not available, for ascertaining the assessable value for customs duty,
the percentage of FOB value to be taken is:
(a) 10%
(b) 20%
(c) 25%
(d) None of the above
Answer:
i ii iii iv v vi vii viii ix x xi xii xiii xiv xv
b a d a b a d b a a d c a a b

SECTION – B
Answer any 5 questions out of 7 questions given. Each question carries 14 marks. [5 x 14 = 70]

2) (a) Ram provides the following details of income, calculate the income which is liable to be taxed in India
for the A.Y. 2025-26 assuming that –
(i) He is an ordinarily resident
(ii) He is not an ordinarily resident
(iii) He is a non-resident.
Particulars Amount (₹)
Salary received in India from a former employer of UK 1,40,000
Income from tea business in Nepal being controlled from India 10,000
Interest on company deposit in Canada (1/3rd received in India) 30,000
Profit from a business in Mumbai controlled from UK 1,00,000
Profit for the year 2022-23 from a business in Tokyo remitted to India 2,00,000
Income from a property in India but received in USA 45,000
Income from a property in London but received in Delhi 1,50,000
Income from a property in London but received in Canada 2,50,000
Income from a business in Jambia but controlled from Turkey 10,000
[7]

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION

(b) Mr. Bharat of Siliguri is offered an employment by Vimal & Co. Ltd., Kolkata on a basic salary of
₹5,500 p.m. Other allowances are dearness allowance (not forming part of salary for retirement
benefits) ₹4,000 p.m., medical allowance ₹1,000 p.m. and bonus being 1 month’s basic salary. The
company gives an option to him either to take a rent-free accommodation in Kolkata of the fair rental
value of ₹1,000 p.m. or to accept a cash house rent allowance of ₹1,000 p.m. He decides to accept
house rent allowance and takes a house in Kolkata at a monthly rent of ₹1,000. He has opted for old
regime. Discuss with reason whether he has made a wise choice from tax advantage view.
[7]
Answer:
(a)
Calculation of income liable to be taxed in India of Ram for the A.Y. 2025-26
Resident & Resident but Non-
Particulars Ordinarily not Ordinarily resident
resident resident
₹ ₹ ₹
Salary received in India from a former employer of UK 1,40,000 1,40,000 1,40,000
Income from tea business in Nepal being controlled from 10,000 10,000 Nil
India
Interest on company deposit in Canada - 10,000 10,000 10,000
- 1/3rd received in India
- 2/3rd received outside India 20,000 Nil Nil
Profit from a business in Mumbai controlled from UK 1,00,000 1,00,000 1,00,000
Past Profit from a business in Tokyo remitted to India Nil Nil Nil
Income from a property in India but received in USA 45,000 45,000 45,000
Income from a property in London but received in Delhi 1,50,000 1,50,000 1,50,000
Income from a property in London but received in Canada 2,50,000 Nil Nil
Income from a business in Jambia but controlled from 10,000 Nil Nil
Turkey
Income liable to tax in India 7,35,000 4,55,000 4,45,000

(b) Computation of Gross Taxable Salary of Mr. Bharat for the A.Y.2025-26
Particulars Amount When he takes HRA When he takes RFA
Amount ₹ Amount ₹ Amount ₹ Amount ₹
Basic 66,000 66,000
Bonus 5,500 5,500
Dearness allowance 48,000 48,000
Medical allowance 12,000 12,000
HRA 12,000
Less: Minimum of the following

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
a) Actual amount received 12,000
b) 50% of salary 33,000
c) Rent paid over 10% of salary 5,400 5,400 6,600 Nil
Rent free accommodation Nil 8,350
(being 10% of salary)
Gross Taxable Salary 1,38,100 1,39,850

Note: Salary for the purpose:

Particulars Accommodation HRA
₹ ₹
Basic salary 66,000 66,000
Medical Allowance 12,000 -
Bonus 5,500 -
Total 83,500 66,000

Comment: The above computation indicates that if the assessee chooses rent-free accommodation, then his
gross taxable salary increases by ₹1,750 (being ₹1,39,850 – ₹1,38,100), which may increase his tax bill.
Hence, assessee has taken right decision.

3) (a) Two brothers Virat and Rohit are co-owners of a house property with equal share. The property was
constructed during the financial year 2016-2017. The property consists of eight identical units and is
situated at Kerala.
During the financial year 2024-25, each co-owner occupied one unit for residence and the balance of
six units were let out at a rent of ₹12,000 per month per unit. The municipal value of the house
property is ₹10,00,000 and the municipal taxes are 20% of municipal value, which were paid during
the year. The other expenses were as follows:
₹
(i) Repairs 40,000
(ii) Insurance premium (paid) 15,000
(iii) Interest payable on loan taken for construction of house 3,00,000

One of the let out units remained vacant for four months during the year.
Virat could not occupy his unit for six months as he was transferred to Kolkata. He does not own any
other house.
The other income of Mr. Virat and Rohit are ₹2,35,000 and ₹1,65,000, respectively, for the financial
year 2024-25.
Compute the income under the head ‘Income from House Property’ and the total income of two
brothers for the A.Y. 2025-26 if they pay tax under the default tax regime under section 115BAC.
Also, compute of income under this head, if they both exercised the option of shifting out of the default
tax regime provided under section 115BAC(1A). [7]

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION

(b) From the following particulars of Shri Khote for the year ending 31st March, 2025, calculate his
taxable income from business for the assessment year 2025-26:
Particulars (₹) Particulars (₹)
To Opening Stock 1,20,000 By Sales 2,14,20,000
To Purchases 2,10,00,000 By Profit on sale of import licence 5,000
To Salaries 25,000 By Gift received 24,000
To Legal Expenses 10,000 By Closing Stock 2,00,000
To Bad Debts 5,000
To Rent 50,000
To Interest on loan 2,500
To Depreciation 15,000
To Income tax paid 2,000
To Outstanding Customs Duty 25,000
To Advertisement 2,000
To Legal expenses 12,000
To Contribution towards URPF 5,000
To General expenses 17,500
To Traveling expenses 1,00,000
To Net Profit 2,58,000
2,16,49,000 2,16,49,000

In computing the income, the following facts are to be taken into consideration:
1. Interest on loan is paid to brother of Shri Khote for loan taken for payment of advance income
tax.
2. During the previous year 2020-21, assessee had claimed ₹45,000 as bad debt out of which only
₹35,000 was allowed. During the previous year, he recovers ₹25,000.
3. Contribution towards unrecognised provident fund was paid within time.
4. Legal expenses include ₹2,000 paid for preparation of income tax return.
5. Stock is undervalued by 10%.
6. Gift received was given by a supplier for achieving target sale.
7. Outstanding customs duty has been paid on 31-12-2025.
8. During the previous year, he comes to know that his former employee had embezzled cash of
₹5,000 on 31- 3-2024, which was not accounted for.
9. Traveling expenses include ₹50,000 being cost of trip to Singapore by an employee for 10 days.
However, only 8 days of trip is useful to business and 2 days has been allowed as holiday to
employee.
10. Rent includes expenditure on extension of shed on rented building ₹26,000. However, such
extension was completed on 1-5-2025 with total cost of ₹50,000.
11. General expenses includes –
 Salary of ₹1,200 paid to domestic servant.
 Compensation of ₹2,000 paid for retrenchment of an employee.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION

Answer:

(a) (i) If Virat and Rohit pay tax under the default tax regime under section 115BAC
Computation of Total Income for the A.Y. 2025-26
Particulars Virat (₹) Rohit (₹)
Income from house property:
(I) Self-occupied property (25% i.e., 2 units out of 8 units)
Annual value Nil Nil
Less: Deduction under section 24(b) Nil Nil
Loss from self-occupied property Nil Nil
(II) Let-out property (75% i.e., 6 units out of 8 units)
Income from house property (See Working Note-1) 1,20,600 1,20,600
Other Income 2,35,000 1,65,000
Total Income 3,55,600 2,85,600

(ii) If Virat and Rohit have exercised the option of shifting out of the default tax regime provided
under section 115BAC(1A)
Computation of Total Income for the A.Y. 2025-26
Particulars Virat (₹) Rohit (₹)
Income from house property:
I. Self-occupied property (25%)
Net Annual Value Nil Nil
Less : Deduction u/s
24(a) Standard Deduction (30% of NAV) Nil Nil
24(b) Interest on loan 37,500 37,500
Interest on loan taken for construction ₹37,500 (being 25% of ₹1.5 lakh)
[Allowable since they have exercised the option of shifting out of the
default tax regime provided under section 115BAC(1A)]
Loss from self-occupied property (37,500) (37,500)
II. Let-out property (75%) (See Working Note 1) 1,20,600 1,20,600
Income from house property 83,100 83,100
Other Income 2,35,000 1,65,000
Total Income 3,18,100 2,48,100

Working Note – 1
Computation of Income from Let-Out Part of House Property (75%)
Particulars (₹) (₹)
Gross Annual Value (Higher of MV & Actual Rent)

7
Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
(a) Municipal value (₹10,00,000×75%) 7,50,000
(b) Actual rent(₹12,000×6×12)-( ₹12,000×1×4) 8,16,000 8,16,000
Less: Municipal taxes (₹2,00,000×75%) (₹2,00,000 i.e., 20% of (1,50,000)
₹10L)
Net Annual Value (NAV) 6,66,000
Less : Deduction u/s
24(a) Standard Deduction (30% of NAV) 1,99,800
24(b) Interest on loan (₹3,00,000×75%) 2,25,000 4,24,800
Income from let-out part of house property 2,41,200
Share of each co-owner (50% each) 1,20,600

(b) Computation of Profits and gains of business or profession of Shri Khote for the A.Y. 2025-26
Particulars Notes Details Amount
Net profit as per Profit and Loss A/c 2,58,000
Add: Expenditure disallowed but debited in P/L A/c
Income tax paid 1 2,000
Outstanding Customs Duty 2 25,000
Contribution towards unrecognised provident fund 3 5,000
Interest on loan 4 2,500
Expenditure on extension of building shed 5 26,000
Salary paid to domestic servant 6 1,200
Add: Income taxable but not credited to P/L A/c
Recovery of bad debts [₹25,000 – (₹45,000 – ₹ 35,000)] 7 15,000 76,700
3,34,700
Less: Expenditure allowed but not debited to P/L A/c
Embezzlement by employee 8 5,000
3,29,700
Adjustment for valuation of stock
Add: Under valuation of closing stock 12 22,222
Less: Under valuation of opening stock 13 13,333 8,889
Profits and gains of business or profession 3,38,589

Notes:
1. Income tax is specifically disallowed u/s 40(a).
2. Customs Duty paid after due date of filing of return shall not be allowed as deduction [Sec. 43B]
3. Contribution to unrecognised provident fund is disallowed.
4. Interest on loan taken for payment of advance tax is disallowed.
5. Extension of building shed is an expenditure of capital nature, hence disallowed u/s 30.
6. Any expenditure of personal nature is disallowed.
7. As per sec. 41(4), where a deduction has been allowed in respect of bad debt or part of debt u/s

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36(1)(vii), then if the amount subsequently recovered on any such debt or part is greater than the
difference between the debt or part of debt and the amount so allowed, the excess shall be deemed to
be profits and gains of business or profession.
8. Loss by embezzlement of cash by employee is allowed as deduction in the year in which such fact
was known to the assesse.
9. Legal expenditure for preparation of income tax return is allowed expenditure u/s 37(1).
10. Gift received for achieving target-sale is perquisite related to business and shall be taxable u/s 28.
11. Traveling expenditure shall be fully allowed as deduction, as trip was for 10 days out of which 8
days spent for business purpose and remaining 2 days trip shall be treated as staff welfare expenditure
being allowed u/s 37(1).
12. Under valuation of closing stock
Actual value of closing stock (₹2,00,000/90%) = ₹2,22,222
Under valuation of closing stock is 10% of ₹2,22,222 = ₹22,222
13. Under valuation of opening stock
Actual value of opening stock (₹ 1,20,000/90%) = ₹1,33,333
Under valuation of opening stock is 10% of ₹1,33,333 = ₹13,333

4. (a) On 23rd June, 2024, Rajat sold gold, the sale consideration of which was ₹15,00,000. He had acquired
this gold on 20th August, 2000 for ₹4,00,000. Fair market value of that gold on 1st April, 2001 was
₹ 3,60,000. Compute the amount of capital gain chargeable to tax for the assessment year 2025-26.
Also compute if such asset was transferred by him on 23-12-2024. [7]

(b) Mr. Jyoti received the following gifts/amounts during F.Y. 2024-25:
(i) Gift of Sculptures worth ₹51,000/- on his birthday from his friend
(ii) Received a car from his cousin on payment of ₹3,00,000/-. FMV of which was ₹3,60,000/-
(iii) Received cash gift of ₹20,000/- each from three of his friends A, B and C on 24.09.2024
(iv) Acquired an office building on 12.12.2024 from his friend Raj for a consideration of ₹12 lakhs,
stamp value of which is ₹15 lakhs.
(v) In respect of Land of [Link] acquired by Government in the year 2015,he received the
following amount on 15.12.2024 as interest on enhanced compensation on the order of the
court-
Relating to Previous Years ₹
2021-22 1,25,000/-
2022-23 1,65,000/-
2023-24 1,15,000/-

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You are required to compute the income of Mr. Jyoti chargeable under the head “Income from other
Sources” for A.Y. 2025-26, assuming that he has no other income. [7]

Answer:

(a) When capital asset is transferred prior to 23-07-2024:

Computation of Capital Gains of Rajat for the A.Y. 2025-26

Particulars Working Amount
₹
Sale consideration 15,00,000
Less: Expenses on transfer Nil
Net Sale consideration 15,00,000
Less: Indexed cost of acquisition ₹ 4,00,000* × 363/100 14,52,000
Long term capital gain 48,000
Tax before surcharge and cess [₹ 48,000 × 20%] 9,600

* If an asset is acquired before 1/4/2001 then its cost of acquisition will be higher of the following:
a) Actual cost of acquisition; or
b) Fair market value of the asset as on 1/4/2001

When capital asset is transferred on or after 23-07-2024:

Computation of Capital Gains of Rajat for the A.Y. 2025-26
Particulars Working Amount
₹
Sale consideration 15,00,000
Less: Expenses on transfer Nil
Net Sale consideration 15,00,000
Less: cost of acquisition 4,00,000
Long term capital gain 11,00,000
Tax before surcharge and cess [₹ 11,00,000 × 12.5%] 1,37,500

(b)
Computation of Income from Other Sources of Jyoti for the A.Y 2025-26
Particulars ₹
(i)Since sculptures is included in the definition of “ Property”, therefore, when sculptures is 51,000
received without consideration , the same is taxable under section 56(2)(x) as the aggregate
FMV of sculptures exceeds ₹50,000/-
(ii) Since car is not included in the definition of “ property”, therefore the difference of ₹3 Nil
Lakhs between FMV and purchase price of car is non-taxable under section 56(2)(x)

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(iii) Cash gifts received from friends is taxable u/s 56(2)(x), since its aggregate value 60,000
exceeds ₹50,000/-(i.e ₹20,000×3)
(iv) Immovable property (office building) purchased for inadequate consideration is taxable 3,00,000
u/s 56(2)(x). Therefore the difference of ₹3 Lakhs between SDV and purchase price of
building is taxable u/s 56(2)(x)
(v) As per section 145B interest received during the year on enhanced compensation shall 2,02,500
be deemed to be the Income of the year in which such interest is received irrespective of the
method of accounting followed by the Assessee. Hence, the interest received by Mr Jyoti is
taxable in P.Y. 2024-25 (₹1,25,000 + ₹1,65,000 + ₹1,15,000 = ₹4,05,000)
Less: Deduction u/s 57 @ 50% of ₹4,05,000 (₹2,02,500)
Income from Other Sources 6,13,500

5. (a) Compute Gross total income of Mrs. Shikha from following details for the A.Y. 2025-26
₹
Income from house property A 60,000
Income from house property B (1,50,000)
Income from house property C 1,00,000
Income from other sources 1,00,000
Losses u/s 22 for the A.Y. 2024-25 (30,000)
Losses u/s 56 for the A.Y. 2024-25 (45,000) [7]

(b) Akhil, 35 years, has provided following details relating to his income for the previous year 2024-25:
a. Income from business ₹15,00,000
b. Income from saving bank interest ₹12,000
c. Interest on PPF ₹36,000
d. Investment in PPF ₹ 1,50,000
You are requested to compute his tax liability and advise him whether he should opt for the old tax
regime by exercising option given u/s 115BAC (6). [7]

Answer:

(a)
Computation of Gross Total Income of Mrs. Shikha for the A.Y. 2025-26
Particulars Details Details Amount
₹ ₹ ₹
Income from house property
House property A 60,000
House property B (1,50,000)
House property C 1,00,000 10,000
Loss u/s 22 for the A.Y. 2024-25 (10,000) Nil
Income from other sources 1,00,000
Gross Total Income 1,00,000

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Notes:
1. Remaining unabsorbed loss relevant to the A.Y. 2024-25 ₹20,000 (i.e. ₹ 30,000 – ₹ 10,000) shall be
carried forward to subsequent assessment years (maximum up to A.Y. 2032-33).
2. Loss under the head ‘Income from other sources’ cannot be carried forward.
3. Sec. 71 shall apply only after application of sec. 70. Hence, current year loss of house property B
cannot be set off against income from other sources.
(b)
Computation of Income and Tax Liability of Mr. Akhil for A.Y. 2025-26
Particulars Old Tax Regime Default Tax Regime
₹ ₹
Business Income 15,00,000 15,00,000
Interest on saving bank deposit 12,000 12,000
Interest on PPF Exempt Exempt
Gross Total Income 15,12,000 15,12,000
Less: Deduction
U/s 80C (PPF Contribution) 1,50,000 NA
U/s 80TTA (Interest on Saving Bank Interest) 10,000 NA
Total Income 13,52,000 15,12,000
Tax on above 2,18,100 1,43,600
Less: Rebate u/s 87A (As income exceeds ₹ 5,00,000) NA NA
Tax after rebate 2,18,100 1,43,600
Add: Surcharge Nil Nil
Tax and surcharge 2,18,100 1,43,600
Add: Health & Education cess 8,724 5,744
Tax liability (Rounded off u/s 288B) 2,26,820 1,49,340

In the instant case, tax liability under default tax regime is lower, hence it is advisable to not to opt for
option available u/s 115BAC(6).

6. (a) Discuss the Differences between Direct Tax & Indirect Tax. [7]

(b) Discuss the key benefits of the Goods and Services Tax (GST) to (i) business and industry sector; and
(ii) for the consumer. [7]

Answer:
(a)
BASIS Direct Tax Indirect Tax
1. Meaning Direct tax is referred to as the tax, Indirect Tax is referred to as the tax,
levied on person’s income and levied on a person who consumes the
wealth and is paid directly to the goods and services and is paid
government indirectly to the government.

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2. Nature Progressive in nature i.e., higher Regressive in nature i.e., all persons
tax is levied on a person earning will bear equal wrath of tax on goods or
higher income and vice versa. service consumed by them irrespective
of their ability
3. Incidence and Impact Falls on the same person. Falls on different person.
4. Example Income Tax GST, Custom Duty
5. Burden Cannot be shifted Can be shifted
6. Event Taxable income of the assessee Supply of goods and services
7. Evasion Tax evasion is possible Tax evasion is hardly possible because
it is included in the price of the goods
and services.

(b) The benefits of GST can be summarized as under:

i. For business and industry

 Easy compliance: A robust and comprehensive IT system would be the foundation of the
GST regime in India. Therefore, all tax-payer services such as registrations, returns, payments,
etc. would be available to the taxpayers online, which would make compliance easy and
transparent.
 Uniformity of tax rates and structures: GST will ensure that indirect tax rates and structures
are common across the country, thereby increasing certainty and ease of doing business. In
other words, GST would make doing business in the country tax neutral, irrespective of the
choice of place of doing business.
 Removal of cascading: A system of seamless tax-credits throughout the value-chain, and
across boundaries of States, would ensure that there is minimal cascading of taxes. This would
reduce hidden costs of doing business.
 Improved competitiveness: Reduction in transaction costs of doing business would
eventually lead to an improved competitiveness for the trade and industry.
 Gain to manufacturers and exporters: The subsuming of major Central and State taxes in
GST, complete and comprehensive set-off of input goods and services and phasing out of
Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services.
This will increase the competitiveness of Indian goods and services in the international market
and give boost to Indian exports. The uniformity in tax rates and procedures across the country
will also go a long way in reducing the compliance cost.

ii. For the consumer:

 Single and transparent tax proportionate to the value of goods and services:
Due to multiple indirect taxes being levied by the Centre and State, with incomplete or no
input tax credits available at progressive stages of value addition, the cost of most goods and
services in the country today are laden with many hidden taxes. Under GST, there would be

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only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to
the final consumer.
 Relief in overall tax burden: Because of efficiency gains and prevention of leakages, the
overall tax burden on most commodities will come down, which will benefit consumers.

7. (a) Examine with brief reasons, which person is liable to pay GST in the following independent cases,
where the supplier and recipient both are located in the taxable territory. Ignore the aggregate
turnover & exemption available:
(i) Vikash is an insurance agent (registered under GST), received commission of ₹12,00,000 from
Insurance Company (registered under GST).
(ii) Mukesh is a business facilitator (registered under GST), received commission ₹1,95,000 for the
services provided to the urban branch of a Nationalised Bank with respect to savings bank
accounts.
(iii) Gukesh (registered under GST) is an independent director of XYZ Company Ltd., has received
sitting fees amounting to ₹1,00,000 from XYZ Company Ltd. for attending the Board meetings.
[7]

(b) T-Series, Music Company & a registered dealer in India, paid an advance of ₹ 5,00,000 to Mr. Vikash,
a music composer, for the copyright covered u/s 13(1)(a) of the Copyright Act, 1957, of his original
musical work on 5-9-2024 (through RTGS). It made the balance payment of ₹ 2,50,000 on 12-12-2024
(through RTGS). You are required to determine the time of supply, if Mr. Vikash raised the invoice
on: (i) 6-10-2024; or (ii) 17-12-2024. [7]

Answer:

(a)

(i) In case of services supplied by an insurance agent to any person carrying on insurance business, GST
is liable to be paid under reverse charge by such person carrying on insurance business, located in
the taxable territory. Therefore, in the given case, GST is payable under reverse charge by the
recipient of service i.e. Insurance Company.

(ii) In case of services provided by a business facilitator to a banking company, GST is liable to be paid
under reverse charge by such banking company, located in taxable territory. Services provided by a
business facilitator to a banking company with respect to accounts in its rural area branch are exempt
from GST. Thus, services provided by him in respect of urban area branch of the bank will be taxable.
Therefore, in the given case, GST is payable under reverse charge by the recipient of service
[Link] Company.

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(iii) In case of services supplied by a director of a company/body corporate to the said company/body
corporate, GST is liable to be paid under reverse charge by such company/body corporate, located in
taxable territory.
Therefore, in the given case, GST is payable under reverse charge by the recipient of service i.e.
XYZ Company Ltd.

(b) Supply of services by a music composer by way of transfer or permitting the use or enjoyment of a copyright
covered u/s 13(1)(a) of the Copyright Act, 1957 relating to musical works to a music company is liable for
tax under reverse charge i.e. T-Series is required to pay.
The time of supply of service, on which GST is payable under reverse charge, is earlier of the following:
a. Date of payment as entered in the books of account of the recipient or date on which payment is
debited from the bank account, whichever is earlier; or
b. 61st day from the date of issue of invoice by the supplier.

The time of supply shall be earlier of the following dates:

Particulars Case (i) Case (ii)
First Payment of ₹ 5,00,000
The date of payment 05-09-24 05-09-24
The date on which payment is debited from bank account 05-09-24 05-09-24
The date immediately following 60 days from the date of issue of invoice (06-10- 06-12-24 16-02-25
2024 + 60 days + 1 day) (17-12-2024 + 60 days + 1 day)
Time of supply shall be 05-09-24 05-09-24
For Payment of ₹ 2,50,000
The date of payment 12-12-24 12-12-24
The date on which payment is debited from bank account 12-12-24 12-12-24
The date immediately following 60 days from the date of issue of invoice (06-10- 06-12-24 16-02-25
2024 + 60 days + 1 day) (17-12-2024 + 60 days + 1 day)
Time of supply shall be 06-12-24 12-12-24

8. (a) M/s. VMA, a registered taxable person under regular scheme provides following information in
respect of supplies made by it during the month of April, 2024 :
Particulars ₹
Inter-state supply of goods 2,00,000
Intra-state supply of 1000 packets of detergent @ ₹400 each along with a plastic bucket
worth ₹100 each with each packet, being a mixed supply. (Rate of GST on detergent is
18% and on plastic bucket is 28%)
Supply of online educational journals to M/s XYZ, a private coaching centre providing 1,00,000
tuitions to students of Class X-XII, being intra-state supply
M/s. VMA has also received the following inward supplies:

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Inter-state supply of goods (out of which invoice for goods worth ₹ 40,000 is missing 1,40,000
and no other tax paying document is available)
Repairing of bus with seating capacity of 20 passengers used to transport its employees 1,00,000
from their residence, being intra-state supply
Details of opening balances of ITC as on 1-4-2024 are as follows:
CGST 10,000
SGST 10,000
IGST 80,000

Following additional information is provided:

i. Rate of GST in respect of all inward and outward supplies except item (ii) above is 18%. i.e.
CGST and SGST @ 9% and IGST @ 18%.
ii. All figures mentioned above are exclusive of taxes.
iii. All the conditions for availing the ITC have been fulfilled except specifically given and M/s.
VMA is not eligible for any threshold exemption.
Compute the minimum net GST payable in cash by M/s. VMA for the month of April, 2024. [7]

(b) Compute the Assessable Value of a machine imported from Germany by RLI Ltd., under Customs
Act, 1962. Also determine the duty liability of RLI Ltd.
Particulars USD$
FOB Value 30,000
Air Freight Paid 7,250
Insurance Cost Not Known
Designing Charges incurred in India ₹ 15,000
Indian Agent’s Commission ₹ 20,000
Transport Charges from port to factory in India ₹ 15,000
Rate of duty 10%
IGST 18%
Rate of exchange notified by CBEC ₹ 85 per USD
[7]
Answer:

(a)
Computation of available ITC:
Particulars IGST (₹) CGST (₹) SGST(₹)
Opening balance 80,000 10,000 10,000
ITC on Inter-state purchase of goods (excluding missing invoice) 18,000 - -
[₹ 1,00,000 × 18%]
ITC on Repairing of bus [₹ 1,00,000 × 9%] - 9,000 9,000
Available ITC 98,000 19,000 19,000

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Computation of tax payable on outward supplies:

Particulars Taxable Value CGST @ 9% SGST @ 9% IGST @ 18%
₹ ₹ ₹ ₹
Inter-State supply of goods 2,00,000 - - -
Intra-state mixed supply 4,00,000 56,000 56,000 -
Intra-State supply of services 1,00,000 9,000 9,000 -
Total 65,000 65,000 36,000

Computation of GST payable in cash:

Particulars CGST @ 9% SGST @ 9% IGST @18%
₹ ₹ ₹
Total GST payable 65,000 65,000 36,000
Less : ITC-IGST (31,000) (31,000) (36,000)
Less : ITC-CGST / SGST (19,000) (19,000) -
GST payable in cash 15,000 15,000 -

Note: Balance credit of IGST may be first utilized in the discharging CGST of ₹46,000. In that case, SGST
of ₹30,000 would be payable.

(b) Computation of assessable value and customs duty

Particulars Amount
₹
FOB Value $ 30,000
Add: Insurance @ 1.125% of FOB Value $ 337.50
Add: Air Freight (restricted to 20% of FOB) $ 6,000.00
$ 36,337.50
Value in INR @ ₹ 85 ₹ 30,88,688
Add: Local Agent’s Commission ₹ 20,000
Assessable Value for Customs ₹ 31,08,688
Basic customs duty at 10% [A] 3,10,869
Add: Social Welfare Surcharge @ 10% of custom duty [B] 31,087
Value for the purpose of levying integrated tax 34,50,644
Add: Integrated tax @ 18% [C] 6,21,116
Total duty & tax payable [A + B + C] 9,63,072

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DIRECT AND INDIRECT TAXATION
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.

SECTION – A (Compulsory)

1) Choose the correct option: [15x2=30]

(i) Which of the following shall be considered as Financial Year 2024-25.?

(a) Assessment Year for the P.Y. 2023-24 and previous year for the A.Y. 2024-25
(b) Assessment Year for the P.Y. 2023-24 and previous year for the A.Y. 2025-26
(c) Assessment Year for the previous year 2024-25
(d) Previous year for the assessment year 2024-25

(ii) An individual purchased a Bullion on 01-11-2024 for ₹5,00,000 though fair market value of the asset
is ₹5,25,000. Income taxable u/s 56(2)(x) is:
(a) ₹25,000 i.e., difference between market value and actual consideration
(b) Nil as this is not gift
(c) Nil as difference between market value and actual consideration does not exceed ₹50,000
(d) The provision of sec. 56(2)(x) is not applicable for any transaction entered during P.Y. 2024-25

(iii) What is the due date of filing the return of income in case of a company who is required to furnish a
report in Form No. 3CEB under section 92E pertaining to international transaction(s)?
(a) September 30 of the assessment year
(b) November 30 of the assessment year
(c) July 31 of the assessment year
(d) October 31 of the assessment year

(iv) During the P.Y 2024-25, Mr. Sambit, resident in India, has made the contribution to PPF for
₹1,50,000 and also paid insurance premium on the life of the spouse where policy taken on 01.04.2018
(Assured Value ₹2,20,000) for ₹25,000. What is the deduction allowable under section 80C for
A.Y.2025-26 if he has exercised the option of shifting out of the default tax regime provided under
section 115BAC(1A)?
(a) 1,72,000
(b) 1,50,000
(c) 1,75,000
(d) None of the above

(v) On 1st June 2024, Mr. Rohit made three fixed deposits of ₹3,00,000 each for 9 months at an interest
rate of 9% p.a. with the Park street, M.G Road and Central branches of HDDD Bank, which has
adopted Core Banking System. The fixed deposits mature on 28th February 2025. Assuming Mr.

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Rohit has furnished his PAN, what would be the TDS implication under Section 194A for the financial
year 2024–25?
(a) No TDS, as interest earned from each branch is below ₹40,000
(b) TDS of ₹6,075 is required to be deducted, as interest is aggregated across all branches
(c) TDS of ₹2,025 per branch is not required since each branch operates independently
(d) No TDS is required since the interest does not exceed ₹50,000

(vi) XYZ company engaged in the business of manufacturing & Bio-technology incurs (i) expenditure on
scientific research towards land ₹10 lakhs and building ₹12 lakhs; (ii) other capital expenditures ₹8
lakhs and (iii) revenue expenditure of ₹5 lakhs. The quantum of deduction under Section 35 (2AB)
shall be
(a) Nil (as the company engaged in the business of manufacturing & Bio-technology)
(b) ₹ 30 lakhs (100% of capital expenditure including cost of land & building)
(c) ₹ 25 lakhs (100% of total expenditure other than cost of land)
(d) ₹ 23 lakhs (100% of total expenditure other than cost of building)

(vii) In pre-GST regime, excise duty has been levied by …… Government whereas VAT has been levied
by …….. Government on goods.
(a) State, Central
(b) Central, Central
(c) Central, State
(d) State, State

(viii) M/s Smart Bazar, a store located and registered under GST in Gujarat, has come out with big
discount offers at the time of Durga Puja on various gift items. In order to attract more customers, it
has decided to supply a gift pack containing 5 packets of sugar free biscuits (500 gram each) taxable
@12%, 1 packet of roasted almonds (250 gram) taxable @18%, 1 packet of chocolate (50 gram)
taxable @28% and 1 bottle of mango juice (1 litre) taxable @18% in a single basket for a single price
of ₹1,500. State the type of supply and the tax rate applicable on the same.
(a) Composite supply; Tax rate of the principal item, i.e. sugar free biscuits @18%
(b) Composite supply; highest tax rate out of all items, i.e. 28% applicable to chocolate
(c) Mixed supply; tax rate of principal item, i.e. sugar free biscuits @18%
(d) Mixed supply; highest tax rate out of all items, i.e. 28% applicable to chocolate

(ix) Which of the following can be issued by Government to exempt goods and/or services on which tax
is leviable in exceptional cases?
(a) Exemption Notification
(b) Special order
(c) Other notifications
(d) None of the above

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(x) The time of supply of goods, where supplier is liable to pay tax under forward charge shall be:
(a) The date of actual issue of invoice by the supplier
(b) The last date on which he is required u/s 31(1) to issue the invoice with respect to the supply
(c) The date on which the supplier receives the payment with respect to the supply
(d) (a) or (b), whichever is earlier

(xi) Levy of indirect tax on goods and services may leads to

(a) Inflation
(b) Deflation
(c) Reflection
(d) None of the above

(xii) A ship carries some goods K, L, M and N from Singapore to Dubai, via Chennai. L and M are moved
at Chennai in another vessel. L being meant for Kochi and M to Dubai. As per customs law, the
transhipped good(s) is/are:
(a) All four
(b) L Only
(c) L and M
(d) None of the above

(xiii) Basic custom duty on imported goods is levied at the rates specified in the
(a) First Schedule of the Customs Tariff Act, 1975
(b) Second Schedule of the Customs Tariff Act, 1975
(c) Customs Act
(d) Customs Manual

(xiv) Where the insurance amount is not available, for ascertaining the assessable value for customs duty,
the percentage of FOB value to be taken is:
(a) 1
(b) 1.125
(c) 1.5
(d) None of the above

(xv) The Safeguard duty imposed shall be in force for a period of _______ from the date of its imposition
and can be extended with the total period of levy not exceeding _____.
(a) 4 years, 10 years
(b) 3 years, 5 years
(c) 5 years, 5 years
(d) None of the above

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DIRECT AND INDIRECT TAXATION

Answer:
i ii iii iv v vi vii viii ix x xi xii xiii xiv xv
b c b b b c c d b d a c a b a

SECTION – B
Answer any 5 questions out of 7 questions given. Each question carries 14 marks. [5 x 14 = 70]

2) (a) Mr. Bharat, an Indian citizen, left India for first time on 25.09.2024 for joining job in Tokyo.
Determine the residential status of Bharat for the A.Y. 2025-26. [7]

(b) Following are the particulars of income of Mrs. S. Choudhury for the Previous Year 2024-25:
(a) Basic salary @ ₹15,000 per month.
(b) Dearness Allowance @ 60% of salary.
(c) Medical Allowance @ 600 per month (Actual expenditure ₹5,000).
(d) House Rent Allowance received @ ₹6,000 per month and she pays rent of ₹7,200 per month for
her house in Durgapur.
(e) City compensatory allowance ₹1,500 per month.
(f) She owns a car which she is using for official purposes. Her employer reimburses her @ ₹3,000
per month.
(g) She is contributing ₹2,100 per month towards a recognized provident fund. The employer is also
contributing the same amount. Interest credited to R.P.F @ 11% ₹2,200.
(h) She paid ₹1,800 as professional tax during the year.

Compute income from salary of Mrs. Choudhury for the assessment year 2025-26, if he opts for old
regime. [7]

Answer:
(a)
Under section 6(1), an individual is said to be resident in India in any previous year if he satisfies any one
of the following conditions –
(i) He has been in India during the previous year for a total period of 182 days or more, or
(ii) He has been in India during the 4 years immediately preceding the previous year for a total period
of 365 days or more and has been in India for at least 60 days in the previous year.

In the case of Indian citizens leaving India for employment, the period of stay during the previous year
must be 182 days instead of 60 days given in (ii) above.
During the previous year 2024-25, Mr. Bharat, an Indian citizen, was in India for 178 days only (i.e.,
30+31+30+31+31+25 days). Thereafter, he left India for employment purposes.

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Directorate of Studies, The Institute of Cost Accountants of India
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DIRECT AND INDIRECT TAXATION
Since he does not satisfy the minimum criteria of 182 days stay in India during the relevant previous year,
he is a non-resident for the A.Y. 2025-26.

(b)
Computation of Taxable Salary of Mrs. S Choudhury for the A.Y. 2025-26
Particulars Working Details Amount Amount
Salaries
Basic 1,80,000
Allowances:
Dearness allowance 60% of basic 1,08,000
Medical Allowance 7,200
City compensatory allowance 18,000
House rent allowance 72,000
Less: Exempted u/s 10(13A)
Minimum of the following:
a. Actual HRA 72,000
b. 40% of (Basic + DA) 1,15,200
c. Rent paid – 10% (Basic + DA) 57,600 57,600 14,400 1,47,600
Perquisites u/s 17(2):
Car facility - -
Employer’s contribution to RPF 25,200
Less: Exempted u/s 10(12) 12% of (Basic + DA) 25,200 -
Interest on RPF 2,200
Less: Exempted Upto 9% 1,800 400 400
Gross Taxable Salary 3,27,600
Less: Deduction u/s
16(ia) Standard Deduction 50,000
16(iii) Professional tax 1,800 51,800
Net Taxable Salary 2,75,800

3) (a) Compute net annual value with the following details for the A.Y. 2025-26 :
Particulars H1 H2 H3 H4 H5 H6
Situated at Patna Anand Hyderabad Balurghat Jodhpur Etawa
Municipal Value ₹1,00,000 ₹ 2,00,000 ₹ 3,00,000 ₹4,00,000 ₹4,25,000 ₹6,00,000
Gross Annual Value ₹1,00,000 ₹2,50,000 ₹1,80,000 ₹5,00,000 ₹8,00,000 ₹5,00,000
Municipal tax for P.Y. ₹5,000 10% 5% 20% 12% 10%
Sewerage tax - 5% ₹1,000 3% ₹3,750 ₹1,000
Water Tax - 3% 5% 2% 5% -
Additional information:
a. In case of H3, municipal tax paid for the financial year 2000-01 to 2023-24 is ₹2,00,000.

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DIRECT AND INDIRECT TAXATION
b. In case of H4, municipal tax paid for the financial year 2025-26 is ₹3,000.
c. In case of H6, all taxes charged by municipality are paid to the extent of 80% (50% by owner and
30% by tenant). [7]

(b) Mr. Jofra, engaged in manufacture of Chemicals, furnishes the following particulars relating to its
manufacturing unit at Kolkata, for the year ending 31-3-2025:
Particulars (₹ in lakhs)
WDV of Plant and Machinery on 31.3.2024 30.00
Depreciation including additional depreciation for P.Y. 2023-24 4.75
New machinery purchased on 21-9-2024 10.00
New machinery purchased on 21-12-2024 8.00
Computer purchased on 21-1-2025 4.00
Additional Information:
 All assets were purchased by A/c payee cheque.
 All assets were put to use immediately.
 New machinery purchased on 21-12-2024 and computer have been installed in the office.
 During the year ended 31-3-2024, a new machinery had been purchased on 25-10-2023, for ₹10
lakhs. Additional depreciation, besides normal depreciation, had been claimed thereon.

 The depreciation rate for machinery and computer may be taken as 15% and 40% respectively.
 The assessee has no brought forward business loss or unabsorbed depreciation as on 1.4.2024.
Compute the depreciation available to the assessee as per the provisions of the Income-tax Act, 1961
and the WDV of different blocks of assets as on 31-3-2025 if -
(i) he exercises the option of shifting out of the default tax regime provided under section
115BAC(1A).
(ii) he pays tax under the default tax regime under section 115BAC. [7]
Answer:
(a) Computation of Net Annual Value for A.Y. 2025-26: (Amount in ₹)
Particulars H1 H2 H3 H4 H5 H6
Gross Annual Value (a) 1,00,000 2,50,000 1,80,000 5,00,000 8,00,000 5,00,000
Less : (i) Municipal Tax 5,000 20,000 2,15,0003 80,0001 51,000 30,0002
(ii) Sewerage tax - 10,000 1,000 12,000 3,750 5002
(iii) Water Tax - 6,000 15,000 8,000 21,250 -
Total (b) 5,000 36,000 2,31,000 1,00,000 76,000 30,500
Net Annual Value [(a) – (b)] 95,000 2,14,000 (-) 51,000 4,00,000 7,24,000 4,69,500
Municipal tax is calculated on municipal value.

Notes :
1. Though municipal tax is allowed on cash basis (only if paid by owner) but advance municipal tax is not
allowed.

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DIRECT AND INDIRECT TAXATION
2. Municipal tax paid by tenant is not allowed as deduction.
3. ₹2,00,000 (being municipal tax of past years paid during the year) + 5% of ₹3,00,000 (municipal tax of
current year paid during the year).

(b) Computation of written down value of block of assets of Jofra Ltd. as on 31.3.2025
Particulars Plant & Machinery Computer
(₹ in lakhs) (₹ in lakhs)
Written down value (as on 31.3.2024) 30.00 Nil
Less: Depreciation including additional depreciation for P.Y. 4.75 -
2023-24
Opening balance as on 1.4.2024 25.25
Add: Actual cost of new assets acquired during the Year
New machinery purchased on 21.9.2024 10.00 -
New machinery purchased on 21.12.2024 8.00 -
Computer purchased on 21.1.2025 - 4.00
Less: Assets sold/discarded/destroyed during the year Nil Nil
Written Down Value (as on 31.3.2025) 43.25 4.00

i. If Mr. Jofra exercises the option of shifting out of the default tax regime provided under section
115BAC(1A)
In this case, since his income would be computed under the optional tax regime as per the normal
provisions of the Act, he would be entitled for normal depreciation and additional depreciation, subject to
fulfilment of conditions.

Computation of Depreciation for A.Y. 2025-26

Particulars Plant & Machinery Computer
(₹ in lakhs) (₹ in lakhs)
I. Assets put to use for more than 180 days, eligible for 100%
depreciation calculated applying the eligible rate of
normal depreciation and additional depreciation
(A) Normal Depreciation:
WDV of plant and machinery 3.79 _
(₹25.25 lakhs × 15%)
New Machinery purchased on 1.50 _
21.9.2024 (₹10 lakhs × 15%) ____________ _________
5.29 _
(B) Additional Depreciation:
New Machinery purchased on 21.9.2024 (₹10 lakhs × 20%) 2.00

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MODEL ANSWERS TERM – JUNE 2025
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DIRECT AND INDIRECT TAXATION
Balance additional depreciation in respect _
of new machinery purchased on 25.10.2023 1.00
and put to use for less than 180 days in the
P.Y. 2023-24 (₹10 lakhs × 20% × 50%) ______________ _
[10% has already been allowed as put to use for less than 180 3.00
days in the previous year 2023–24; the remaining 10% shall be ___________
allowed in the immediately succeeding previous year, i.e., _
2024–25]
II. Assets put to use for less than 180 days, eligible for 50%
depreciation calculated applying the eligible rate of
normal depreciation and additional depreciation, if any
(C) Normal Depreciation:
New machinery purchased on 21.12.2024 _
[₹8 lakhs × 7.5% (i.e., 50% of 15%)] 0.60
Computer purchased on 21.1.2025 _ 0.80
[₹ 4 lakhs × 20% (50% of 40%)] ______________ ____
[Additional depreciation cannot be claimed as both assets have 0.60 __________
been installed at the office premises.] 0.80
Total Depreciation (A+B+C) 8.89 0.80

ii. If Mr. Jofra pays tax under default tax regime under section 115BAC
In this case, under the default tax regime as per section 115BAC, he would be entitled only for normal
depreciation but not additional depreciation.
Plant & Machinery Computer
Particulars (₹ in lakhs) (₹ in lakhs)
I. Assets put to use for more than 180 days, eligible
for 100% depreciation calculated applying the
eligible rate of normal depreciation
A. Normal Depreciation:
WDV of plant and machinery 3.79 _
(₹25.25 lakhs × 15%) 1.50 _
New Machinery purchased on _____________ _________
21.9.2024 (₹10 lakhs × 15%) 5.29 _
II. Assets put to use for less than 180 days, eligible
for 50% depreciation calculated applying the
eligible rate of normal depreciation
B. Normal Depreciation:
New machinery purchased on 21.12.2024 0.60 _
[₹8 lakhs × 7.5% (i.e., 50% of 15%)] _
Computer purchased on 21.1.2025 ______________ 0.80

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DIRECT AND INDIRECT TAXATION
[₹ 4 lakhs × 20% (50% of 40%)] 0.60 ____ __________
0.80
Total Depreciation (A+B) 5.89 0.80

4) (a) Sunil has a house property acquired on 7/07/1995 for ₹3,00,000. He incurred improvement expenditure
on such property ₹70,000 on 16/08/2000 and ₹50,000 on 17/07/2010. Market value of such property as on
1/04/2001 is ₹4,50,000. On 16/08/2020, such property is compulsorily acquired by the Government and
compensation decided at ₹21,50,000. 20% of the compensation received on 31/03/2025 and balance on
2/06/2025.
On further appeal, on 16/08/2025 enhanced compensation is declared by the Government ₹2,00,000.
Expenditure incurred to get enhanced compensation is ₹11,000. Such compensation is received on
18/08/2026. Compute income under the head Capital Gains of Sunil for the assessment year 2025-26, 2026-
27 and 2027-28. [7]

(b) Mrs. Rajani who draws salary of ₹18,000 p.m. received the following gifts during the previous Year 2024-
25.
1. Gift of ₹75,000/- from her sister-in-law.
2. Gift of ₹21,000 from her husband’s friend on 01.02.2025.
3. Gift of ₹51,000/- each received from her two friend on the occasion of her marriage.
4. Gift of jewellery worth ₹3,00,000/- on 01.08.2024 from her fiancée.
5. Gift of ₹51,000 on 01.12.2024 from her father’s sister.
6. Gift of ₹11,000 on 01.06.2024 from her brother’s father-in-law.
7. Gift of ₹1,50,000 on 01.07.2024 from her close friend.
Compute her Gross Total Income for A.Y. 2025-26. Assume assesse opt out from default tax regime u/s
115BAC. [7]
Answer:
(a)
Computation of capital gains of Sunil for the A.Y. 2025-26
Particulars Working Details Amount
Sale consideration 21,50,0001
Less: Expenses on transfer Nil
Net sale consideration 21,50,000
Less: i) Indexed cost of acquisition ₹ 4,50,0002 × 3014/100 13,54,500
3 4
ii) Indexed cost of improvement ₹ 50,000 × 301 /167 90,120 14,44,620
Long Term Capital Gain 7,05,380

Notes:

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DIRECT AND INDIRECT TAXATION
1. The initial compensation (i.e. ₹ 11,50,000) decided by the Government shall be treated as sale consideration.
2. Cost of acquisition is the original cost of acquisition (i.e. ₹ 3,00,000) or Fair market value as on 1/04/2001
(i.e. ₹ 4,50,000) whichever is higher.
3. Cost of improvement incurred before 1/04/2001 is to be completely ignored.
4. Though the property was compulsorily acquired by the Government in the P.Y 2020-21 but the compensation
was received in the P.Y.2024-25, therefore the amount shall be taxable in the P.Y. 2024-25, however indexation
benefit shall be available till the previous year 2020-21 as transfer has taken place before 23-07-2024.
Computation of capital gains of Mr. Sunil for the A.Y. 2026-27: As the assessee has not received enhanced
compensation during the P.Y.2025-26, hence nothing shall be taxable in the A.Y. 2026-27.
Computation of capital gains of Mr. Sunil for the A.Y. 2027-28

Particulars Working Details Amount

Sale consideration Enhanced Compensation 2,00,000
Less: Expenses on transfer 11,000
Net sale consideration 1,89,000
Less: i) Indexed cost of acquisition Nil Nil
ii) Indexed cost of improvement Nil Nil
Long Term Capital Gain 1,89,000

In case of enhanced compensation, the cost of acquisition shall be taken as nil and the nature of capital gain shall
be same as that of initial compensation.
(b) Computation of Gross Total Income of Mrs. Rajani for A.Y.2025-26
Particulars Amount (₹) Amount (₹)
Income from Salary:
Salary (₹18,000×12) Less Standard Deduction u/s 16 (₹ 50,000) 1,66,000
Income From Other Sources:
Gift from her sister-in-law (husband’s sister is exempt as the donor Nil
is covered in the definition of ‘relative’
Gift from her husband’s friend is taxable 21,000
Gift received from her two friends are exempt as it’s received on the Nil
occasion of her marriage
Gift of jewellery is taxable as jewellery is included in the definition 3,00,000
of property u/s 56(2)(x) & FMV exceeds ₹50,000
Gift from her father’s sister is exempt as the donor is covered in the Nil
definition of “relative”

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DIRECT AND INDIRECT TAXATION
Gift from her brother’s father-in-law is taxable as the donor is not 11,000
covered in the definition of “relative”
Cash gift from her close friend is taxable 1,50,000 4,82,000
Gross Total Income 6,48,000

5) (a) P, Q and R are partners in a firm sharing profits and losses in the ratio of [Link], provide the following
information. Compute firm’s net income assuming that salary and interest are not paid to partners:
(i) Net income of the firm in assessment year 2024-25 is (-) ₹1,20,000, out of which unadjusted
depreciation is ₹40,000.
(ii) On 31.05.2024, R retires from the firm and the other partners carry on the same business.
(iii) The firm’s income for the Assessment Year 2025-26 before adjusting the aforesaid loss and
depreciation is ₹1,20,000. [7]

(b) Compute the tax liability of Mr. Ratan under the old tax regime, who is a handicapped, for the
A.Y.2025-26:
Particulars Amount (₹)
Net salary 2,85,000
Annual value of let-out house property 60,000
Lottery income 50,000
Taxable business & profession income 50,000
He paid LIC premium 10,000
Mr. Ratan deposited in LIC annuity plan ₹ 12,000 & paid medical insurance premium ₹ 5,000.
[7]
Answer:
(a) Where a change occurs in the constitution of firm, on account of retirement or death of a partner, the
proportionate loss of the retired or deceased partner shall not be carried forward. However, this section shall
not apply in case of unabsorbed depreciation. Accordingly,
Computation of total income for A.Y. 2025-26
Particulars Details Amount Amount
Income before adjusting brought forward loss and depreciation 1,20,000
Less: Brought forward loss (excluding unabsorbed depreciation) 80,000
Less: Loss which cannot be set off (Working) 30,000 50,000
Less: Unabsorbed depreciation 40,000 90,000
Total Income 30,000

Working: Computation of share of R in brought forward loss and loss which cannot be set off
Particulars Amount
Total unabsorbed brought forward loss 1,20,000
Less: Unabsorbed depreciation 40,000

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DIRECT AND INDIRECT TAXATION
Brought forward loss excluding depreciation 80,000
Share of R in aforesaid loss [(₹ 80,000 / 4) * 2] 40,000
Less: Share of R in current profit before adjusting brought forward loss & 10,000
depreciation [(₹1,20,000 / 12 * 2) * 2 / 4]
Loss which cannot be set-off 30,000
(b)
Computation of Total Income of Mr. Ratan for the A.Y. 2025-26
Particulars Details Amount
Salaries
Net salary 2,85,000
Income from house property
Annual value of let-out house property 60,000
Less: Standard deduction u/s 24(a) 18,000 42,000
Profits & gains of business or profession 50,000
Income from other sources
Lottery income 50,000
Gross Total Income 4,27,000
Less: Deduction u/s
80C (LIC Premium) 10,000
80CCC (Deposit in LIC annuity plan) 12,000
80D (Medical insurance premium paid) 5,000
80U (Assessee is handicapped) 75,000 1,02,000
Total Income 3,25,000

Computation of Tax liability of Mr. Ratan for the A.Y. 2025-26

Particulars Rate On Details Amount
Casual income (Note) ₹ 50,000 30% 15,000
Other Income (Note)
Upto ₹2,50,000 -
From ₹2,50,001 to ₹ 2,75,000 5% 25,000 1,250 1,250
Tax Liability 16,250
Less: Rebate u/s 87A 12,500
3,750
Add: Health & Education cess 4% of ₹ 3,750 150
Tax and cess payable 3,900

Note: Taxable income can be divided as follows:

– Casual income ₹50,000 on which tax @ 30% is applicable, and
– Income other than casual income ₹2,75,000 (being ₹3,25,000 – ₹50,000) on which slab is
applicable.

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6) (a) Discuss the difficulties in pre-GST regime in the context of indirect taxes, which were removed with
the introduction of GST. [7]
(b) Discuss about the members of the GST Council? Also discuss any five recommendations that can be
made by the GST Council. [7]

Answer:
(a) Difficulties and limitations in pre-GST regime
(i) In pre-GST regime, Indian indirect tax was highly fragmented. Centre and States were separately taxing
the goods and services. There were many taxes like excise duty, service tax, VAT, CST, purchase tax,
entertainment tax, octroi.
(ii) In addition, there was multiplicity of rates, laws and procedures. This caused heavy compliance burden.
(iii) Imposition of tax on tax was another serious problem. For example, VAT was levied on value that included
excise duty.
(iv) Input tax credit chain broke as goods moved from one State to another, resulting in hidden cost for their
business.
(v) Further, pre-GST, there were tax nakas at every inter-state border, creating bottlenecks in inter-state
transport of goods.
(vi) As a result, logistics sector remained inefficient and it adversely affected the businesses.
(vii) Every State was effectively a distinct market for the industry as well as consumer.
(viii) Industry’s choice of locating factories or warehouses was heavily influenced by the prevailing tax regime
than pure business consideration.

To curb all these, Goods and Services Tax (GST) was introduced in the system with the idea of One Nation One
Tax.
(b) Members of the GST Council
The GST Council shall consist of the following members, namely: -
(a) The Union Finance Minister is the Chairperson;
(b) The Union Minister of State, in-charge of Revenue of finance is the member;
(c) The Minister In-charge of finance or taxation or any other Minister nominated by each State Government
are the members.
The recommendations that can be made by GST Council are as under: -
(i) the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed
in the goods and services tax;
(ii) the goods and services that may be subjected to, or exempted from the goods and services tax;
(iii) model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied
on supplies in the course of inter-State trade or commerce under article 269A and the principles that govern
the place of supply;
(iv) the threshold limit of turnover below which goods and services may be exempted from goods and services
tax;
(v) the rates including floor rates with bands of goods and services tax;

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(vi) any special rate or rates for a specified period, to raise additional resources during any natural calamity or
disaster;
(vii) special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur,
Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and any other
matter relating to the goods and services tax, as the Council may decide.

7) (a) Mr. Ritesh of Assam, provides the following information for the preceding financial year 2023-24. You
are required to calculate the aggregate turnover for the purpose of eligibility of composition levy
scheme and determine whether he is eligible for composition levy scheme or not, for the F.Y. 2024-25.
Particulars ₹ in lakh
Value of taxable outward supplies (out of above, ₹ 10 lakh was in course of interstate 75.00
transactions)
Value of exempt supplies (which include ₹ 30 lakh received as interest on loans & 70.00
advances)
Value of inward supplies on which he is liable to pay tax under reverse charge 15.00
Value of exports 7.00

All the amounts are exclusive of GST. Further, he assured that in F.Y. 2023-24, no inter-State supply
will be executed by him. [7]

(b) Y Ltd., Mumbai, a registered supplier, is manufacturing Chocolates and Biscuits. It provides the
following details of taxable inter-state supply made by it for the month of October, 2024.
Particulars ₹
List price of goods supplied inter-state 12,40,000
Items already adjusted in the list price:
Subsidy from Central Government for supply of biscuits to Government School 1,50,000
Subsidy from Trade Association for supply of quality biscuits 50,000
Items not adjusted in the list price:
Tax levied by Municipal Authority 25,000
Packing Charges 20,000
Late fee paid by the recipient of supply for delayed payment of invoice 5,000

Calculate the value of taxable supply made by Y Ltd. for the month of October, 2024. [7]

Answer:
(a)
Computation of aggregate turnover of Mr. Ritesh for F.Y. 2023-24 for the purpose of eligibility of composition
levy scheme:
Particulars ₹ in lakh
Value of taxable outward supplies [All taxable supplies including inter-State supplies] 75

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Value of exempt supplies [excluding value of supply of services by way of extending 40
deposits, loans or advances in so far as the consideration is represented by way of interest
or discount]
Value of inward supplies on which Mr. Ritesh is liable to pay tax under reverse charge Nil
Value of exports 7
Aggregate turnover for determining eligibility for composition scheme 122
A registered person of Assam is eligible to opt for composition levy if his aggregate turnover does not
exceed ₹ 1.5 crore in the preceding financial year. Therefore, in the given case, Mr. Ritesh is eligible to opt
for composition levy for F.Y. 2024-25.

(b) Computation of value of taxable supply:

Particulars ₹
List price of goods supplied inter-state 12,40,000
Subsidy from Central Government for supply of biscuits to Government School -
Subsidy from Trade Association for supply of quality biscuits 50,000
Tax levied by Municipal Authority 25,000
Packing Charges 20,000
Late fee paid by the recipient of supply for delayed payment of invoice 5,000
Value of taxable supply 13,40,000

8. (a) BA Pvt. Ltd. purchased machinery worth ₹ 10,00,000 (excluding GST) on 20-07-2024 on which it paid
GST @ 18% and availed the ITC. On 05-03-2025, it sold the machinery for ₹8,00,000 (excluding
GST) to HA Pvt. Ltd. The GST rate on sale is 18%. What will be the course of action for BA Pvt. Ltd.
to follow under CGST Act, 2017?
[7]

(b) Malya Internationals Ltd., has imported a machinery by air from Germany. Bill of Entry is presented
on 20.01.2025. However, entry inwards is granted on 25.01.2025. Relevant information of the
transaction are provided hereunder:
CIF Value of Machine 5,500 USD
Air Freight Paid 1250 USD
Insurance Charges Paid 100 USD
Rate of Exchange on 20.01.2025 As per RBI 1 USD = ₹85.50
As per CBIC 1 USD = ₹ 86
Rate of Exchange on 25.01.2025 As per RBI 1 USD = ₹86.50
As per CBIC 1 USD = ₹ 87
Basic Customs Duty Rate 10%
IGST Rate 18%

Calculate the assessable value in INR for the purposes of levy of customs duty as well as total
customs duty.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 2
MODEL ANSWERS TERM – JUNE 2025
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
[7]
Answer:
(a) Where capital goods or plant and machinery on which input tax credit (ITC) has been taken are supplied
outward by a registered person, he must pay an amount that is higher of the following:

a. ITC taken on such goods reduced by 5% per quarter of a year or part thereof from the date of issue of
invoice for such goods; or
b. tax on transaction value.

Accordingly, the amount payable on supply of machinery by BA Pvt. Ltd. shall be computed as follows:
Particulars ₹
ITC taken on acquisition of such machine [₹ 10,00,000 × 18%] 1,80,000
Time gap in quarters between date of purchase and outward supply of such machine 3 quarters
Total reduction in tax paid [5% for each quarter × 3 quarter] 15%
Amount of reduction in tax paid [₹ 1,80,000 × 15%] 27,000
Amount of GST to be Paid [being higher of the following]
a. ₹ 1,80,000 – ₹ 27,000 1,53,000
b. GST on transaction value [₹ 8,00,000 × 18%] 1,44,000
Hence, liability of GST is 1,53,000

(b) Computation of assessable value and customs duty:

Particulars Amount in $
CIF Value 5,500
Less: Air Freight 1,250
Less: Insurance Cost 100
FOB Value 4,150
Add: Air Freight [Since actual air freight is more than 20% of FOB, 20% of FOB 830
shall be considered (4150 × 20% = 830)]
Add: Insurance 100
Assessable Value (in US $) 5,080
Assessable Value in ₹ 4,36,880

Computation of customs duty:

Particulars Details Amount
Assessable Value 4,36,880
Add: Basic Customs Duty @ 10% 43,688 43,688
Add: Social Welfare Surcharge @ 10% on BCD 4,369 4,369
Total [A] 4,84,937
Add: IGST @ 18% [A × 18%] 87,289 87,289
Total duty payable 1,35,346

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.
Where considered necessary, suitable assumptions may be made and
clearly indicated in the answer.

SECTION-A (Compulsory)

1. Choose the correct option: [15x2=30]

(i) Interest on company deposit in Canada amounted to ` 30,000, out of which 1/3rd received in India.
Find out the income which is liable to be taxed in India in case of a non-resident for A.Y. 2024-
25.
(a) ₹ 10,000
(b) ₹ 30,000
(c) ₹ 20,000
(d) None of the above

(ii) Mr. Laloo Singh, received hostel allowance of ` 1,000 p.m. He has three children. None of his
children are studying. The taxable hostel allowance if he opts for old regime will be:
(a) ` 8,400
(b) ` 12,000
(c) ` 4,800
(d) Nil

(iii) Share of Profit of Mr. A who is Partner in M/s AB & Co. is-
(a) Exempt from tax
(b) Taxable as his Business Income
(c) Taxable as his Salary
(d) Taxable as Income from Other Sources

(iv) Mr. X incurred a loss of ` 90,000 for owning and maintaining race-horses and received rent from
land for ` 1,30,000. His income from other sources will be:
(a) `40,000
(b) `1,30,000
(c) (` 90,000)
(d) None of the above.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
(v) Under old regime, the maximum amount which can be donated in cash for claiming deduction
under section 80G for the P.Y. 2023-24 is –
(a) ` 5,000
(b) ` 10,000
(c) ` 10,000
(d) ` 2,000

(vi) Mothi has won a state government lottery of ` 1,00,000 on 11-10-2023. The state government
should deduct tax on such winning amounting to –
(a) ` 30,900
(b) ` 33,000
(c) ` 29,070
(d) ` 30,000

(vii) As per Union List (List I), Central Government has power of legislation on Duties of customs
including export duties i.e., Customs Act under Entry __________
(a) 82
(b) 83
(c) 84
(d) 86

(viii) X & Co., a supplier registered under GST in Meghalaya, wants to opt for composition levy. The
aggregate turnover limit for composition levy is-

(a) ₹ 50 lakh
(b) ₹ 75 lakh
(c) ₹ 1.5 crore
(d) None of the above

(ix) Which of the following activities is neither a supply of goods nor a supply of services?
(a) works contract
(b) Construction of a complex
(c) Services of funeral, burial, crematorium or mortuary
(d) Renting of immovable property

(x) Under GST, fees charged for yoga camp conducted by a charitable trust, will be:
(a) Taxable

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
(b) Exempted
(c) Exempted up to `5,000
(d) None of the above.

(xi) Which of the following categories of persons shall be required to be registered, irrespective of size
of their turnover?
(a) Persons who are required to pay tax under reverse charge
(b) Non-resident taxable persons making taxable supply
(c) Input service distributors
(d) All of the above.

(xii) Invoice shall be prepared in _______ in case of taxable supply of goods and in __________ in case
of taxable supply of services.

(a) Triplicate, Duplicate

(b) Duplicate, Triplicate

(c) Duplicate, Duplicate

(d) Triplicate, Triplicate

(xiii) ___________ mean goods, other than imported goods, transported in a vessel from one port in
India to another.
(a) Prohibited goods
(b) Coastal goods
(c) Transit of goods
(d) Transshipment of goods

(xiv) C Ltd., an importer, has imported a machine from USA at FOB value as per customs of $ 10,000.
Rate of exchange as announced by RBI was: ₹ 74.70 = 1 US $ and rate of exchange as announced
by CBIC: ₹ 75.60 = 1 US $. The FOB value in Indian Rupee will be:
(a) `7,56,000
(b) `7,47,000
(c) 7,51,500
(d) None of the above

(xv) If the goods are received in lots/instalment___________.

(a) 50% ITC can be taken on receipts of 1st lot and balance 50% on receipt of last lot.
(b) ITC can be availed upon receipt of last lot.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
(c) 100% ITC can be taken on receipt of 1st lot.
(d) Proportionate ITC can be availed on receipt of each lot/instalment.

Answer:
(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv)
a c a b d d b b c b d a b a b

SECTION-B
(Answer any five questions out of seven questions given. Each question carries 14 Marks.)
[5x14=70]

2. (a) Briefly analyze assessment year with the help of an example. Discuss the exceptions to the
general rule that income of a Previous Year is taxed in its Assessment Year. [7]

(b) Mrs. X is working with ABC Ltd. since last 30 years 9 months. Her salary structure is as
under:
Basic ` 5,000 p.m. Dearness allowance ` 3,000 p.m.
On 15/12/2023, she died. Discuss the treatment of gratuity in following cases:
Case 1: Mrs. X retired on 10/12/2023 & gratuity ` 4,00,000 received by her husband (legal
heir) as on 18/12/2023.
Case 2: Husband of Mrs. X received gratuity on 18/12/2023 falling due after death of Mrs. X.
Mrs. X is covered by the Payment of Gratuity Act. [7]

Answer:
(a) Assessment Year: Assessment Year means the period of 12 months commencing on the 1st day of
April every year. It is the year (just after the previous year) in which income earned in the previous
year is charged to tax. E.g., A.Y.2024-25 is a year, which commences on April 1, 2024 and ends on
March 31, 2025. Income of an assessee earned in the previous year 2023-24 is assessed in the A.Y.
2024-25.
The exceptions to the general rule that income of a Previous Year is taxed in its Assessment Year:
This is the general rule that income of the previous year of an assessee is charged to tax in the
immediately following assessment year. However, in the following cases, income of the previous
year is assessed in the same year in order to ensure smooth collection of income tax from the
taxpayer who may not be traceable, if assessment is postponed till the commencement of the
Assessment Year:
1. Income of a non-resident assessee from shipping business (Sec. 172)
2. Income of a person who is leaving India either permanently or for a long period (Sec. 174)
3. Income of bodies, formed for a short duration (Sec. 174A)

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
4. Income of a person who is likely to transfer property to avoid tax (Sec. 175)
5. Income of a discontinued business (Sec. 176). In this case, the Assessing Officer has the
discretionary power i.e. he may assess the income in the same previous year or may wait till
the Assessment year.

(b) In Case 1, Computation of taxable gratuity in hands of Mrs. X for the A.Y. 2024-25
Particulars Details (`) Amount (`)
Total Gratuity received 4,00,000
Less : Minimum of the following is exempted as per Sec
10(10)(ii):
a) Actual gratuity received 4,00,000
b) Statutory Amount 20,00,000
c) 15/26 × completed year of service × salary p.m. [15/26 × 31 1,43,077 1,43,077
× ` 8,000]
Taxable Gratuity 2,56,923

In Case 2, Since gratuity falls due after the death of Mrs. X hence the same is not taxable in hands
of Mrs. X. The said gratuity is not taxable even in hands of husband of Mrs. X.

3. (a) Mr. Ajnabi has a house property in Cochin. The house property has two equal dimension
residential units. Unit 1 is self-occupied throughout the year and unit 2 is let out for 9 months
for ` 10,000 p.m. and for remaining 3 months it was self-occupied. Compute his taxable
income from the following details assume that he has opted for old regime:
Municipal value - ` 2,00,000, Fair Rent - ` 1,60,000, Standard rent - ` 3,00,000, Municipal tax
- 10% (60% paid by assessee), Interest on loan - ` 40,000, Expenditure on repairs - ` 20,000.
[7]
(b) X Co., a firm, is engaged in the business of trading of cloth (turnover of 2023-24 being `
1,57,80,000, out of which ` 25,00,000 has been received in account payee cheque). It wants to
claim the following deductions:

Particulars Amount (`)

Salary and interest to partners [as permitted by sec. 40(b)] 60,000
Salary to employees 4,90,000
Depreciation 2,70,000
Cost of materials used 1,20,90,000
Other expenses 13,45,000
Total 1,42,55,000
Net profit (` 1,57,80,000 – ` 1,42,55,000) 15,25,000

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
Determine the net income of X & Co. for the assessment year 2024-25 assuming that (i) taxable
interest income is ` 90,000; (ii) Long term capital gain is ` 1,40,000; and (iii) the firm is eligible
for a deduction of ` 15,000 under sec. 80G. [7]

Answer:
(a) Computation of income from house property of Mr. Ajnabi for the A.Y. 2024-25
Particulars Working Unit 1 Unit 2
Details Amount Details Amount
(`) (`) (`) (`)
Gross Annual Value 1 Nil 1,00,000
Less : Municipal Tax 2 Nil 6,000
Net Annual Value Nil 94,000
Less : Deduction u/s:
24(a) Standard Deduction Nil 28200
24(b) Interest on loan 3 20,000 20,000 20000 48,200
Income from house property (-) 20,000 45,800

Conclusion: Income under the head Income from house property is ` 25,800 (being ` 45,800 – `
20,000).
Workings:
1. Computation of Gross Annual Value (GAV):
Particulars Working Unit 1 (`) Unit 2 (`)
Municipal Value (MV) 1:1 1,00,000 1,00,000
Fair Rent (FR) 1:1 80,000 80,000
Standard Rent (SR) 1:1 1,50,000 1,50,000
Reasonable Expected Rent Higher of MV & FR Nil 1,00,000
(RER) (RER cannot exceed SR)
Actual Rent Receivable ` 10,000 × 9 - 90,000
Gross Annual Value Higher of Step 1 & 2 Nil 1,00,000

2. Municipal tax = 10% of ` 2,00,000 = ` 20,000 being divided in the ratio 1:1 between Unit 1 and
Unit 2. Out of such Municipal tax only 60% is paid, therefore, Municipal tax allowed as
deduction in case of Unit 2 is only ` 6,000 [i.e. ` 20,000 * ½ * 60%].

3. Interest on loan is divided in unit A and unit B in 1:1 as both units are of equal dimension.

(b) Since turnover from business does not exceed ` 2 crore, hence sec. 44AD is applicable. However,
income computed as per provision other than provision of sec. 44AD is less than estimated income,
hence, the firm may be assessed for such lesser income provided following conditions are satisfied–
1. Maintain books of account as prescribed u/s 44AA; and
2. Get accounts audited u/s 44AB.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
Where it maintains accounts and gets it audited -
Computation of total income of X & Co. for the A.Y. 2024-25:
Particulars Amount (`)
Profits and gains of business or profession: Income from cloth business 15,25,000
Capital gains: Long term capital gain 1,40,000
Income from Other Sources: Interest Income 90,000
Gross Total Income 17,55,000
Less: Deduction u/s 80G 15,000
Total Income 17,40,000
It is assumed that all the expenditures are allowed.

Where it does not maintain account or fails to get accounts audited -

Computation of total income of X & Co. for the A.Y.2024-25:
Particulars Details (`) Amount (`)
Profits and gains of business or profession
Income from cloth business (being 6% of ` 25,00,000) 1,50,000
Income from cloth business (being 8% of ` 1,32,80,000) 10,62,400 12,12,400
Capital gains: Long term capital gain 1,40,000
Income from Other Sources: Interest Income 90,000
Gross Total Income 14,42,400
Less: Deduction u/s 80G 15,000
Total Income 14,27,400

4. (a) Sunil has a house property acquired on 7/07/1995 for ₹ 3,00,000. He incurred improvement
expenditure on such property ₹ 70,000 on 16/08/2000 and ₹ 50,000 on 17/07/2010. Market
value of such property as on 1/04/2001 is ₹ 4,50,000. On 16/08/2013, such property is
compulsorily acquired by the Government and compensation decided at ₹ 11,50,000. 20% of
the compensation received on 31/03/2024 and balance on 2/06/2024.
On further appeal, on 16/08/2024 enhanced compensation is declared by the Government ₹
2,00,000. Expenditure incurred to get enhanced compensation is ₹ 11,000. Such compensation
received on 18/08/2025. Compute income under the head Capital Gains of Sunil for the
assessment year 2024-25, 2025-26 and 2026-27. [7]

(b) Compute taxable income under the head Income from other sources of Mrs. X from the
following data for A.Y. 2024-25:
Particulars Amount (₹)
Private tuition fee received 10,000
Winning from lottery 2,000
Award from KBC (a TV show) [Gross] 3,20,000
Pension from employer of deceased husband 25,000
Interest on bank deposit 25,000

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
Directors fee (Gross) 5,000
Letting out of vacant land 25,000
[7]
Answer:
(a) Computation of capital gains of Sunil for the A.Y. 2024-25:
Particulars Working Details (₹) Amount (₹)
Sale consideration 11,50,0001
Less: Expenses on transfer Nil
Net sale consideration 11,50,000
2 4
Less: i) Indexed cost of ₹ 4,50,000 * 220 /100 9,90,000
acquisition
ii) Indexed cost of ₹ 50,000 * 2204/167 65,868 10,55,868
improvement3
Long Term Capital Gain 94,132
1. The initial compensation (i.e. ₹ 11,50,000) decided by the Government shall be treated as
sale consideration.
2. Cost of acquisition is the original cost of acquisition (i.e. ₹ 3,00,000) or Fair market value as
on 1/04/2001 (i.e. ₹ 4,50,000) whichever is higher.
3. Cost of improvement incurred before 1/04/2001 is to be completely ignored.
4. Though the property was compulsorily acquired by the Government in the P.Y 2013-14 but
the compensation was received in the P.Y.2023-24, therefore the amount shall be taxable in
the P.Y. 2023-24, however indexation benefit shall be available till the previous year 2013-
14.
Computation of capital gains of Mr. Sunil for the A.Y. 2025-26: As the assessee has not received
enhanced compensation during the P.Y.2024-25, hence nothing is taxable in the A.Y. 2025-26.
Computation of capital gains of Mr. Sunil for the A.Y. 2026-27:
Particulars Working Details (₹) Amount (₹)
Sale Consideration Enhanced compensation 2,00,000
Less: Expenses on transfer 11,000
Net Sale Consideration 1,89,000
Less: i) Indexed cost of Nil
acquisition
ii) Indexed cost of improvement Nil Nil
Long Term Capital Gain 1,89,000
In case of enhanced compensation, the cost of acquisition shall be taken as nil and the nature of
capital gain shall be same as that of initial compensation.

(b) Computation of income of Mrs. X under the head Income from other source for the A.Y. 2024-25:
Particulars Details (₹) Amount (₹)
Private tuition fee received 10,000
Casual income:
Winning from lottery 2,000
Award from KBC (a TV show) [Gross] 3,20,000
Pension: 25,000
Less: Standard deduction
1) 1/3rd of amount received (i.e. ₹ 8,333)

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
2) ₹ 15,000 8,333 16,667
Interest on bank deposit 25,000
Director’s fee 5,000
Letting out of vacant land 25,000
Income from Other Source 4,03,667

5. (a) Mr. Bhola has furnished you the following data –

Income from house property (₹ 1,30,000)
Salaries (Net) ₹ 80,000
Income from other sources (₹ 90,000)
Income from lotteries ₹ 3,50,000
Examine and advise Mr. Bhola regarding set off and carry-forward. [7]

(b) Compute total income of Sri Bajaj of Delhi from the following data, if he opts for old regime:
Particulars Amount (₹)
Profits & gains of business or profession 8,00,000
Income from house property (let-out and situated at Kolkata) 40,000
Income from other sources 10,000
Rent paid for office 8,000
Rent paid for residential house 1,20,000
[7]
Answer:
(a) Statement showing computation of Gross Total Income & Losses to be carried forward:
Particulars Amount (₹)
Salaries 80,000
Income from house property (1,30,000)
Income from other sources:
Winning from lotteries 3,50,000
Other income (90,000)
Gross total income 3,50,000
Note: Casual income shall be fully taxable as no loss can be set off against 3,50,000
such income.
Losses to be carried forward:
1) Loss under the head “Income from house property” (1,30,000)
2) Loss under the head “Income from other sources”, as such loss cannot be Nil
carried forward.
Income under the head ‘Salaries’ is first adjusted with the loss under the head ‘Income from
other sources’ as the same cannot be carried forward. Though loss under the head ‘Income from
other sources’ is ₹ 90,000 and such loss could be adjusted with income under the head ‘Salaries’
only to the extent of ₹ 80,000 still the remaining loss of ₹ 10,000 cannot be carried forward.

(b) Calculation of total income of Sri Bajaj for the A.Y. 2024-25
Particulars Amount (₹)
Profits & gains of business or profession 8,00,000

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
Income from house property 40,000
Income from other sources 10,000
Gross Total Income 8,50,000
Less: Deduction u/s 80GG (Note 1) 35,000
Total Income 8,15,000
Note 1: Computation of deduction u/s 80GG —
Particulars Working Details (₹) Amount (₹)
Least of the following shall be
deductible:
1. ₹ 5,000 per month ₹ 5,000 × 12 60,000
2. 25% of Adjusted Gross total 25% of ₹ 2,12,500
income 8,50,000(Note 2)
3. Excess of rent paid over 10% of ₹ 1,20,000 – [10% of ₹ 35,000 35,000
Adj. GTI 8,50,000 (Note 2)]
Note 2: Adjusted GTI = Gross total income – Long term capital gain – Short term capital gain
covered u/s 111A - All deduction under 80’s other than section 80GG – Income u/s 115A, etc.
= ₹ 8,50,000
Note: Rent paid for office is irrelevant for the purpose of Sec. 80GG.

6. (a) Make a comparison between Direct Tax and Indirect Tax. [7]

(b) Discuss the benefits of GST in respect to business and industry, Central and State
Governments and the Consumers. [7]

Answer:
(a) Comparison between Direct Tax and Indirect Tax:
Basis Direct Tax Indirect Tax
Meaning Direct tax is referred to as the tax, Indirect Tax is referred to as the tax,
levied on person’s income and levied on a person who consumes
wealth and is paid directly to the the goods and services and is paid
government. indirectly to the government.
Nature Progressive in nature i.e., higher tax Regressive in nature i.e., all persons
is levied on a person earning higher will bear equal wrath of tax on goods
income and vice versa. or service consumed by them
irrespective of their ability.
Incidence and Falls on the same person. Assessee, Falls on different person. Tax is
Impact himself bears such taxes. Thus, it recovered from the assessee, who
pinches the taxpayer. passes such burden to another
person. Thus, it does not pinch the
taxpayer.
Evasion Tax evasion is possible. Tax evasion is hardly possible
because it is included in the price of
the goods and services.
Inflation Direct tax helps in reducing the Cost of goods and services increases
inflation. due to levy of indirect tax thus
indirect taxes promote inflation.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
However, sometimes it is useful tool
to promote social welfare by
checking the consumption of
harmful goods or sin goods through
higher rate of tax.
Imposition and Imposed on and collected from the Imposed on and collected from
collection same person. consumers of goods and services but
paid and deposited by the assessee.
Burden Cannot be shifted. Can be shifted.

(b) The benefits of GST can be summarized as under :

A. For business and industry —
 Easy compliance: A robust and comprehensive IT system would be the foundation of the GST
regime in India. Therefore, all tax-payer services such as registrations, returns, payments, etc.
would be available to the taxpayers online, which would make compliance easy and transparent.
 Uniformity of tax rates and structures: GST will ensure that indirect tax rates and structures are
common across the country, thereby increasing certainty and ease of doing business. In other
words, GST would make doing business in the country tax neutral, irrespective of the choice of
place of doing business.
 Removal of cascading effect: A system of seamless tax-credits throughout the value-chain, and
across boundaries of States, would ensure that there is minimal cascading of taxes. This would
reduce hidden costs of doing business.
 Improved competitiveness: Reduction in transaction costs of doing business would eventually
lead to an improved competitiveness for the trade and industry.
 Gain to manufacturers and exporters: The subsuming of major Central and State taxes in GST,
complete and comprehensive set-off of input goods and services and phasing out of Central
Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will
increase the competitiveness of Indian goods and services in the international market and give
boost to Indian exports. The uniformity in tax rates and procedures across the country will also
go a long way in reducing the compliance cost.

B. For Central and State Governments —

 Simple and easy to administer: Multiple indirect taxes at the Central and State levels are being
replaced by GST. Backed with a robust end-to-end IT system, GST would be simpler and easier
to administer than all other indirect taxes of the Centre and State levied so far.
 Better controls on leakage: GST will result in better tax compliance due to a robust IT
infrastructure. Due to the seamless transfer of input tax credit from one stage to another in the
chain of value addition, there is an inbuilt mechanism in the design of GST that would
incentivize tax compliance by traders.
 Higher revenue efficiency: GST is expected to decrease the cost of collection of tax revenues of
the Government, and will therefore, lead to higher revenue efficiency.
 Boost to ‘Make in India’ initiative: GST will give major boost to the ‘Make in India’ initiative
of government of India by making goods and services produced in India competitive in the
national as well as international market.

C. For the consumer —

 Single and transparent tax proportionate to the value of goods and services: Due to multiple
indirect taxes being levied by the Centre and State, with incomplete or no input tax credits
available at progressive stages of value addition, the cost of most goods and services in the
country today are laden with many hidden taxes. Under GST, there would be only one tax from
the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
 Relief in overall tax burden: Because of efficiency gains and prevention of leakages, the overall
tax burden on most commodities will come down, which will benefit consumers.

7. (a) Discuss with reason, the person liable to pay GST in the following cases, assuming the
recipient is located at taxable territory:
(i) Rental income received by West Bengal State Government from renting of an immovable
property to ABC Pvt. Ltd. The turnover of ABC Pvt. Ltd. was ₹39 lakhs in the preceding
financial year).
(ii) Legal fees received by Mr. A, an advocate, from M/s. XYZ Trading Company having
turnover of ₹49 lakhs in the preceding financial year.
(iii) Mr. X receives advance payment for providing specific service in future.
(iv) P & Co., a partnership firm provides security services to RT Ltd. registered under GST.
[7]
(b) Certain goods are sent by Mr. X on sale on approval or return basis to Mr. Y on 22nd April
2023. The supply gets confirmed and invoice is issued on:
Case 1: 20th August 2023
Case 2: 22nd November 2023
Payment in each of the cases is made on 23rd November 2023.
Determine the time of supply. [7]

Answer:
(a) (i) According to Entry 5A of the Notification No. 13/2017-CT (Rate), in case of services supplied
by the Central Government, State Government, Union Territory or local authority by wat of renting
of an immovable property to a person registered under the CGST Act, 2017, the recipient registered
under the CGST Act, 2017 will be liable to pay GST. In this case, ABC Pvt. Ltd. will be liable to
pay GST under reverse charge mechanism.
(ii) Services provided by an advocate by way of legal services, directly or indirectly to any business
entity located in the taxable territory, reverse charge mechanism is applicable and the business entity
is liable to pay GST. Hence, M/s. XYZ Trading Company will be liable to pay GST.
(iii) Mr. X is required to pay GST at the time of receipt of advance money as here he agrees to
provide services in future.
(iv) Security services (services provided by way of supply of security personnel) provided by any
person other than a body corporate to a registered person is liable to be taxed under reverse charge
mechanism. Here, RT Ltd. registered under GST shall be liable to pay GST on the same.

(b) Date of receipt of payment is immaterial for the purpose of calculating time of supply u/s 12 of the
CGST Act 2017. Therefore, 23rd November 2023 should be ignored altogether. The time of supply
should be earlier of the date of issuance of invoice or the last date of issuance of invoice. The last

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DIRECT AND INDIRECT TAXATION
date of issuance of invoice will be the earlier of the confirmation of supply or 6 months from the
date of removal.
In case 1, the confirmation of supply occurred before 6 months from the date of removal. Thus, the
last date of issuance of invoice was 20th August 2023. On this date, the invoice was issued. Hence,
the time of supply will be 20th August 2023.
In case 2, the confirmation of supply happened after 6 months from the date of removal. The period
of 6 months expired on 21st October 2023. Hence, the invoice was required to be issued by this
date. Since the invoice was issued on 22nd November 2023, the actual date of issue of invoice will
be considered as falling after the last date of issuance of invoice. The time of supply will be the last
date of issuance of invoice i.e., 21st October 2023.

8. (a) Discuss briefly the due dates and applicability of GSTR-1, GSTR-3B and GSTR-4. [7]

(b) A commodity is imported into India from a country covered by a notification issue by the
Central Government u/s 9A of the Customs Tariff Act, 1975. Following particulars are made
available:
Assessable Value for levying Basic Customs Duty: ₹ 12,62,500
Quantity imported: 500 kgs.
Basic customs duty: 10%
IGST: 18%

As per the notification, the anti-dumping duty will be equal to the difference between the cost
of commodity calculated @ US$ 50 per kg (Exchange Rate is 1 USD = INR 70) and the landed
value of the commodity as imported.
Appraise the liability on account of normal duties and the anti-dumping duty. [7]

Answer:
(a) (i) GSTR-1: Statement for furnishing details of outward supplies.
 Due date: To be filed by either of the following persons on or before the below given dates:
o Registered person, who are not under QRMP Scheme - 11th of the next month
o Registered persons, who have opted for QRMP Scheme - 13th of the subsequent
quarter.
However, such persons can furnish details of outward supplies using IFF for the first 2
months of the quarter as under:
- 1st month of the quarter – on or before 13th of the subsequent month (max value = ₹ 50
Lakhs)
- 2nd month of the quarter - on or before 13th of the subsequent month (max value = ₹ 50
Lakhs)
o Invoices furnished using the said facility in the first two months are not required to be
furnished again in Form GSTR-1.
 Applicability: Applicable to Normal / regular taxpayer.

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(ii) GSTR-3B: Monthly/ Quarterly summary return.

 Due date: To be filed as under:
o Registered persons, who are not under QRMP Scheme – 20th of the next month.
o Registered persons, who have opted for QRMP Scheme -
A. Aggregate turnover up to ₹ 5 Cr. in the previous financial year and registered in
category 1 States (States of Chhattisgarh, Madhya Pradesh, Gujarat, Maharashtra,
Karnataka, Goa, Kerala, Tamil Nadu, Telangana, Andhra Pradesh, the Union
Territories of Daman and Diu and Dadra and Nagar Haveli, Puducherry, Andaman and
Nicobar Islands or Lakshadweep) – 22nd of the next month following the quarter.
B. Aggregate turnover up to ₹ 5 Cr. in the previous financial year and registered in
category 2 States (States of Himachal Pradesh, Punjab, Uttarakhand, Haryana,
Rajasthan, Uttar Pradesh, Bihar, Sikkim, Arunachal Pradesh, Nagaland, Manipur,
Mizoram, Tripura, Meghalaya, West Bengal, Jharkhand or Odisha, the Union
territories of Jammu and Kashmir, Ladakh, Chandigarh or Delhi) – 24th of the next
month following the quarter.
o pay the tax due in each of the first two months of the quarter by depositing the due
amount in Form GST PMT-06, by 25th day of the month succeeding such month under
the head “Monthly payment for quarterly taxpayer”.
 Applicability: Applicable to All registered persons other than:
1. Input service distributor (ISD),
2. Non-resident taxable person,
3. Person paying tax u/s:
A. 10 – Composition levy
B. 51 – Tax deduction at source
C. 52 - Collection of tax at source

(iii) GSTR-4: Return by composition tax payers.

 Due date: To be filed as under:
o CMP-08 by 18th of the month succeeding the quarter.
o GSTR-4 Annually by 30th April following the end of a financial year.
 Applicability: Applicable to Composition taxpayer.

(b) Computation of Customs Duty, SWS, anti-dumping duty and IGST:

Particulars Details ₹
Assessable Value 12,62,500
Basic Customs Duty @ 10% on ₹ 12,62,500 [A] 1,26,250
Add: SWS @ 10% [B] 12,625
Landed value of imported goods [C] 14,01,375
Rate of commodity as per Anti-Dumping US$ 50
Notification per kg.
Quantity Imported 500 Kg
Value as per notification (500 x 50) US$ 25,000
Exchange rate 1US$ ₹ 70

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Market Value in ₹ [D] 17,50,000
Add: Anti-dumping Duty [E = D - C] 3,48,625
Value for levying IGST [F] 17,50,000
Add: IGST @ 18% of [F] 3,15,000
Total Customs Duty Payable [A + B + E + F] 8,02,500

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2024
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.
Where considered necessary, suitable assumptions may be made and
clearly indicated in the answer.

SECTION-A (Compulsory)

1. Choose the correct option: [15x2=30]

(i) An individual has loss under the head ‘house property’ ₹ 2,50,000 for the assessment year 2024-25 and
income under the head ‘Salaries’ ₹ 14,00,000. What is his total income, if he is paying tax u/s
115BAC(1A)?
(a) ₹11,50,000
(b) ₹ 12,00,000
(c) ₹ 14,00,000
(d) None of the above

(ii) An assessee has incurred preliminary expenses of ₹ 20,000/- in the month of April 2023. His business
started in the month of May 2023. What is the amount of deduction allowable to him u/s 35D for the
assessment year 2024-25?
(a) ₹ 4,000
(b) ₹ 5,000
(c) ₹ 10,000
(d) ₹ 20,000

(iii) Ram (age 64) has earned interest on fixed deposit ₹ 55,000. What is the amount of deduction available
to him under chapter VIA, if he has exercised the option available u/s 115BAC(6)?
(a) ₹ 50,000 u/s 80TTB
(b) ₹ 10,000 u/s 80TTA
(c) ₹ 25,000 u/s 80TTB
(d) Nil

(iv) Miss Monica, a foreign national, comes India every year for 100 days since 2007-08. What would be
her residential status for the previous year 2023-24?
(a) Non-Resident
(b) Resident and Ordinarily resident
(c) Resident but not ordinarily resident
(d) Deemed Resident

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(v) Mr. Amit has retired from his job on 31/3/2023. From 1/4/2023, he was entitled to a pension of ₹ 12,500
p.m. What would be his income under the head “Salaries” for the A.Y. 2024-25, if he has not exercised
the option available u/s 115BAC(6)?
(a) ₹ 1,00,000
(b) ₹ 1,50,000
(c) ₹ 50,000
(d) Nil

(vi) Pallavi engaged in manufacturing of rubber in India and earns a profit of ₹ 12,00,000. What is her
agricultural income for computation of total income?
(a) 65% of profit
(b) 35% of profit
(c) 100% of profit
(d) Nil

(vii) As per provision of sec. 2(107) of the Central Goods and Services Tax Act, taxable person means:
(a) a person who is registered
(b) a person who is liable to be registered u/s 22 or u/s 24
(c) Both (a) and (b)
(d) None of the above

(viii) Which of the following services are exempted under GST?

(a) Services by an artist by way of a performance in folk or classical art form of music where
consideration charged for such performance is not more than ₹ 2,00,000
(b) Services by way of collection of contribution under the Atal Pension Yojana
(c) Services to the Reserve Bank of India
(d) None of the above

(ix) Levy of indirect tax on goods and services may leads to:
(a) Inflation
(b) Deflation
(c) Reflection
(d) None of the above

(x) Supply of service by a music composer to the music company is covered under:
(a) Forward charge mechanism
(b) Reverse charge
(c) Negative list
(d) None of the above

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(xi) A registered person paid ₹ 11,800 (inclusive of GST @ 18%) as motor car insurance charges:
(a) Supplier can claim ITC
(b) Supplier cannot claim ITC
(c) Recipient can claim ITC
(d) None of the above

(xii) Aggregate turnover of Shri Krishnan, a trader from Tamilnadu, in the financial year 2022-23 was ₹
90 lakhs. Hence, he has opted to pay GST u/s 10 for financial year 2023-24. During the financial year
2023-24, his taxable turnover is ₹ 1,10,0000 comprising of supply of goods ₹ 1 crore [Regular rate of
GST is 5%] and balance of supply of services [Regular rate of GST is 18%]. What would be his gross
GST liability for the financial year 2023-24?
(a) ₹ 1,10,000
(b) ₹ 1,60,000
(c) ₹ 1,00,000
(d) None of the above

(xiii) Input tax credit shall not be availed by a registered person in respect of invoice unless the details
thereof have been communicated to the registered person in:
(a) Form GSTR 1
(b) Form GSTR 9
(c) Form GSTR 2B
(d) None of the above

(xiv) For determining the assessable value for customs duty, insurance charges, where the same in not
ascertainable, to be taken is:
(a) 1.125% of FOB Value
(b) 1.125% of (FOB value + Transportation Charges)
(c) 1.25% of FOB Value
(d) 1.25% of (FOB value + Transportation Charges)

(xv) Social Welfare Surcharge shall be payable @:

(a) 10% of assessable value
(b) 10% of FOB Value
(c) 10% of basic customs duty
(d) None of the above

Answer:
(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv)
c a a c a d c b a b d d c a c

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DIRECT AND INDIRECT TAXATION

SECTION-B
(Answer any five questions out of seven questions given. Each question carries 14 Marks)
[5x14=70]

2. (a) Mr. Rupankar Roy, an Indian Citizen, left India for the purpose of employment in USA for
the first time on 1st October, 2023. He came back to India on 30 th March, 2024 for visit and
returned back to USA after staying 20 days in India. During the previous year 2023–24, he
earned the following Income:
(i) Salary earned in USA ₹ 5,00,000 and credited in USA.
(ii) Interest received in India out of Fixed Deposit in Bank ₹ 1,20,000.
Determine his residential status and Tax Incidence in India for the A.Y. 2024-25. [7]

(b) Mr. R. Singh is the employee of BPL India Ltd. He furnished the under-noted particulars of
his income for the previous year 2023-24. Compute his income from salary for the assessment
year 2024-25
1. Basic salary ₹ 60,000 p.m.
2. Dearness Allowance ₹ 20,000 p.m. (forming part of Salary)
3. Medical allowance paid ₹ 2,000 p.m.
4. He and his employer each contributed 14% of Salary to a Recognized Provident Fund
(RPF)
5. Interest credited to the fund @ 11% is ₹ 12,100 during the year.
6. His personal electric bill amounted to ₹ 20,000 p.a. out of which he paid ₹ 5,000 and balance
paid by his employer.
7. He is provided with a small car with a driver both for private and official use. All expenses
are met by his employer.
8. He took a new life insurance policy of LIC during the year and premium was paid by his
employer ₹ 40,000.
9. Professional tax was paid by his employer ₹ 2,400. [7]

Answer:

(a) During the previous year, Mr. Roy was in India as under
P.Y. Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar Total
23-24 30 31 30 31 31 30 1 - - - - 2 186

Since, Mr. Roy resided in India for 186 days (as shown above) in the previous year 2023-24, hence
he satisfies condition of sec. 6(1)(a). He is, therefore, a resident in India for the A.Y. 2024-25.

Further, he is leaving India for the first time, hence he is also satisfying both the conditions
mentioned u/s 6(6). Thus, his residential status for the year is resident and ordinarily resident.
Accordingly, tax incidence are as follow:
Particulars Amount
(₹)
Salary earned in USA 5,00,000

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DIRECT AND INDIRECT TAXATION
Interest of fixed deposit in bank 1,20,000
Income liable to be taxed in India 6,20,000

(b)
Computation of Taxable Salary of Mr. R Singh for the A.Y. 2024-25
Particulars Workings Details Amount Amount
(₹) (₹) (₹)
Basic ₹ 60,000 x 12 7,20,000
Allowances:
Dearness allowance ₹ 20,000 x 12 2,40,000
Medical allowance ₹ 2,000 x 12 24,000 2,64,000
Perquisites u/s 17(2):
Electric Bill ₹ 20,000 - ₹ 5,000 15,000
Car Facility (₹ 1,800 + ₹ 900) x 12 32,400
LIC premium paid 40,000
Professional Tax 2,400 89,800
Contribution to RPF 14% of salary 1,34,400
Less: Exempted 12% of salary 1,15,200 19,200
Interest on RPF @ 11% 12,100
Less: Exempted upto 9.5% 10,450 1,650 20,850
Gross Taxable Salary 10,94,650
Less: Deduction u/s
16(ia) Standard Deduction 50,000
16(iii) Professional tax Not available in Default NA 50,000
tax regime
Taxable Salary 10,44,650

1. Salary for the purpose of:

Particulars RPF (₹)
Basic 7,20,000
DA 2,40,000
Total 9,60,000

3. (a) Mrinal Thakur owns two houses. The particulars of the houses are as follows:

House I (₹ ) House II (₹ )
Let out Self-Occupied
Municipal Valuation 8,00,000 15,00,000
Fair Rent 18,00,000 22,50,000
Standard Rent 15,00,000 18,00,000
Annual Rent Received 12,00,000 —
Municipal tax paid 1,20,000 1,50,000
Fire Insurance Premium
i. Paid 80,000 1,20,000

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ii. Due — —
Interest on loan (Taken for the purpose of 75,000
constructions)
Repairs Nil 1,50,000

Mr. Thakur borrowed ₹ 10,00,000 @ 12% p.a. for the purpose of construction of House II.
The amount was borrowed on 1.6.2013 and repaid on 17.9.2024. Construction of the house
were completed on 1.4.2022. Construction of House I was completed in the year of 1996.

You are required to compute income from house property of Mr. Thakur for the Assessment Year
2024–25, if he has not opted for option given u/s 115BAC(6). [7]

(b) Rahul engaged in manufacture of chemicals and furnishes the following particulars relating
to manufacturing unit at Morbi for the year ended on 31.03.2024:
₹
WDV of machinery on 01.04.2023 10,00,000
New machinery purchased on 01.08.2023 10,00,000
New machinery purchased on 01.01.2024 4,00,000
Machinery sold on 15.01.2024 1,00,000

All assets were put to use immediately. Rate of depreciation on machinery is 15%.

Compute the depreciation allowable to him, if he has opted for option given u/s 115BAC(6). [7]

Answer:

(a)
Computation of total income of Mr. Mrinal Thakur for the A.Y. 2024-25
Particulars Details (₹) Details (₹) Amount (₹)
Income from House Property
House I: Let out u/s 23(1)
Gross Annual Value (Working) 15,00,000
Less: Municipal Tax 1,20,000
Net Annual Value 13,80,000
Less: Deduction u/s
24(a) Standard Deduction 4,14,000
24(b) Interest on loan 75,000 4,89,000 8,91,000
House II: Self occupied u/s 23(2)(a)
Net Annual Value Nil
Less: Deduction u/s
24(b) Interest on loan NA Nil
Income from House Property 8,91,000

Working: Computation of GAV

Particulars Explanation House I (₹)
Municipal value (MV) 8,00,000

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Fair rent (FR) 18,00,000
Standard rent (SR) 15,00,000
Reasonable Expected Rent [a] Higher of MV & FR (subject to SR) 15,00,000
Annual Rent [b] 12,00,000
Gross Annual Value (GAV) Higher of (a) and (b) 15,00,000

(b) Computation of Depreciation

Particulars Amount (₹)
Opening W.D.V. 10,00,000
Add: Purchase during the year 14,00,000
24,00,000
Less: Sale proceeds during the year 1,00,000
Closing W.D.V. (before depreciation) 23,00,000
Depreciation [₹ 19,00,000 * 15% + 4,00,000 * 15% * ½] 3,15,000
Additional Depreciation [₹ 10,00,000 * 20% + 4,00,000 * 20% * ½] 2,40,000
Total Depreciation 5,55,000

4. (a) During the previous year 2023-24, Mr. Madhusudhan sold the following capital assets:

Cost of Date of Fair Market

Sale
Asset acquisition acquisition (₹) value as on 01.04.2001
Proceeds (₹)
(₹)
Debentures 6,48,000 1,85,000 30.06.2005 1,68,000
Gold 18,22,000 8,42,400 25.08.2005 8,10,000
Building 25,11,900 9,00,000 10.05.2008 9,86,400

Assuming that his business income is ₹ 3,47,500, determine his income for the A.Y. 2024-25.
Cost Inflation Index: F.Y. 2001-02:100, F.Y. 2005-06: 117, F.Y. 2008-09: 137, F.Y. 2023-24: 348 [7]

(b) During the year 2023-24, Mr. Ratnam received following:

1. Dividends from Sun Pharma Ltd. (Indian Company) ₹ 11,00,000. He has invested in the
shares by taking loan. During the year he is liable to pay interest of ₹ 3,00,000 on such
loan. Further, he has incurred collection charges ₹ 50,000.
2. Family pension received of ₹ 14,000 per month
3. Rent received from Sub-letting a house ₹ 35,000, rent payable by Sabana for the above
house ₹20,000, other expenses incurred in connection with the house amounted ₹ 7,500.
4. Lottery income received ₹ 35,000

Compute income from other sources of Mr. Ratnam. [7]

Answer:

(a)

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Directorate of Studies, The Institute of Cost Accountants of India
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Computation of total income of Mr. Madhusudhan for the A.Y. 2024-25
Particulars Amount (₹)
Profits and Gains of Business or Profession 3,47,500
Capital Gains (Working) 5,169
Total Income 3,52,669

Working: Computation of Capital Gains of Mr. Madhusudhan for the A.Y.2023-24

Particulars Debenture Gold (₹) Building
(₹) (₹)
Sale Proceeds 6,48,000 18,22,000 25,11,900
Less: Expenses on transfer Nil Nil Nil
Net sale consideration 6,48,000 18,22,000 25,11,900
Less: Cost of acquisition (Index benefit is not available) 1,85,000
Less: Indexed Cost of acquisition [(₹8,42,400 * 348)/117] 25,05,600
Less: Indexed Cost of acquisition [(₹9,00,000 * 348)/137] 22,86,131
Long Term Capital Gain 4,63,000 (6,83,600) 2,25,769

(b)
Computation of income from other sources of Mr. Ratnam for the A.Y. 2024-25

Particulars (₹) Details Amount Amount

(₹) (₹) (₹)
Dividend 11,00,000
Less: Interest Expenditure being lower of the
following
Actual Interest Expenses 3,00,000
20% of dividend 2,20,000 2,20,000
Less: Collection Charges Nil 2,20,000 8,80,000
Family pension 1,68,000
Less: Standard Deduction (Being lower of the
following)
- 1/3rd of Pension 56,000
- ₹ 15,000 15,000 15,000 1,53,000
Sub-letting of House 35,000
Less: Expenses
- Payment of Rent 20,000
- Other Expenses 7,500 27,500 7,500
Lottery income [₹ 35,000 / 70%] 50,000
Income from Other Sources 10,90,500

Apart from interest (upto 20% of dividend), other expenditure like collection charges, bank charges,
etc. shall not be allowed.

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5. (a) Following are the details of incomes/losses of Mr. Raghu for the financial year 2023-24:
Amount (₹)
Income from Salaries 6,00,000
Income from House Property:
—from let-out House A 1,50,000
—from let-out House B (3,75,000)
Profits and Gains of Business or Profession:
—Business l 3,00,000
—Business II (50,000)
—Business III (Speculative business) 10,000
—Business IV (Speculative business) (20,000)
Income from other sources:
—Interest on fixed deposit account 5,000
—Winning from lottery (Gross) 15,000
—Owning and maintaining race horses (10,000)
(Figures in brackets represent losses)

You are required to determine the Gross Total Income and losses to be carried forward by
Mr. Raghu for the A.Y. 2024-25, if he has opted for option given u/s 115BAC(6). [7]

(b) Miss Hema (aged 32 years) submits the following particulars for the assessment year 2024-25:
₹
Income from House Property 50,400
Income from Business 72,600
Long-term capital gains on sale of building 21,840
Interest from fixed deposit with a bank 18,000
Donations made to:
- Approved University of national eminence 3,600
- Prime Minister’s Drought Relief Fund (in kind) 1,800
- Prime Minster’s National Relief Fund 4,500
- Prime Minister’s Drought Relief Fund (paid by cheque) 2,500
- Approved charitable Institution (paid by cheque) 16,200
- Approved Political Party 10,000
Payment of medical insurance premium on his own health to GICI by 31,600
cheque
Compute her total income if she has opted for option given u/s 115BAC(6). [7]

Answer:
(a)
Computation of Total Income of Mr. Raghu for the A.Y. 2024-25
Particulars Details (₹) Amount
(₹)

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MODEL ANSWERS TERM – JUNE 2024
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
Salaries 6,00,000
Income from House Property
Income from House A 1,50,000
Less: Loss from House B (3,75,000) (2,00,000)
Loss to be c/f (25,000)
Profits and Gains of Business or Profession
Income from Business I 3,00,000
Loss from Business II (50,000) 2,50,000
Income from Business III (speculative) 10,000
Loss from Business IV (speculative) (20,000) -
Loss to be c/f (10,000)
Income from Other Sources
Interest on FD 5,000
Winning from Lottery 15,000 20,000
Loss from owning and maintaining of race horses (loss to be c/f) (10,000)
Gross Total Income 6,70,000
Losses to be carried forward:
Loss from Owning and Maintaining Race Horses 10,000
Loss from House Property 25,000
Speculation Loss 10,000

(b)
Computation of Total Income of Miss Hema for the A.Y. 2024-25
Particulars Details (₹) Amount (₹)
Income from House Property 50,400
Profits & gains of business or profession 72,600
Capital gains: Long term capital gains 21,840
Income from Other Sources 18,000
Gross Total Income 1,62,840
Less: Deduction under chapter VIA
Sec. 80D (Medical Insurance) (Max Limit) 25,000
Sec. 80GGC (Donation to political party) 10,000
Sec. 80G (Donation) 14,650$ 49,650
Total Income 1,13,190

$
Statement showing amount of deduction u/s 80G:
Amount
Donation made to Rate Deduction (₹)
(₹)
Approved University of national eminence 3,600 100% 3,600
Prime Minister’s Drought Relief Fund (in kind) 1,800 - -
Prime Minster’s National Relief Fund 4,500 100% 4,500
Prime Minister’s Drought Relief Fund (paid by 2,500 50% 1,250
cheque)

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2024
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
Approved charitable Institution (paid by cheque) 10,600* 50% 5,300
Total amount of donation u/s 80G 14,650

*
Calculation of Deduction for donation on which limit is applicable:
Computation of limit
Adjusted GTI – LTCG – Deductions other ₹1,62,840 – ₹21,840 – ₹25,000 - ₹10,000
GTI than deduction u/s 80G = ₹1,06,000
Limit 10% of Adjusted GTI 10% of ₹1,06,000 = ₹10,600

6. (a) State any seven benefits of GST. [7]

(b) Enumerate the provision relating to constitution and functioning of GST Council. [7]

Answer:
(a) Benefits of GST:
The benefits of GST can be summarized as under -
A. For business and industry:
 Easy compliance: A robust and comprehensive IT system would be the foundation of
the GST regime in India. Therefore, all tax-payer services such as registrations,
returns, payments, etc. would be available to the taxpayers online, which would make
compliance easy and transparent.
 Uniformity of tax rates and structures: GST will ensure that indirect tax rates and
structures are common across the country, thereby increasing certainty and ease of
doing business. In other words, GST would make doing business in the country tax
neutral, irrespective of the choice of place of doing business.
 Removal of cascading: A system of seamless tax-credits throughout the value-chain,
and across boundaries of States, would ensure that there is minimal cascading of taxes.
This would reduce hidden costs of doing business.
 Improved competitiveness: Reduction in transaction costs of doing business would
eventually lead to an improved competitiveness for the trade and industry.
 Gain to manufacturers and exporters: The subsuming of major Central and State taxes
in GST, complete and comprehensive set-off of input goods and services and phasing
out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods
and services. This will increase the competitiveness of Indian goods and services in
the international market and give boost to Indian exports. The uniformity in tax rates
and procedures across the country will also go a long way in reducing the compliance
cost.

B. For Central and State Governments:

 Simple and easy to administer: Multiple indirect taxes at the Central and State levels
are being replaced by GST. Backed with a robust end-to-end IT system, GST would

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2024
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
be simpler and easier to administer than all other indirect taxes of the Centre and State
levied so far.
 Better controls on leakage: GST will result in better tax compliance due to a robust
IT infrastructure. Due to the seamless transfer of input tax credit from one stage to
another in the chain of value addition, there is an inbuilt mechanism in the design of
GST that would incentivize tax compliance by traders.
 Higher revenue efficiency: GST is expected to decrease the cost of collection of tax
revenues of the Government, and will therefore, lead to higher revenue efficiency.
 Boost to ‘Make in India’ initiative: GST will give major boost to the ‘Make in India’
initiative of government of India by making goods and services produced in India
competitive in the national as well as international market.

C. For the consumer:

 Single and transparent tax proportionate to the value of goods and services: Due to
multiple indirect taxes being levied by the Centre and State, with incomplete or no
input tax credits available at progressive stages of value addition, the cost of most
goods and services in the country today are laden with many hidden taxes. Under
GST, there would be only one tax from the manufacturer to the consumer, leading to
transparency of taxes paid to the final consumer.
 Relief in overall tax burden: Because of efficiency gains and prevention of leakages,
the overall tax burden on most commodities will come down, which will benefit
consumers.

(b) Constitution of Goods and Services Tax Council [Article 279A]:

1. The GST Council, constituted by the President of India, which will be a joint forum of the
Centre and the States, shall consist of the following members: -
a. Union Finance Minister Chairperson
b. The Union Minister of State, in-charge of Revenue of finance Member
c. The Minister In-charge of finance or taxation or any other Minister Members
nominated by each State Government
2. The Members of the Goods and Services Tax Council referred to in clause 1(c) above shall
choose one amongst themselves to be the Vice-Chairperson of the Council for such period
as they may decide
3. The Goods and Services Tax Council shall make recommendations to the Union and the
States on—
a. the taxes, cesses and surcharges levied by the Union, the States and the local bodies
which may be subsumed in the goods and services tax;
b. the goods and services that may be subjected to, or exempted from the goods and
services tax;
c. model Goods and Services Tax Laws, principles of levy, apportionment of Goods and
Services Tax levied on supplies in the course of inter-State trade or commerce under
article 269A and the principles that govern the place of supply;
d. the threshold limit of turnover below which goods and services may be exempted
from goods and services tax;

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MODEL ANSWERS TERM – JUNE 2024
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DIRECT AND INDIRECT TAXATION
e. the rates including floor rates with bands of goods and services tax;
f. any special rate or rates for a specified period, to raise additional resources during any
natural calamity or disaster;
g. special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and
Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal
Pradesh and Uttarakhand; and
h. any other matter relating to the goods and services tax, as the Council may decide.
4. The Goods and Services Tax Council shall recommend the date on which the goods and
services tax be levied on petroleum crude, high speed diesel, motor spirit (commonly known
as petrol), natural gas and aviation turbine fuel.
5. One-half of the total number of Members of the Goods and Services Tax Council shall
constitute the quorum at its meetings.
6. Every decision of the Goods and Services Tax Council shall be taken at a meeting, by a
majority of not less than three-fourths of the weighted votes of the members present and
voting, in accordance with the following principles, namely:—
a. the vote of the Central Government shall have a weightage of one third of the total
votes cast, and
b. the votes of all the State Governments taken together shall have a weightage of two-
thirds of the total votes cast, in that meeting.
7. The Goods and Services Tax Council shall establish a mechanism to adjudicate any dispute—
a. between the Government of India and one or more States; or
b. between the Government of India and any State or States on one side and one or more
other States on the other side; or
c. between two or more States,
arising out of the recommendations of the Council or implementation thereof.

7. (a) Mr. Lama of Manipur, provides the following information for the preceding financial year
2022-23. You are required to calculate the aggregate turnover for the purpose of eligibility of
composition levy scheme and determine whether he is eligible for composition levy scheme or
not, for the F.Y. 2023-24.
Particulars ₹ in lakh
Value of taxable outward supplies (out of above, ₹ 10 lakh was in course of 75.00
inter-state transactions)
Value of exempt supplies (which include ₹ 30 lakh received as interest on 70.00
loans & advances)
Value of inward supplies on which he is liable to pay tax under reverse 15.00
charge
Value of exports 7.00
All the amounts are exclusive of GST. Further, he assured that in F.Y. 2023-24, no inter-State
supply will be executed by him. [7]

(b) Ras Ltd. provides the following particulars relating to goods sold by it to Khan Ltd.:
Particulars Amount in (₹)
List price of the goods (exclusive of taxes and discounts) 20,00,000

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2024
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
Tax levied by Municipal Authority in the sale of such goods 2,00,000
CGST and SGST chargeable on the goods 4,01,760
Packing charges (not included in price above) 20,000

Ras Ltd. received ₹ 80,000 as a subsidy from a NGO on sale of such goods. The price of ₹
20,00,000 of the goods is after considering such subsidy. Ras Ltd. offers 2% discount on the
list price of the goods which is recorded in the invoice for the goods.
Determine the value of the taxable supply made by Ras Ltd. [7]

Answer:
(a) Computation of aggregate turnover of Mr. Lama for F.Y. 2022-23 for the purpose of eligibility of
composition levy scheme:
Particulars ₹ in lakh
Value of taxable outward supplies [All taxable supplies including inter-State supplies] 75
Value of exempt supplies [excluding value of supply of services by way of extending 40
deposits, loans or advances in so far as the consideration is represented by way of
interest or discount]
Value of inward supplies on which Mr. Lama is liable to pay tax under reverse charge Nil
Value of exports 7
Aggregate turnover for determining eligibility for composition scheme 122
A registered person of Manipur is eligible to opt for composition levy if his aggregate turnover does
not exceed ₹ 75 lakhs in the preceding financial year. Therefore, in the given case, Mr. Lama is not
eligible to opt for composition levy for F.Y. 2023-24.

(b) Computation of value of taxable supply:

Particulars ₹ ₹
List price of the goods (exclusive of taxes and discounts) 20,00,000
Add:
i. Tax levied by Municipal Authority on the sale of such goods
2,00,000
[Includible in the value as per section 15(2)(a)]
ii. CGST and SGST chargeable on the goods [Not includible in the
-
value as per section 15(2)(a)]
iii. Packing charges [Includible in the value as per section 15(2)(c)] 20,000
iv. Subsidy received from a non-Government body [Since subsidy is
received from a non-Government body, the same is included in the 80,000 3,00,000
value in terms of section 15(2)(e)]
Total 23,00,000
Less: Discount @ 2% on ₹ 20,00,000 40,000
Value of taxable supply 22,60,000

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 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2024
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DIRECT AND INDIRECT TAXATION
8. (a) M/s VM & Associates (VMA), a registered taxable person under regular scheme provides
following information in respect of supplies made by it during the month of April, 2023:
₹
Inter-state supply of goods 2,00,000
Intra-state supply of 1000 packets of detergent @ ₹ 400 each along with a
plastic bucket worth ₹ 100 each with each packet (Rate of GST on
detergent is 18% and on plastic bucket is 28%)
Supply of online educational journals to M/s XYZ, a private coaching 1,00,000
center providing tuitions to students of Class X-XII, being intra-state
supply
M/s VMA has also received the following inward supplies:
- Inter-state supply of goods (out of which invoice for goods worth 1,40,000
₹ 40,000 is missing and no other tax paying document is available)
- Repairing of bus with seating capacity of 20 passengers used to 1,00,000
transport its employees from their residence, being intra-state
supply
Details of opening balances of ITC as on 1-4-2023 are as follows:
- CGST 10,000
- SGST 10,000
- IGST 80,000

Following additional information is provided:

1. Rate of GST in respect of all inward and outward supplies except item (ii) above is 18%.
i.e. CGST and SGST @ 9% and IGST @ 18%.
2. All figures mentioned above are exclusive of taxes.
3. All the conditions for availing the ITC have been fulfilled except specifically given and
M/s. VMA is not eligible for any threshold exemption.
Compute the minimum net GST payable in cash by M/s. VMA for the month of April, 2023.
[7]
(b) MS Pvt Ltd., imported a photography printer by air from Best Inc., of USA, as per following
details:
Particulars US $
CIF Value 4,500
Air Freight Paid 1,000
Insurance Cost 250
Rate of exchange notified by CBIC ₹ 64.50 per USD
Inter Bank Selling Rate ₹ 65 per USD
Basic Customs Duty 10% ad valorem
IGST 18%
You are required to compute the Assessable Value and Import Duty payable by MS Pvt. Ltd.
[7]
Answer:
(a) Computation of available ITC

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2024
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
CGST SGST
Particulars IGST (₹)
(₹) (₹)
Opening balance 80,000 10,000 10,000
ITC on Inter-state purchase of goods (excluding missing 18,000 - -
invoice) [₹ 1,00,000 x 18%]
ITC on Repairing of bus [₹ 1,00,000 x 9%] - 9,000 9,000
Available ITC 98,000 19,000 19,000

Computation of tax payable on outward supplies

S.N. Particulars Taxable CGST @ SGST @ IGST @
Value (₹) 9% (₹) 9% (₹) 18% (₹)
(i) Inter-State supply of goods 2,00,000 - - 36,000
(ii) Intra-state mixed supply 4,00,000 56,000 56,000 -
(ii) Intra-State supply of services 1,00,000 9,000 9,000 -
Total 65,000 65,000 36,000

Computation of GST payable in cash

Particulars CGST @ 9% SGST @ 9% IGST @ 18%
(₹) (₹) (₹)
Total GST payable 65,000 65,000 36,000
Less: ITC-IGST (31,000) (31,000) (36,000)
Less: ITC-CGST / SGST (19,000) (19,000) -
GST payable in cash 15,000 15,000 -
Note: Balance credit of IGST may be first utilized in the discharging CGST of ₹ 46,000. In that
case, SGST of ₹ 30,000 would be payable.

(b)
Computation of assessable value and customs duty
Particulars Amount in $
CIF Value 4,500
Less: Air Freight 1,000
Less: Insurance 250
FOB Value 3,250
Add: Air Freight [Since actual air freight is more than 20% of FOB, 20% of 650
FOB shall be considered (3,250 x 20% = 650)]
Add: Insurance 250
Assessable Value (in US $) 4,150
Assessable Value in ₹ [US $ 4,150 x ₹ 64.50] ₹ 2,67,675

Computation of customs duty

Particulars Details (₹) Amount (₹)
Assessable Value 2,67,675
Add: Basic Customs Duty @ 10% 26,768 26,768
Add: Social Welfare Surcharge @ 10% on BCD 2,677 2,677

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2024
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
Total [A] 2,97,120
Add: IGST @ 18% [A x 18%] 53,482 53,482
Total duty payable 82,927

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS SYLLABUS 2022
PAPER – 7 TERM – DECEMBER 2023
DIRECT AND INDIRECT TAXATION
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.
Where considered necessary, suitable assumptions may be made and
clearly indicated in the answer.

SECTION-A

1. Multiple Choice Questions: [15x2=30]

(i) Suraj has loss under the head ‘house property’ ` 2,50,000 for the assessment year 2023-24 and income
under the head ‘Salaries’ ` 4,00,000. What is his total income?
(a) `1,50,000
(b) ` 2,00,000
(c) ` 4,00,000
(d) ` 2,50,000

(ii) Vimal has acquired a new plant and machinery for his factory for ` 2,00,000 on 31st December 2022.
What is the amount of depreciation allowable for the assessment year 2023-24?
(a) ` 35,000
(b) ` 30,000
(c) ` 70,000
(d) ` 40,000

(iii) Aman (age 54) has incurred ` 1,50,000 for the treatment of specified disease of his dependent brother
(age 62) and get re-imbursement from his employer upto ` 80,000. What is the amount of deduction
allowable u/s 80 DDB of the Income-tax Act?
(a) ` 1,50,000
(b) ` 70,000
(c) `20,000
(d) Nil

(iv) Aswin leaves India for the purpose of employment on 20th September 2022. He never visited foreign
country before leaving. What is his residential status for the assessment year 2023-24?
(a) Non-Resident
(b) Resident and Ordinarily resident
(c) Resident but not ordinarily resident
(d) Deemed Resident

(v) Rohit earns monthly salary of ` 1,75,000. What is his tax liability if he has opted for section 115 BAC
for the assessment year 2023-24?
(a) `4,44,600
(b) `4,60,200
(c) `3,82,200
(d) ` 3,66,600

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 INTERMEDIATE EXAMINATION SET 1
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DIRECT AND INDIRECT TAXATION

(vi) Pallavi engaged in manufacturing of tea in India and earns a profit of `12,00,000. What is her
agricultural income for computation of total income?
(a) 60% of profit
(b) 40% of profit
(c) 100% of profit
(d) Nil

(vii) Which of the following is not a capital asset u/s 2(14) of the Income-tax Act?
(a) Agricultural land in Urban area
(b) Agricultural land in rural area
(c) Non-agricultural land in urban area
(d) Non-agricultural land in rural area

(viii) Which of the following services are totally exempted under GST?
(a) Services by Registered charitable institution
(b) Services by Government/Local authority
(c) Services by Goods Transport Agents
(d) Services by Insurance companies

(ix) Indirect tax is considered as:

(a) Regressive tax
(b) Progressive tax
(c) Proportional tax
(d) None of the above

(x) Goods Transport Agency Services who has not paid central tax@ 6% is covered under:
(a) Forward charge mechanism
(b) Reverse charge
(c) Negative list
(d) None of the above

(xi) In case of disposal off of goods by way of free sample:

(a) supplier can claim ITC
(b) Supplier cannot claim ITC
(c) Recipient can claim ITC
(d) None of the above

(xii) What is the threshold limit in case the persons of special category states to take fresh registration in
composition levy?
(a) ` 75 Lakhs
(b) ` 100 Lakhs
(c) ` 150 lakhs
(d) None of the above

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS SYLLABUS 2022
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DIRECT AND INDIRECT TAXATION
(xiii) Vishal, a practicing CMA, purchased three laptops and `25,000 is paid as GST for each laptop in his
firm name. Two laptops utilized in his office and another laptop is gifted to his sister. What is the
amount of eligible ITC?
(a) ` 25,000
(b) ` 50,000
(c) ` 75,000
(d) None of the above

(xiv) For determining the assessable value for customs duty, air freight to be taken is:
(a) 20% of FOB vale
(b) Actual freight or 20% of FOB value, whichever is lower
(c) Actual freight or 20% of FOB value, whichever is higher
(d) None of the above

(xv) Anti-dumping duty can be imposed to the extent of:

(a) Margin of dumping
(b) Margin of injury
(c) Margin of dumping or Margin of injury, whichever is lower
(d) None of the above

Answer:

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv)
b a c a c d b a a b b a b b c

SECTION-B
(Answer any five questions out of seven questions given. Each question carries 14 Marks)

2. (a) Joshi discloses his income earned during the financial year 2022-23:
(i) Interest on German Development Bonds (1/6 received in India) ` 30,000
(ii) Income from house property in India but received in Australia `40,000
(iii) Income from agriculture in America but received in India `60,000
(iv) Income from business in Canada but controlled form India ` 75,000
(v) Income from business in Singapore but controlled from Sri Lanka ` 80,000

Compute his taxable income, if he is:

(A) Resident and ordinarily resident
(B) Resident but not ordinarily resident
(C) Non- resident in India for the assessment year 2023-24. [7]

(b) Vimala employed as Technical consultant in Chahal Ltd., Cochin furnishes the following
particulars relating to the financial year 2022-23:
(i) Basic Salary `1,20,000 Pm
(ii) Annual commission ` 6,00,000

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS SYLLABUS 2022
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DIRECT AND INDIRECT TAXATION
(iii) Annual bonus ` 2,00,000
(iv) Cash gift ` 1, 50, 000
(v) Contribution to recognized provident fund @ 15% of basic salary each by both
employer and employee
(vi) Rent free accommodation provide by employer and rent paid by employer ` 30,000 p.m.
Compute income from salary for the assessment year 2023-24, if she has not opted for section
115 BAC. [7]

Answer:
(a)
Particulars of Income Resident and Resident but Non-
ordinarily not resident
resident ordinarily (NR) (`)
(OR) (`) resident
(NOR) (`)
Interest on German Development Bonds (1/6) 5,000 5,000 5,000
Interest on German Development Bonds (5/6) 25,000 - -
Income from house property in India but 40,000 40,000 40,000
received in Australia
Income from agriculture in America but 60,000 60,000 60,000
received in India
Income from business in Canada but 75,000 75,000 -
controlled form India
Income from business in Singapore but 80,000 - -
controlled from Sri Lanka
Taxable Income 2,85,000 1,80,000 1,05,000

(b) Computation of Income from Salary of Vimala (`)

Basic Pay 14,40,000
Commission 6,00,000
Bonus 2,00,000
Gift 1,50,000
RPF (14,40,000 X 3%) 43,200
Accommodation [15% of 2240000 or 30,000 X12] 3,36,000
Gross Salary Income 27,69,200
(-) Standard Deduction 50,000
Taxable Income from Salary 27,19,200

3. (a) Patil owns two house properties in Mumbai. He submits the following information relating to
the financial year 2022-23.
House I (`) House II (`)
Municipal Value 7,50,000 8,75,000
Fair rent 8,50,000 9,75,000
Standard rent under RCA 8,00,000 8,25,000
Annual rent 9,00,000 NA(Self occupied for residence)

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS SYLLABUS 2022
PAPER – 7 TERM – DECEMBER 2023
DIRECT AND INDIRECT TAXATION
Municipal Tax 75,000 87,500
Interest on borrowed capital 60,000 40,000

There is unrealized rent in respect of let-out house property `75,000. However, no steps are
taken to make the defaulting tenant vacate the house. Half of the municipal tax is not yet paid.
Compute income from house property for the assessment year 2023-24 if he has opted for
section 115 BAC. [7]

(b) Swetha is engaged in the business of selling house hold appliance. The Profit and Loss Account
for the year ended 31st March 2023 shows a net profit of ` 3,64,000 after debiting or Crediting
the following items:
(i) Stationary bill was paid in cash ` 25,000
(ii) Contribution to staff welfare schemes ` 40,000
(iii) Outstanding GST ` 30,000
(iv) Embezzlement of cash by cashier ` 10,000
(v) Payment to contractor ` 1,50,000 without deducting tax at sources
(vi) Depreciation on plant and machinery @20% ` 60,000 but depreciation permissible
@15%
(vii) Refund of customs duty which is claimed as deduction during 2019-20 ` 15,000.
Compute income under the head “Profits and gains from business or Profession” for the
assessment year 2023-24. [7]

Answer:
(a) Computation of Income from House Property of Patil (`)
House I:
Reasonable Expected Rent 8,00,000
Actual Rent 9,00,000
Gross Annual value 9,00,000
(-) Municipal Tax (50%) 37,500
Net Annual Value 8,62,500
(-)Standard deduction 30% 2,58,750
(-) Interest 60,000
Let out 5,43,750
House II: Self-occupied u/s 115BAC Nil
Income from House Property 5,43,750

(b) Computation of income from Profits and gains from business or Profession (`)
Net Profit as per P& L A/C 3,64,000
(+) Cash Payment 25,000
(+) Welfare Schemes 40,000
(+) GST 30,000
(+) Contractor (30%) (No TDS) 45,000
5% 15,000
(+) Depreciation [60,000 × ]
20%
Business income 5,19,000

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS SYLLABUS 2022
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DIRECT AND INDIRECT TAXATION

4. (a) Sunil owns a commercial building in Kolkata which is acquired for `4 lakhs during 1996-97.
Its fair market value on 1st April 2001 is `16 lakhs. He sold it for `320 lakhs on 31st December
2022 when the stamp duty value was `360 lakhs. He paid 3% of the sale consideration as
brokerage. He acquired a residential building in Delhi for `120 lakhs on 1st April 2023.
Compute capital gain for the Assessment Year 2023-24. Cost Inflation Index: Financial year
2001-02:100, Financial year 2022-23: 331. [7]

(b) Bose has following incomes for the year ending 31 st Mach 2023:
(i) 10% ` 1,00,000 tax free Securities of X Ltd (Purchase before due date of interest)
(ii) 12% ` 1,50,000 less tax securities of Y Ltd (Sold before due date of interest)
(iii) Interest from unlisted bonds of A Ltd (net) ` 18,000
(iv) Interest from listed bonds of B Ltd (net) ` 13,500
(v) Family pension ` 42,000
(vi) Cash gifts from friends `50,000
(vii) Bank commission @2% on interest realized.
Compute income from other sources for the assessment year 2023-24. [7]

Answer:
(a) Computation of Capital Gain for the Assessment Year 2023-24 (`)
Full value of sale consideration 3,60,00,000
(-) Transfer expenses 9,60,000
Net sale consideration 3,50,40,000
331 52,96,000
(-) Indexed cost of acquisition [1,60,000 × ]
100
Long Term Capital Gain 2,97,44,000
29744000 1,01,86,301
(-) Amount of exemption u/s 54F [120,00,000 × ]
35040000
Taxable Long Term Capital Gain 1,95,57,699

(b) Computation of income from other sources for the Assessment Year 2023-24 (`)
110
Interest (tax free) [1,00,000 × 10% × ] 11,000
100
Interest (less tax) -
100
Interest (unlisted) [18000 × ] 20,000
90
100
Interest (listed) [13500 × ] 15,000
90
Family Pension 42,000
Gifts (upto ` 50,000) -
88,000
(-) Standard Deduction [1/3 of `42000 or `15000] 14,000
(-) Interest @ 2% [` (10,000,+18000+13500)] 830
Income from other sources 73,170

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS SYLLABUS 2022
PAPER – 7 TERM – DECEMBER 2023
DIRECT AND INDIRECT TAXATION

5. (a) Pandya submits the following particulars for the year 2022-23:
(i) Income from let-out property in Salem `60,000
(ii) Loss from let-out property in Coimbatore ` 2,80,000
(iii) Profit from retail business in Chennai ` 3,50,000
(iv) Loss from derivative trading in securities ` 60,000
(v) Brought forward Loss from wholesale business (discontinued during 2019-20) `50,000
(vi) Long term Capital gain ` 75,000
(vii) short term capital loss ` 1,25,000.
Compute total income after set-off of losses and also mention losses eligible to carry forward. [7]

(b) Das, a resident individual, aged 62, furnished the following particulars of income for 2022-23:
(i) Income from salary (computed): ` 4,00,000
(ii) Income from house property (computed): ` 75,000
(iii) Business loss: ` 1,50,00
(iv) Dividend from Indian companies: ` 75,000
(v) Receipts from horse races: ` 28,000.

He made the following payment:

(i) Life insurance premium on own life (sum assured `1,00,000 taken on 01-04-2021)
(i) `1500 paid in cash
(ii) Medical insurance premium on the health of spouse ` 30,000 paid by cheque
(iii) Expenses on horse race ` 3,000
You are required to calculate his taxable income and tax payable for the assessment year 2023-24
on the assumption that he does not opt section 115BAC. [7]

Answer:

(a) Computation of total income of Pandya for the Assessment Year 2023-24
(`) (`)
Income from House Property 60,000
(-) Loss (out of `2,80,000) 60,000 Nil
Income from Profits & Gains of Business & Profession (Business 3,50,000
Income)
(-) Loss (Out of `2,20,000) 2,00,000
1,50,000
(-) b/f loss 50,000 1,00,000
Long Term Capital Gain 75,000
(-) Short Term Capital Loss (STCL) (out of ` 1,25,000) 75,000 Nil
Net Total Income 1,00,000
Note: House Property loss `20,000, speculation loss `60,000 and STCL `50,000 are to be carry
forwarded.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS SYLLABUS 2022
PAPER – 7 TERM – DECEMBER 2023
DIRECT AND INDIRECT TAXATION
(b) Calculation of Taxable Income and Tax Payable of Das for the assessment year 2023-24:
(`)
Salary 4,00,000
Income from house property 2,60,000
PGBP (Business loss) (1,50,000)
Income from other sources:
100
Winnings [28000 × ] 40,000
70
Dividend 75,000
Gross Total Income 6,25,000
(-) Sec 80C - LIC Premium [1,00,000 × 10%] 10,000
(-) Sec 80D - Medical insurance premium 25,000
Total Income 5,90,000
Tax Liability 31,720

6. (a) Discuss any seven differences between direct tax and indirect tax. [7]

(b) Enumerate any seven state taxes which are subsumed in the Goods and Services Tax. [7]

Answer:
(a) Difference between Direct Taxes and Indirect Taxes:
Direct Taxes Indirect Taxes
1. Payer of tax and sufferer of tax one and same 1. Payer of tax not sufferer of tax whereas
(i.e. impact and incidence on the same sufferer of tax is not paying directly to the
person). Government (i.e. impact on one head and
incidence on other head).
2. Income based taxes. 2. Supply based taxes.
3. Rate of taxes are different from person to 3. Rate of duties are not differ from person to
person. person.
4. Entire revenue goes to Central Government 4. Revenue source to Central Government of
of India. India as well as State Governments (i.e.
CGST and SGST).
5. Previous year income assessed in the 5. There is no previous year and assessment
assessment year. year concept.
6. Central Board of Direct Taxes (CBDT) is an 6. Central Board of Excise and Customs
important part of Department of Revenue. (CBEC) is an important part of
Department of Revenue.
w.e.f. 1-2-2019, The Central Board of
Excise & Customs is being renamed as the
Central Board of Indirect Taxes &
Customs (CBIC). (i.e. CBEC renamed as
CBIC).
7. Progressive in nature. 7. Regressive in nature.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS SYLLABUS 2022
PAPER – 7 TERM – DECEMBER 2023
DIRECT AND INDIRECT TAXATION
(b) State taxes which are subsumed in the Goods and Services Tax:
(i) State VAT/ Sales Tax
(ii) Central Sales Tax
(iii) Purchase Tax
(iv) Luxury Tax
(v) Entry Tax (all forms)
(vi) Entertainment Tax (other than those levied by local bodies)
(vii) Tax on advertisement.

7. (a) Mr. Rao of Telangana, provides the following information for the financial year 2021-22. You
are required to find out the aggregate turnover for the purpose of eligibility of composition
levy scheme and determine whether he is eligible for composition levy scheme or not for the
financial year 2022-23.
(i) Value of taxable outward inter-state supplies: ` 30 lakhs
(ii) Value of taxable outward intra-state supplies: ` 70 lakhs
(iii) Value of exempt supplies: ` 25 lakhs
(iv) Value of exempt supply of services by way of interest on loans and advances: ` 5 lakhs
(v) Value of exports: ` 20 lakhs
(vi) Value of inward supplies covered under reverse charge: ` 8 lakhs. [7]

(b) Kanna Ltd., Hyderabad, a registered supplier provides the following details of taxable inter-
state supply for the month of December, 2022:
(A) List price of supplies ` 10,00,000
(B) Items adjusted in the list price:
(i) Subsidy from Government: ` 1,50,000
(ii) Subsidy from Non-Government trade organization: ` 50,000
(ii) Discount: `10,000
(C) Items not adjusted in the list price:
(i) Local taxes: ` 30,000
(ii) Packing charges: ` 25,000
(ii) Interest on delayed payment: ` 15,000
Calculate the value of taxable supply for the month of Dec 2022. [7]
Answer:
(a) Computation of aggregate turnover of Mr. Rao for eligibility of composition levy scheme:
(`)
Inter- State Supply 30,00,000
Intra – State Supply 70,00,000
Exempted Supply 25,00,000
Interest -
Exports 20,00,000
Reverse charge Basis -
Turnover for earlier year 1.45,00,000
Since aggregate turnover does not exceed `150 lakhs Mr. Rao is eligible for composition levy
provided he does not provide interstate supply during this year.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS SYLLABUS 2022
PAPER – 7 TERM – DECEMBER 2023
DIRECT AND INDIRECT TAXATION

(b) Calculation of Value of Taxable Supply of Kanna Ltd. for the month of Dec 2022:
(`)
List Price 10,00,000
(+) Subsidy 50,000
(+) Taxes 30,000
(+) Packing 25,000
(+) Interest 15,000
Value of Taxable Supply 11,20,000

8. (a) Compute net GST payable for the month of March 2023:
Output GST (`) Opening ITC (`)
CGST 2,000 Nil
SGST 15,000 1,000
IGST 24,000 37,000
[7]

(b) From the particulars given below, find out the assessable value and also calculate total
customs duty:
(i) Cost of imported machine: US $ 20,000
(ii) Expenses up to the place of exportation: US $ 2,000
(iii) Buying commission: US$ 200
(iv) Designing charges in India: ` 1,50,000
(v) Materials supplied by the buyer free of cost: ` 2,00,000
(vi) CBIC had notified exchange rate of one US $ is equal to `78 (Inter-bank rate is ` 79)
(vii) Basic customs Duty @10%, social welfare surcharge @10% and IGST @ 18%. [7]

Answer:

(a) Computation of Net GST Payable for the month of March 2023:
IGST (`) CGST (`) SGST (`)
Opening 37,000 - 1.000
(-) output tax 24,000 2,000 15,000
Balance 13,000 (2,000) (14,000)
(-) ITC (IGST) 13,000 2,000 11,000
GST Payable Nil Nil 3,000

(b) Computation of assessable value and total customs duty payable:

US$
Cost Price 20,000.00
Expenses 2,000.00
Foreign Currency 22,000.00

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS SYLLABUS 2022
PAPER – 7 TERM – DECEMBER 2023
DIRECT AND INDIRECT TAXATION
(`)
Indian Currency (22000 × 78) 17,16,000.00
(+) Materials 2,00,000.00
19,16,000.00
(+) Freight @ 20% 3,83,200.00
(+)[email protected]% 21,555.00
Assessable Value (CIF) 23,20,755.00
BCD @10% 2,32,075.50
SWS @10% 23,207.55
IGST@18% 4,63,686.85
Total Duty (Rounded off) 7,18,970.00

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.
Where considered necessary, suitable assumptions may be made and
clearly indicated in the answer.

Section - A (Compulsory)

1. Choose the correct alternative: [15 × 2 = 30]

(i) Dividend received from a company engaged in agricultural operation is

________:
a. Agricultural Income
b. Business Income
c. Partly agricultural income and partly business income
d. Income from other sources

(ii) The quantum of Rebate u/s 87A applicable to a resident individual, is the
lower of 100% of tax liability or ` ________________.
a. 10,000
b. 7,500
c. 12,500
d. 15,000

(iii) Indexed cost of any improvement is an amount, which bears to the

_______________ in the same proportion as Cost Inflation Index for the year
in which the asset is transferred bears to the Cost Inflation Index for the year
in which the improvement to the asset took place.
a. cost of acquisition
b. cost of improvement
c. sale consideration
d. expenses on transfer

(iv) Deduction u/s _____________ of the Income-tax Act is applicable to an

individual in respect of repayment of loan for higher education.
a. 80DD
b. 80DDB
c. 80E
d. 80EE

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
(v) As per sec. 193 of the Income-tax Act, any person responsible for payment of
interest on securities (other than interest on Government securities and
certain specified securities) to any resident person, the rate of TDS will be
applicable @ ___________________________%.
a. 10% (with surcharge, health and education cess)
b. 10% (no surcharge, health and education cess)
c. 20% (with surcharge, health and education cess)
d. 20% (no surcharge, health and education cess)

(vi) In case of loss, a partnership firm may claim deduction in respect of

remuneration to partner to the extent of:
a. ₹ 1,50,000/-
b. ₹ 1,50,000/- or actual remuneration, whichever is lower
c. ₹ 1,50,000/- or 90% of book profit, whichever is lower
d. Nil

(vii) Mr. A has three minor children deriving interest from bank deposits to the
tune of ₹ 2,000, ₹ 1,300, ₹ 1,600 respectively. Exemption available under
section 10(32) of the Income Tax is –
a. ₹ 4,900
b. ₹ 4,300
c. ₹ 4,500
d. ₹ 5,000

(viii) If an assessee fails to file return within the time limit allowed u/s 139(1) or
within the time allowed under a notice issued u/s 142(1), he can file a belated
return, on or before ___________ of the relevant assessment year or before
the completion of assessment (u/s 144), whichever is earlier.
a. 30th November
b. 31st March
c. 31st December
d. 31st October

(ix) ______________ is combination of more than one individual supplies of goods

or services or any combination thereof made in conjunction with each other
for a single price, which can ordinarily be supplied separately.
a. Composite supply
b. Principal supply
c. Mixed supply
d. None of the above.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION

(x) Zero-rated supply is meant for export or supply of goods or services or both
for authorized operations to Special Economic Zone developer or a
_______________.
a. Special Economic Zone unit
b. EOU
c. STP
d. All of the above.

(xi) Indirect taxes are ______________ in nature.

a. Progressive
b. Regressive
c. Partly progressive and partly regressive
d. None of the above.

(xii) The first 2 digits of the GSTIN is the ___________.

a. checksum number
b. PAN of the legal entity
c. entity code
d. State code.

(xiii) Which of the following activities or transactions shall be treated neither as

supply of goods nor a supply of services?
a. Sale of land and building
b. Lease of land
c. Rent of building
d. All of the above

(xiv) ______________ means property abandoned at sea without hope of

recovering.
a. Wreck
b. Jetsam
c. Flotsam
d. Derelict

(xv) The purpose of ___________ is to rectify the trade distortive effect of dumping
and re-establish fair trade.
a. anti-dumping duty
b. safeguard duty
c. social welfare surcharge
d. protective duty

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION

Answer:
(i) d
(ii) c
(iii) b
(iv) c
(v) b
(vi) b
(vii) b
(viii) c
(ix) c
(x) a
(xi) b
(xii) d
(xiii) a
(xiv) d
(xv) a

Section - B
(Answer any five questions out of seven questions given. Each question carries 14 marks.)

2. (a) Discuss the taxability of the following income:

(i) A is employed in an agricultural farm and entrusted with tilling of land,
his remuneration being 50% of the net profits earned by the farm.
(ii) C receives a dividend of ₹ 12,000 from a company whose entire income
is derived from agricultural operations only.
(iii) F receives ₹ 600 on account of interest on loan on the mortgage of land
which is used for agricultural purposes.
(iv) G earns an income of ₹ 1,200 from lease of land for grazing of cattle
required for agricultural operations.
(v) Income from sale of trees of forest which are of spontaneous growth and
in relation to which forestry operations alone are performed or Income
from sale of wild grass of spontaneous growth.
(vi) Income from poultry farming
(vii) Income of ₹ 50,000 from agricultural land, the land is situated in
Bangladesh. [7]

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION

(b) Following are the particulars of income of Mrs. S. Choudhury for the Previous
Year 2022-23:
1. Basic salary @ ₹ 15,000 per month.
2. Dearness Allowance @ 60% of salary.
3. Medical Allowance @ 600 per month (Actual expenditure ₹ 5,000).
4. House Rent Allowance received @ ₹ 6,000 per month and she pays rent
of ₹7,200 per month for her house in Durgapur.
5. City compensatory allowance ₹ 1,500 per month.
6. She owns a car which she is using for official purposes. Her employer
reimburses her @ ₹ 3,000 per month.
7. She is contributing ₹ 2,100 per month towards a recognized provident
fund. The employer is also contributing the same amount. Interest
credited to R.P.F @ 11% ₹ 2,200.
8. She paid ₹ 1,800 as professional tax during the year.
Compute income from salary of Mrs. Choudhury for the assessment year
2023-24. [7]

Answer:
(a) (i) Since Mr. A is an employee of the concern, therefore his income shall be taxable under
the head ‘Salaries’ and shall not be treated as agricultural income. However, if Mr. A is a
partner of the concern then such income shall be treated as agricultural income.
(ii) Dividend received from a company (engaged in agricultural business) cannot be treated
as agricultural income. Such dividend shall be taxable under the head “Income from other
sources”.
(iii) Interest on loan on the mortgage of land used for agricultural purpose is not an agro-
income.
(iv) Any rent derived from land used for grazing of cattle, used for agricultural operation, is
an agro-income.
(v) Income from sale of trees, grass grown spontaneously and without any human effort is
non-agricultural income.
(vi) Income from Poultry farming is not an agricultural income because such income is not
derived from land.
(vii) Since the land in situated outside India, hence income is not considered as agricultural
income.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
(b) Computation of Taxable Salary of Mrs. S Choudhury for the A.Y.2023-24:
Particulars Working Details (`) Amount (`) Amount (`)
Salaries
Basic 1,80,000
Allowances
Dearness allowance 60% of basic 1,08,000
Medical Allowance 7,200
City compensatory 18,000
allowance
House rent allowance 72,000
Less : Exempted u/s
10(13A)
Minimum of the
following :
A. Actual HRA 72,000
B. 40% of (Basic + DA) 1,15,200
C. Rent paid – 10% 57,600 57,600 14,400 1,47,600
(Basic + DA)
Perquisites u/s 17(2):
Car facility - -
Employer’s contribution 25,200
to RPF
Less : Exempted u/s 12% of (Basic 25,200
10(12) + DA)
Interest on RPF 2,200
Less : Exempted Up to 9% 1,800 400 400
Gross taxable salary 3,27,600
Less : Deduction u/s:
16(ia)Standard Deduction 50,000
16(iii) Professional tax 1,800 51,800
Taxable Salary 2,75,800

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
3. (a) Mr. Rajesh owns two house properties both of which are let out. Compute his
income from the following details: (Amount in `)
Particulars H1 H2
Situated at Gaya Mumbai
Gross Municipal value 1,00,000 2,00,000
Fair rent 95,000 2,10,000
Standard rent 90,000 2,00,000
Actual rent receivable 1,00,000 1,80,000
Unrealised rent of current year 8,000 2,000
Municipal tax 10% 1,000
Fire insurance 2,000 1,200
Repairs Nil 2,000
Interest on loan for construction (@ 10,000 Nil
12%)

Other Information:
1. Loan taken for construction is still unpaid.
2. Municipal tax of H1 is still unpaid, while, that of H2 is half paid by tenant.
[7]
(b) M/s Sidhant & Co., a sole proprietary concern is converted into a company,
Sidhant Co. Ltd. with effect from November 29, 2022. The written down value
of assets as on April 1, 2022 is as follows:
Items Rate of Depreciation WDV as on 1 April, 2022
Building 10% ₹ 3,50,000
Furniture 10% ₹ 50,000
Plant & Machinery 15% ₹ 2,00,000

Further, on 15-10-2022, M/s Sidhant & Co. purchased a plant for ₹ 1,00,000
(rate of depreciation 15%). After conversion, the company added another
plant worth ₹50,000 (rate of depreciation 15%). Examine the amount of
depreciation available to (i) M/s Sidhant & Co. and (ii) Sidhant Co. Ltd. for
the A.Y. 2023-24. [7]

7
Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
Answer:
(a) Computation of income from house property of Mr. Rajesh for the A.Y. 2023-24:
Particulars Details (`) Amount (`) Amount (`)
H1: Let out
Gross Annual Value# 92,000
Less : Municipal tax Nil
Net Annual Value 92,000
Less : Deduction u/s 24:
A. Standard deduction (30% of NAV) 27,600
B. Interest on loan 10,000 37,600 54,400
H2: Let out
Gross Annual Value# 2,00,000
Less : Municipal tax 500
Net Annual Value 1,99,500
Less : Deduction u/s 24
A. Standard deduction (30% of NAV) 59,850
B. Interest on loan Nil 59,850 1,39,650
Income from House Property 1,94,050

Note: Unpaid municipal tax and municipal tax paid by tenant is not allowed.
#. Computation of Gross Annual Value:
Particulars Details H1 H2
Reasonable Expected Rent Higher of GMV or FR 90,000 2,00,000
subject to SR
Actual Rent Receivable – 92,000 1,78,000
Unrealised Rent
Gross Annual Value Higher of above 92,000 2,00,000

(b) Computation of depreciation on assets if there were no succession:

Particulars Building (`) Furniture (`) Plant &
Machinery (`)
Rate of depreciation 10% 10% 15%
W.D.V. as on 1/4/2022 3,50,000 50,000 2,00,000
Add: Purchase during the year Nil Nil 1,00,000*
3,50,000 50,000 3,00,000

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION

Less: Sales during the year Nil Nil Nil

3,50,000 50,000 3,00,000
Depreciation 35,000 5,000 37,500
It is assumed that the assessee is not entitled for additional depreciation.
* Without considering assets acquired after succession.
** [(₹2,00,000 * 15%) + (₹1,00,000 * 15% * ½)]

Allocation of depreciation between sole proprietary concern and the successor company:
The depreciation is to be allocated in the ratio of number of days the assets were used by the
sole proprietary concern and the successor company.
Calculation of allowable depreciation to sole proprietary concern:
Particulars Amount (`)
Depreciation on assets held as on 01/04/2022
Assets are used by sole proprietary concern from 1/4/2022 to 28/11/2022
i.e. 242 days, hence depreciation shall be allowed for 242 days
- Building (₹ 35,000 × 242/365) 23,205
- Furniture (₹ 5,000 × 242/365) 3,315
- Plant and Machinery (₹ 30,000 × 242/365) 19,890
Depreciation on newly acquired assets
New asset has been used by it from 15/10/2022 to 28/11/2022 i.e. 45
days, hence depreciation shall be allowed for 45 days
- Plant and Machinery (₹ 7,500 × 45/168) 2,009
Depreciation allowable u/s 32 48,419

Calculation of allowable depreciation to successor company:

Particulars Amount (`)
Depreciation on assets held by sole-proprietary concern as on
01/04/2022
Asset of sole proprietary concern used by the successor company from
29/11/2022 to 31/3/2023 i.e. 123 days, hence depreciation shall be
allowed for 123 days
- Building (₹ 35,000 × 123/365) 11,795
- Furniture (₹ 5,000 × 123/365) 1,685
- Plant and Machinery (₹ 30,000 × 123/365) 10,110
Depreciation on assets acquired by sole-proprietary concern during the
year
New asset has been used by it from 29/11/2022 to 31/03/2023 i.e. 123
days, hence depreciation shall be allowed for 123 days

9
Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
- Plant and Machinery (₹ 7,500 × 123/168) 5,491
After conversion
Depreciation in respect of plant purchased by the successor company 3,750
is fully allowable in the hands of successor company [50% of 15% on
₹ 50,000].
Total depreciation 32,831

4. (a) Lucky has a house property acquired on 18/08/2009 for ₹ 6,00,000. He used
the house for his own residential purpose. On 18/08/2012 he incurred capital
expenditure on re-construction of house ₹ 3,00,000. On 15/05/2022, he brought
office goods (inflammable) worth ₹ 1,00,000 at home to be delivered to a party
staying near to his home. At the night of that day accidental fire took place
and damaged the whole house property, furniture worth ₹ 5,00,000 and
business stock.
Insurance claim received on 18/08/2022 –
1. for the house ₹ 1,00,000 in cash & a new house allotted to him (fair market
value of which is ₹ 44,00,000 on 18/08/2022);
2. for house-hold furniture ₹ 2,00,000; and
3. for stock ₹ 80,000.
Analyse –
 Tax-treatment under the head Capital gains.
 How shall your answer differ if such compensation is received by the
assessee on 15/04/2023. [7]

(b) Compute taxable income under the head Income from other sources of Mrs.
X from the following data:
Particulars Amount (₹)
Private tuition fee received 10,000
Winning from lottery 2,000
Award from KBC (a TV show) [Gross] 3,20,000
Pension from employer of deceased husband 25,000
Interest on bank deposit 25,000
Directors fee (Gross) 5,000
Letting out of vacant land 25,000
Remuneration for checking the examination copy of 10,000
employer’s school

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
Remuneration for checking the examination copy of CMA 10,000
Income tax refund 5,000
Interest on income tax refund 100
Composite rent (related expenditures are ₹ 5,000) 10,000
Rent on sub-letting of house property (rent paid to original 20,000
owner ₹ 12,000)
Income tax paid 2,000
Payment made for personal expenses 18,000
Payment made to LIC as premium 2,000
[7]
Answer:
(a) As the damage occurred due to accidental fire, such case is governed by the provision of
sec. 45(1A).
Computation of capital gain in the hands of Lucky for the A.Y. 2023-24
Particulars Workings Details (`) Amount (`)
Sale consideration of house ₹ 1,00,000 + ₹ 44,00,000 45,00,000
Less: Expenses on transfer Nil
Net sale consideration 45,00,000
Less: i) Indexed cost of ₹ 6,00,000 × 331/148 13,41,892
acquisition
ii) Indexed cost of improvement ₹ 3,00,000 × 331/200 4,96,500 18,38,392
Long Term Capital Gain 26,61,608
For Furniture: No capital gain liability arises as furniture is a personal asset of the assessee
and hence not a capital asset. Compensation received on loss of furniture shall be treated
as capital receipt and hence not liable to tax.
For Stock: Compensation received on loss of stock shall be liable to tax u/s 28. In the
given case, loss of ₹ 20,000 (₹ 1,00,000 – ₹ 80,000) shall be allowed under the head
“Profits & gains of business or profession”.
In case such compensation is received on 15/04/2023 then the capital gain of ₹ 26,61,608 as
computed above shall be taxable in the Assessment year 2024-25.

(b) Computation of income of Mrs. X under the head Income from other source for the A.Y.
2023-24:
Particulars Details (`) Amount (`)
Private tuition fee received 10,000
Casual income
Winning from lottery 2,000
Award from KBC (a TV show) [Gross] 3,20,000

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION

Pension 25,000
Less: Standard deduction
1) 1/3rd of amount received (i.e. ₹ 8,333)
2) ₹ 15,000 8,333 16,667
Interest on bank deposit 25,000
Director’s fee 5,000
Letting out of vacant land 25,000
Remuneration for checking the examination copy of Taxable as —
employer school Salary
Remuneration for checking examination copy of CMA 10,000
Income tax refund Not an income —
Interest on income tax refund 100
Composite rent 10,000
Less: Expenditure 5,000 5,000
Rent on sub-letting of house property 20,000
Less: Rent paid to original owner 12,000 8,000
Income from Other Source 4,26,767
Note: Payment of income tax and personal expenses is not deductible in any case.

5. (a) P, Q and R are partners in a firm sharing profits and losses in the ratio of
[Link], provide the following information. Find firm’s net income assuming
that salary and interest are not paid to partners:
i. Net income of the firm in assessment year 2022-23 is (-) ₹1,20,000, out
of which unadjusted depreciation is ₹40,000.
ii. On 31.05.2022, R retires from the firm and the other partners carry on
the same business.
iii. The firm’s income for the Assessment Year 2023-24 before adjusting
the aforesaid loss and depreciation is ₹1,20,000. [7]

(b) Mr. Todi is a member of HUF. It consists of Mr. Todi, Mrs. Todi, Mr. Todi’s
major son (Mr. A) & Mr. Todi’s minor son (B).
On 1/4/2021, Mr. Todi transferred his house property acquired through his
personal income to the HUF without any consideration.
On 1/7/2022, HUF is partitioned and such property being divided equally.
Net annual value of the property for the P.Y. 2021-22 is ₹80,000 & that for the
P.Y. 2022-23 is ₹ 1,00,000. Examine the tax treatment for both the years. [7]

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
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DIRECT AND INDIRECT TAXATION

Answer:
(a) Where a change occurs in the constitution of firm, on account of retirement or death of a
partner, the proportionate loss of the retired or deceased partner shall not be carried forward.
However, this section shall not apply in case of unabsorbed depreciation. Accordingly,
Computation of total income for A.Y. 2023-24
Particulars Details (`) Amount (`) Amount (`)
Income before adjusting brought forward loss 1,20,000
and depreciation
Less: Brought forward loss (excluding 80,000
unabsorbed depreciation)
Less: Loss which cannot be set off (Working) 30,000 50,000
Less: Unabsorbed depreciation 40,000 90,000
Total Income 30,000

Working: Computation of share of R in brought forward loss and loss which cannot be set
off
Particulars Amount (`)
Total unabsorbed brought forward loss 1,20,000
Less: Unabsorbed depreciation 40,000
Brought forward loss excluding depreciation 80,000
Share of R in aforesaid loss [(₹ 80,000 / 4) × 2] 40,000
Less: Share of R in current profit before adjusting brought forward loss 10,000
& depreciation [(₹ 1,20,000 / 12 × 2) × 2 / 4]
Loss which cannot be set-off 30,000

(b) Computation of income from house property in the hands of Mr. Todi for the A.Y. 2022-
23:
Particulars Details (`) Amount (`)
Net Annual Value (NAV) 80,000
Less: Standard deduction u/s 24(a) 30% of NAV 24,000
Income from house property 56,000
Tax treatment for the A.Y.2022-23: Since Mr. Todi transferred his house property
acquired out of personal income to his HUF without adequate consideration, therefore
income generated from such house property i.e. ₹ 56,000 shall be clubbed in hands of
Mr. Todi as per provision of sec. 64(2).

Tax treatment for the A.Y.2023-24: In the previous year 2022-23, partition took place on
1/7/2022; hence the treatment shall be as under:
Particulars Details (`) Amount (`)

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION

Net Annual Value (NAV) 1,00,000

Less: Standard deduction u/s 24(a) 30% of NAV 30,000
Income from house property 70,000
Income earned till partition from April’ 2022 to June’ 2022 i.e. ₹ 17,500 [(₹
70,000/12)×3] shall be clubbed in hands of Mr. Todi and income earned after partition
i.e. ₹ 52,500 [(₹ 70,000/12)×9] shall be divided among the family members. However, as
per provision of sec. 64(2) income of Mrs. Todi shall be clubbed in hands of Mr. Todi.
Particulars Mr. Todi Mrs. Todi Mr. A B
Income from house property before 17,500 - - -
partition clubbed in hands of Mr.
Todi as per sec. 64(2)
Share of Income from house 13,125 13,125 13,125 13,125
property ₹ 52,500/4
Income clubbed as per provision of + 13,125 (13,125) - -
sec. 64(2)
Income clubbed as per provision of + 13,125 - - (13,125)
sec. 64(1A) [Note 1]
Less: Exemption u/s 10(32) (1,500) - - -
Total income from house property 55,375 Nil 13,125 Nil
Note 1: It is assumed that Mrs. Todi has no other income.

6. (a) Analyse the basic reasons to impose taxation and also state the features of
Indirect Taxes. [7]

(b) Apply and state the constitutional provisions in relation to levy and collection
of goods and services tax in the course of inter-state trade or commerce.
Discuss whether the following supplies will constitute composite or mixed
supply:
(1) goods are packed and transported with insurance
(2) Food supplied to the in-patients as advised by the doctor/ nutritionist.
[7]
Answer:
(a) Basic Reasons to impose taxation:
 To provide basic facilities for every citizen of the country: Whatever money is received
by the government from taxation is spent by it for the welfare of the citizens of the
country. Some of the services provided by the government are: health care, electricity,
roads, education system, free houses for the poor, water supply, police, firefighters,
judiciary system, disaster relief, taking care of bridges and other things of public
welfare.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
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DIRECT AND INDIRECT TAXATION
 To finance multiple governments: All the local governments of the state like village
panchayats, block panchayats and municipal corporations receive funds from the
finance commission.
 Protection of the life: Taxpayers receive the protection of life and wealth from the
government in case of external aggression, internal armed rebellion or any other
situation.
The features of Indirect Taxes:
 Tax on goods and services: Indirect tax is levied at the time of supply or manufacture
or purchase or sale or import or export of goods. Further, it is also levied on supply.
 Burden: Tax, being indirect tax paid by the seller, shall be recovered by the seller from
the buyer. Thus, one can say that burden of indirect tax is shifted from seller to buyer
and ultimately borne by consumers of such goods or services.
 Inflationary in nature: Cost of goods and services increases due to levy of indirect tax
thus indirect taxes promote inflation.
 Social welfare: It is useful tool to promote social welfare by checking the consumption
of harmful goods or sin goods through higher rate of tax.
 Wider Tax Base: Majority of goods and services are liable to indirect tax with very low
threshold limits, so tax base is much wider in case of indirect tax in compare to direct
tax.
 Regressive in Nature: All persons (rich or poor) will bear equal wrath of tax on goods
or service consumed by them irrespective of their ability. In other words, indirect tax
does not create any difference between rich and poor. Poor people are also required to
pay equal percentage of tax on certain goods and service of mass consumption. Thus,
it may increase the disparities between rich and poor.
 No pinch: Seller (the person on which indirect tax is levied) does not perceive a direct
pinch of tax as it is recovered by him from the buyer and then he is paying to the
Government. On the other hand, since it is inbuilt in the price of the goods, the ultimate
payer (i.e., buyer) pay it without knowing that he is paying any tax to the Government.

(b) Levy and collection of goods and services tax in the course of inter-state trade or commerce:
1. Goods and services tax on supplies in the course of inter-State trade or commerce shall
be levied and collected by the Government of India and such tax shall be apportioned
between the Union and the States in the manner as may be provided by Parliament by
law on the recommendations of the Goods and Services Tax Council.
Supply of goods, or of services, or both in the course of import into the territory of India
shall be deemed to be supply of goods, or of services, or both in the course of inter-
State trade or commerce.
2. The amount apportioned (as aforesaid) to a State shall not form part of the Consolidated
Fund of India.
3. Where an amount collected as IGST has been used for payment of the SGST (or vice
versa), such amount shall not form part of the Consolidated Fund of India.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
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DIRECT AND INDIRECT TAXATION
4. Parliament may, by law, formulate the principles for determining the place of supply,
and when a supply of goods, or of services, or both takes place in the course of inter-
State trade or commerce.

Taxability of the following services:

(1) goods are packed and transported with insurance: the supply of goods, packing
materials, transport and insurance is a composite supply and supply of goods is a principal
supply.
(2) Food supplied to the in-patients as advised by the doctor/ nutritionist: It is a part of
composite supply of health care and not separately taxable”. Further supplies of food by
hospital to patients (not admitted) or their attendants or visitors are taxable.

7. (a) Ram & Co. being a trader of cell phones registered under GST in the State of
Tamil Nadu and furnished the following information relating to preceding
financial year:
Particulars Value (` in lakhs)
Intra-State supply of taxable goods 120
Intra-State supply of exempted goods 10
Intra-State Supply of taxable services 5
Intra-State supply of exempted services 3
Interest earned on deposits/loans/advances 15.50

Examine whether Ram & Co. is eligible for composition scheme in the current
financial year? [7]

(b) Following are the particulars, relating to one of the machine sold by S Ltd. to
A Ltd. in the month of February 2023 at list price of ₹ 8,50,000. (exclusive of
taxes and discount) Further, following additional amounts have been charged
from ACD Ltd:
Sl. No. Particulars ₹
(i) Municipal taxes chargeable on the machine 55,000
(ii) Outward freight charges (Contract was to deliver 75,000
machine at A Ltd.’s factory i.e. F.O.R. contract)

Additional information:
1. S Ltd. normally gives an interest-free credit period of 30 days for
payment, after that it charges interest @ 1% p.m. or part thereof on list

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
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DIRECT AND INDIRECT TAXATION
price. A Ltd. paid for the supply after 45 days, but S Ltd. waived the
interest payable.
2. S Ltd. received ₹ 50,000 as subsidy, from one non-government
organization (NGO) on sale of such machine. This subsidy was not linked
to the price of machine and also not considered in list price of ₹ 8,50,000.
3. A Ltd. deducted discount of ₹ 15,000 at the time of final payment, which
was not as per agreement.
4. S Ltd. collected ₹ 8,500 as TCS (tax collected at source) under the
provisions of the Income Tax Act, 1961.
Compute the value of taxable supply as per the provision of GST laws,
considering that the price is the sole consideration for the supply and both
parties are unrelated to each other. [7]

Answer:
(a) Aggregate turnover of Ram & Co. of Ram & Co. in the preceding financial year:

Particula Value (` in lakhs) Remark

rs
Intra-State supply of taxable goods s aggregate turnover
120 Addable into the
Intra-State supply of exempted goods 10 -do-
Intra-State Supply of taxable services 5 -do-
Intra-State supply of exempted services 3
Interest earned on deposits/ loans/ Nil Not addable into the aggregate
advances turnover
Aggregate turnover 138 Not exceeded `150 lakh.

Value of services not exceeded 10% of turnover or `5,00,000 whichever is higher: Value of
taxable output supply of service = `5 lakh
Add: value of exempted output supply of service = `3 lakh
Total value of services = `8 lakh
Supply of service as % on turnover = (`8 lakh / `138 lakh) x 100 = 5.80%
Permissible limit:
10% of turnover = `13.80 lakh (i.e. `138 lakh x 10%)
w.e.f 1-8-2019, Interest earned on deposits/loans/advances shall not be taken into account
for determing the value of turnover in a State or UT.
Or,
`5 lakh
Whichever is higher
Therefore, the value of service up to ` 13.80 lakh can be supplied by Ram & Co.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
In the given case supply of services (excluding interest earned on deposits/loans/advances) did
not exceed the permissible limit and hence, Ram & Co. is eligible for composition scheme in
the current financial year.

(b) Computation of taxable value of supply:

Particulars ₹
List Price (exclusive of tax and discount) 8,50,000
Municipal taxes chargeable on the machine [Only GST is required to 55,000
be excluded]
Outward freight charges (Contract was to deliver machine at A Ltd.’s 75,000
factory i.e. F.O.R. contract)
Interest on delayed payment [as the same is waived by S Ltd.] -
Receipt of subsidy from NGO [as it is not directly linked with the -
machine]
Discount [as it is post supply discount] -
TCS [as it is an interim levy not having the characteristics of tax] -
Taxable value of supply 9,80,000

8. (a) Compute the input tax credit available with MS Motors Ltd., manufacturer
of cars, in respect of the following services availed by it in the month of
October, 2022:
Sl. No. Particulars Amount
1. Accounting and Auditing Services 17,200
2. Health insurance services for employees (Services are 6,200
not provided under Government obligation)
3. Routine maintenance of the cars manufactured by MS 28,000
Motors Ltd.
4. Repair services for office building (Cost of repairs is 28,400
charged to Profit & loss Account)
5. Hotel accommodation and conveyance facility to 13,360
employees on vacation
6. Testing services availed for car engines 19,000
[7]
(b) XYZ Industries Ltd., has imported certain equipment from Japan at an FOB
cost of 4,00,000 Yen (Japanese). The other expenses incurred by M/s. XYZ
Industries in this connection are as follows:

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
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DIRECT AND INDIRECT TAXATION
 Freight from Japan to Indian Port 40,000 Yen
 Insurance paid to Insurer in India ₹ 20,000
 Designing charges paid to Consultancy firm in Japan 60,000 Yen
 M/s. XYZ Industries had expended ₹ 2,00,000 in India for certain
development activities with respect to the imported equipment
 XYZ Industries had incurred road transport cost from Mumbai port to
their factory in MP ₹ 1,30,000
 The CBIC had notified exchange rate of 1 Yen = ₹ 0.69. The interbank
rate was 1 Yen = ₹ 0.70
 M/s XYZ Industries had effected payment to the Bank based on
exchange rate 1 Yen = ₹ 0.71
 The commission payable to the agent in India was 5% of FOB cost of the
equipment in Indian Rupees.
Compute the assessable value. [7]

Answer:
(a) Computation of Input tax credit available with MS Motors Ltd.:
Sl. No. Particulars Amount (`)
1. Accounting and Auditing Services 17,200
2. Health insurance services for employees (Services are not Nil
provided under Government obligation)
3. Routine maintenance of the cars manufactured by MS 28,000
Motors Ltd.
4. Repair services for office building (Cost of repairs is 28,400
charged to Profit & loss Account)
5. Hotel accommodation and conveyance facility to Nil
employees on vacation
6. Testing services availed for car engines 19,000
Total credit available 92,600

(b) Computation of assessable value of goods for customs purpose:

Particulars Amount in Yen
Free on Board (FOB) 4,00,000
Designing charges 60,000
Development charges [as it is post shipment expenses] —
Road transport charges [as it is post shipment expenses] —

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 7 SYLLABUS 2022
DIRECT AND INDIRECT TAXATION
Commission [4,00,000 x 5%] 20,000
FOB value of the Customs 4,80,000
Amount in ₹
FOB value of the Customs [by using exchange rate of the CBIC] 3,31,200
[4,80,000 x 0.69]
Insurance 10,000
Freight [40,000 x 0.69] 27,600
Total CIF value/ Assessable Value 3,68,800

20
Directorate of Studies, The Institute of Cost Accountants of India
 SUGGESTED ANSWERS TO QUESTIONS

1.(a) 1X10=10 Marks

(i) (A)
(ii) (A)
(iii) (C)
(iv) (A)
(v) (B)
(vi) (D)
(vii) (B)
(viii) (A)
(ix) (C)
(x) (D)

1.(b) 1X5= 5 Marks

(i) (E)
(ii) (D)
(iii) (A)
(iv) (B)
(v) (C)

1.(c) 1X5= 5 Marks

(i) True.
(ii) False.
(iii) False.
(iv) True.
(v) False.

1.(d) 1X5= 5 Marks

(i) Rs.5,00,000
(ii) Rs.1,500
(iii) 25%
(iv) Rs.1,50,000
(v) Rs.7,500

Any five from Questions No. 2 to 8

2. (a) 2+2+4=8 Marks

(i) His status is resident and ordinarily resident.

(ii) His status would be non-resident.
(iii) His status is resident but not ordinarily resident.

2.(b) 7 Marks
Income from house property:
House 1 – Rs. 70,000
House 2 – Rs. 60,000
House 3 – Rs. (1,000)
1
3 (a) 7 Marks
Gross Salary income Rs. 14,48,800
Net salary income Rs. 13,98,800

3.(b) 8 Marks
Deciding whether agricultural income or not
(i) Salary from company engaged in rubber plantation is not agricultural income as the salary
income does not have direct nexus to basic or subsequent operations involved in agriculture
(ii) Royalty income from coal mines is not agricultural income as royalty is computed on the output
of coal taken out of the mine. There is no specific effort in creating the mine.
(iii) Income from poultry farming is not agricultural income as it has no component of basic or
subsequent operations with regard to land or the plants /trees.
(iv) Income by way of rent from land used for grazing of cattle is an agricultural income. As the land
was specifically used for growing grass.
(v) Income from nursery is income from agriculture as the activity involved is systematic
performance for sowing seeds and growing saplings in a specified environment.
(vi) Rent from farm house which is located in the midst of land is part and parcel of agricultural land
and therefore it is agricultural income.
(vii) Compensation received from insurance company for crops damaged by cyclone is in lieu of
agricultural income and therefore it partakes the character of income from agriculture.
(viii) Purchase of standing crops and profit on sale of crops so cut off from the plants is not agricultural
income.

4.(a) 7 Marks
Long term capital gain Rs. 10,79,545

4.(b) 8 Marks
Deduction under Chapter VI-A
(i) As per section 80EEA interest on moneys borrowed for acquisition of residential house by a
resident taxpayer is eligible for extra deduction of Rs.1,50,000 in addition to Rs.2,00,000
allowable under section 24.
Borrower Rahul bought first residential house but the cost of the property is more than Rs.45
lakhs. Out of total interest of Rs.2,40,000 after claiming deduction of Rs.2,00,000 under section
24 the balance of Rs.40,000 is not eligible for claiming deduction under section 80EEA.
(ii) As per section 80EEB in the case of individual who has taken loan from financial institution for
purchase of electric vehicle, interest on loan is eligible for deduction up to a maximum of
Rs.1,50,000.
In this case interest payable on the loan is Rs.1,70,000. The assessee hence can avail deduction
of Rs.1,50,000 under section 80EEB.
(iii) Amount contributed to electoral fund Rs.5 lakhs is eligible for deduction under section 80GGB
in the case of Indian companies.
The amount of expenditure by way of advertisement in a brochure of a political party Rs.90,000
is not eligible for deduction in view of section 37(2B).
However, the said amount is eligible for deduction under section 80GGB. Thus, the both the
payments are deductible under section 80GGB.
(iv) As per section 80JJA profits and gains derived from the business of collecting and processing or
treating of bio-degradable waste is eligible for deduction @100% for first 5 assessment years
beginning with the assessment year in which the business commences.
2
 Therefore, 100% of the income so included from the said activity in the gross total income
Everest (P) Ltd is eligible for deduction.

5.(a) 7 Marks
Computation of depreciation and additional depreciation for the A.Y.2022-23
Particulars Depreciation Addl. Depreciation

Plant & Machinery 3,75,000 80,000

On Rs.8 lakhs @ 10%
Plant & Machinery 75,000 1,00,000
On Rs.10 lakhs @ 10%
Furniture & Fittings 20,000 Nil
Building 2,49,000 Nil

5.(b) 8 Marks
Total Income Rs. 14,84,000 (or) Rs. 13,85,000

6. 15 Marks
Computation of total income of Ashok for the Assessment Year 2022-23
Rs.
Income from house property 1,89,000
Income from Business 5,37,000
Capital gains 37,000
Income from Other Sources 1,300
Gross Total Income 7,64,300
Less: Deduction under Chapter VI-A 1,55,000
Total Income 6,09,300

7.(a) 7 Marks
Total Income Rs. 4,48,000
7.(b) 8 Marks
Computation of the quantum of tax deductible at source
(i) The quantum of tax deductible at source on this income when opted section 115BAC by the
employee is Rs.23,400.
(ii) Tax is deductible at source @ 10% being Rs.6,000 as the amount exceeds Rs.5,000.
(iii) As per section 194A tax is deductible at 10% being Rs.1,500.
(iv) Payment of interest on housing loan to a bank is not liable for tax deduction at source. This is
irrespective of whether the payer of interest is engaged in business or not.
(v) TDS @ 1% is deductible on Rs.37,000 as the contract value exceeded Rs.30,000. The TDS
amount being Rs.370. In respect of the balance amount of Rs.53,000 no tax is deductible at
source.
(vi) The amount of commission paid is less than Rs.15,000. Therefore, no tax is deductible at source.
(vii) As the gross receipt from profession is less than Rs.50 lakhs no tax is deductible at source on
payment of rent by Dr.Q even though it exceeds the monetary limit of Rs.2,40,000.
(viii) As the purchase value of immovable property exceeds Rs.50 lakhs tax is deductible at source @
1% on the total amount of consideration being Rs.55,000.

3
 Any Three of the following:

8.(a) 5X3= 15 Marks

Clubbing of income of minor child
In computing the total income of an individual, there shall be included all such income as arises or accrues
to his minor child (except those which are earned through their personal skill, talent etc). Therefore, the
income of a minor child is to be clubbed in the hands of either of his / her parents.
Minor’s income shall be clubbed in the hands of that parent whose total income (excluding the income of
the minor) is greater.
If the marriage of his parents does not subsist, the minor’s income shall be clubbed in the hands of that
parent who maintains the minor child in the previous year.
Where any income is once included in the total income of either parent, any such income arising in any
succeeding year shall not be included in the total income of the other parent unless the Assessing Officer
is satisfied.
However, for changing the clubbing of minor’s income with the other parent the Assessing Officer can do
so only after giving an opportunity of being heard to the other parent.
8.(b)
Deemed owner under House Property
1. Transfer to a spouse: If an Individual transfers any house property to his/her spouse for Inadequate
consideration, such transferor is deemed to be the owner of the transferred House property.
2. Transfer to Minor Child: If an Individual transfers any house property to minor child for inadequate
consideration, transferor is deemed to be the owner of transferred house property.
3. Holder of an Impartible estate: Holder of an Impartible estate (Impartible estate is a property which is
not legally divisible) shall be deemed to be owner of all properties comprised in the estate.
4. Member of a Co-operative Society, etc: Member of a co-operative society, company or other AOPs to
whom a building or part thereof is allotted or leased under a House Building Scheme of a
society/company/association, shall be deemed to be owner of that building or part thereof allotted to him
although the co-operative society/company/association is the legal owner of that building.
5. Person in possession of a property: A person who is allowed to take possession of any building or part
thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of
Property Act shall be deemed owner of that house property.
6. Person having right in a property by way of lease for 12 years or more: A person who acquires any
building by way of lease for a period of 12 years or more shall be deemed to be the owner of that building
or part thereof.
8.(c)
Capital gain on transfer of depreciable assets
As per ‘block asset’ concept, group of assets falling within a class of assets for which same rate of
depreciation is prescribed under the Act are grouped (section 2(11)). These assets are eligible for
depreciation as per section 32.
Block asset concept is applicable both for tangible and intangible assets. Only condition for inclusion in
the block asset is that it should be a depreciable asset for which rate of depreciation is prescribed in the
Income-tax Rules,1962.
Where the entire block of depreciable assets are transferred and the block ceases to exist: If the net sale
consideration is more than the opening WDV of the block of assets plus actual cost of assets falling within
that block of assets acquired during the previous year, the resultant is taxable as short-term capital gain.

4
 When depreciable assets are sold and the block continues to exist: If the net sale consideration is more
than the opening WDV of block of assets plus actual cost of assets falling within that block of assets
acquired during the previous year, then also the surplus is taxed as short-term capital gain. However, the
remaining assets of the block would continue to exist at ‘nil’ value.
Where depreciable assets are sold and the block continues to exist: If the net sale consideration is less than
the opening WDV of block of assets plus actual cost of assets falling within that block of assets acquired
during the previous year, when the block continues to exist (with assets), the remaining WDV (after
deduction of net sale consideration) would be eligible for depreciation.
Where entire block of depreciable assets is transferred i.e. the block ceases to exist: If the value of net sale
consideration is less than the opening WDV of block of assets plus actual cost of assets falling within the
block of assets acquired during the previous year, the deficiency will be short-term capital loss.
The sale consideration less expenditure incurred for realising the sale consideration being net sale
consideration would be adopted for comparing the opening WDV + actual cost of asset falling within the
block of assets during the previous year.
8.(d)
Best judgment assessment under section 144
When an assessment is made by the Assessing Officer to the best of his judgment after considering all
relevant materials which he has gathered, it shall be called as best judgment assessment or ex-parte
assessment.
The Assessing Officer cannot reduce the tax liability of the assessee by best judgment assessment under
this section.
Also, a refund cannot be granted in an order passed under section 144.
It is not the discretionary power of the Assessing Officer to make an assessment under this section. The
Assessing Officer is under an obligation to make an order taking note of the materials available on record.
If a person fails to make a return under section 139 or in response to notice under section 142(1) or fails to
comply with the directions issued under section 142(2A), a best judgment assessment could be made.

_______________________________

5
 SUGGESTED ANSWERS TO QUESTIONS

INTERMEDIATE EXAMINATION

GROUP – I

(SYLLABUS 2016)

DECEMBER – 2021

Paper - 7 : DIRECT TAXATION

Time Allowed : 3 Hours Full Marks : 100

Section : A MCQ 20X1= 20 Marks

Q.1 When Rs.4 lakh is paid by resident Mr. X (having PAN) towards overseas tour program, how much must be
collected by the tour operator by way ofTCS?

Ans 1. @ 20% Rs.80,000

2. @ 10% Rs.40,000

3. @ 0.50% Rs.2,000

4. @ 5% Rs.20,000

Q.2 When a member of AOP receives share income it is exempt from tax when

Ans 1. When shares of members in the AOP is determinate.

2. AOP paid tax at the maximum marginal rate

3. When AOP does not pay tax.

4. AOP paid tax at the regular rates

Q.3 When the resident individual has total income of Rs.60 lakhs, the rate of surchargeapplicable is

Ans 1. 10%

2. 15%

3. 37%

4. 25%

Q.4 When a company opts for section 115BAB for the assessment year 2021-22, the maximum rate of depreciation
allowable for the eligible assets owned by it is

Ans 1. NIL

2. 40%

3. 30%

4. 15%

Q.5 R gifted his house property to his married minor daughter. The income from suchhouse property shall be included
in the hands of:

Ans 1. it will be first computed as minor daughter's income and clubbed in the income of the R or Mrs R
depending upon whose total income is higher.

2. income of married minor daughter

3. R as deemed owner
4. R. However, it will be first computed as minor daughter's income and then clubbed in the income of R
Q.6 When an employee receives Rs.18,700 from the employer by way of reimbursement of medical expenditure
incurred by him for his family, the amount liable for inclusion by way of perquisite is:

Ans 1. Rs.18,700

2. Rs.15,000

3. Rs. 3,700

4. NIL

Q.7 Gift of money amounting to Rs.2,00,000 given in India by a resident on 16.08.2020 to a non-resident (non-relative)
shall be:

Ans 1. taxable to the extent of Rs.1,50,000

2. exempt

3. be fully taxable in the hands of the resident

4. fully taxable in the hands of non-resident

Q.8 In the case of charitable trust registered under section 12AA when the amount of anonymous donation received is
Rs.20 lakhs, the quantum of anonymous donation liable to tax would be:

Ans 1. Rs.1 lakh

2. Rs.19 lakhs

3. Rs.20 lakhs

4. Nil

Q.9 Where a part of the block of asset is sold for a price less than the opening W.D.V. plus cost of assets, if any,
acquired during the year, the balanceamount shall be treated as:

Ans 1. Terminal/balancing depreciation

2. None of the given options

3. W.D.V for the purpose of charging current year deprecation

4. short-term capital loss

Q.10 The following income shall be exempt under Section 10(23FC) of Income tax Act, 1961:
1. Interest received from special purpose vehicle
[Link] received or receivable from a special purpose vehicle
Ans 1. Both 1 and 2
2. 2 only

3. Neither 1 nor 2

4. 1 only

Q.11 What is the monetary limit for transactions between eligible holding company and subsidiary company to trigger
the provisions of specified domestic transactions?

Ans 1. Rs.200 lakhs

2. Rs.500 lakhs

3. Rs.2000 lakhs

4. Rs.100 lakhs
Q.12 A business loss can be curried forward and set off in the subsequent assessment year when the business on
account of which this loss has arisen:

Ans 1. None of the given options

2. is continued for any part of the previous year

3. is continued or not

4. is continued in the assessment year in hick the such loss is set off

Q.13 Alternate Minimum Tax is applicable in case of

Ans 1. individual or HUF

2. Firm and individual

3. any person other than a company

4. firm and a company

Q.14 Suresh incurred Rs.90,000 by way of salary paid to employees which has not been accounted for in the business.
The amount of income-tax payable on such salary (Ignore HEC but consider surcharge) is:
Ans 1. NIL
2. None of the given options
3. Rs.67,500
4. Rs.54,000

Q.15 While computing the capital gains, an eligible assessee is allowed to opt formarket value as on 1.4.2001 in case of:

Ans 1. all capital assets other than depreciable assets, goodwill of a business, trademark or brand name, right to
manufacture, right to carryon any business or profession tenancy rights, loom hours and route permits.

2. all capital assets other than depreciable asset

3. None of the given options

4. all capital assets

Q.16 An undertaking was owned and operated for 28 months before it was sold on slump sale basis. Land and building
form part of its assets. The resultant gainwould be

Ans 1. Short-term capital gain

2. Exempted income

3. Long-term capital gain

4. Business income

Q.17 An award of Rs. 1,00,000 was announced for tracing a missing person. R traced the person and received the award
amount. In the hands of R, suchreceipt shall be:

Ans 1. exempt upto Rs. 50,000

2. casual income

3. fully taxable

4. fully exempt
Q.18 Which of the following propositions are correct for availing deduction undersection 80-IAC:
1. 80-IAC provide for a deduction of an amount equal to 100% of the profits or gains derived from an eligible start-
up for 3 consecutive assessment years outof 10 years beginning from the year of incorporation.
2. The deduction shall be available to an eligible start-up, if the total turnover of its business does not exceed Rs.
25 crores in any of the previous years beginning from the year of incorporation

Ans 1. 1 only

2. Neither 1 nor 2

3. 2 only

4. Both 1 and 2

Q.19 Ram commenced construction of residential building on 01.04.2015. Interest on housing loan up to 31.03.2020 was
Rs.4,40,000. Interest for the period from 01.04.2020 to 30.09.2020 (being the date of completion of construction of
the residential house) was Rs.60,000. Interest for the period from 01.10.2020 to 31.03.2021 amounts to Rs.50,000.
How much is the interest eligible for deduction under section 24 for the assessment year 2021-22 for this let out
property?

Ans 1. Rs.1,50,000

2. Rs.1,98,000

3. Rs.5,00,000

4. Rs.1,00,000

Q.20 A company makes regular payment of brokerage to a person for purchase ofraw material. When does the company
become liable to deduct tax at sourceon such brokerage?

Ans 1. When the aggregate brokerage paid or payable exceeds Rs.50,000

2. When the aggregate brokerage paid or payable exceeds Rs.15,000

3. When the brokerage payable exceeds Rs.10,000

4. When the aggregate brokerage paid exceeds Rs.30,000

 Section : B SAQ 20X1= 20 Marks

Q.1 Maintenance of specified books of accounts compulsory if gross receipts in all three preceding PY exceeds
in case of persons carrying on the profession of technical consultancy.

Answer: Rs.1,50,000

Q.2 Compensation received under Voluntary Retirement Scheme by an individual shall be regarded as while
computing the income under the head “Salaries”.

Answer: Profit in lieu of salary

Q.3 The rate (excluding surcharge and Cess) of tax applicable on the total incomeof local authority is .

Answer: 30%

Q.4 A surgeon (doctor) has aggregate annual receipt of Rs.48 lakhs (Rs 20 lakhs through cash and rest through bank)
for the year ended 31.03.2021. His presumptive income under section 44ADA is Rs. .

Answer: Rs. 24 lakhs

Q.5 When a partnership firm pays salary to working partners of Rs.6 lakhs whenthe partnership deed permits payment of
Rs.5,40,000. The Book profit of the firm is Rs. 6,00,000. The quantum of remuneration allowable in the hands of firm
will be .
Answer: Rs. 4,50,000

Q.6 An agricultural land situated beyond from the limits of municipality is not regarded as a capital asset, even though
the population of municipality asper the last preceding census exceeds 1 lakh but less than Rs.10 lakhs.

Answer: 6 Kms

Q.7 When the assessment under section 143(3) is made on 10th December, 2020 by the National Faceless Assessment
Centre (NFAC), the time limit for filing petition for rectification of mistake under section 154 would expire by
(date).

Answer: 31.3.2025

Q.8 When a senior resident individual incurs medical expenditure of Rs.60,000 towards cataract surgery to his mother
(super senior citizen) the amount eligible for deduction under section 80-D is if there is no health
insurance policy coverage for her.

Answer: Rs. 50,000

Q.9 In case of a capital asset, being land or building or both, the fair market value of such asset on 1-04-2001 shall not
exceed the of such asset as on 1-04-2001 where such stamp duty value is available.

Answer: Stamp duty value

Q.10 Royalty of Rs.100 lakhs was paid outside India to Andrew, a non-resident for sale of his cinematographic films; if
such films are to be telecasted in IndianTV channels then the said amount shall be (taxable/exempt/ partially
taxable) in the hands of Andrew
[ Answer: Taxable
 Q.11 Mr. Veer, a salaried employee made own contribution to the National Pension cheme of Rs.50,000 when his basic
salary and DA in the previous year is Rs.480,000. Where the employer contribution is Nil, then he is eligible for a maximum
deduction of Rs. under section 80CCD (1).
Answer: Rs.48,000

Q.12 Loss from speculation business is eligible for carry forward and set off for subsequent assessment years

Answer: 4

Q.13 When an Indian company earns Rs.20 lakhs by way of income from transfer of carbon credits, the rate of tax
applicable on such income would be %(ignore surcharge and cess)

Answer: 10

Q.14 Person authorized to verify the Return of Income [Section 140] for Political party is of such party

Answer: The chief executive officer

Q.15 Mr. A, a resident individual has sold his vacant site to his friend Mr. B, for Rs. 60,00,000. The stamp duty valuation of
the house is Rs. 62,00,000. Theamount assessable as income in the hands of Mr. B is as per section 56(2)(viib) of
Income tax Act, 1961.

Answer: Nil

Q.16 Mr. A, a senior citizen (Resident), having total income of 8 lacs, earned by way of interest from secured debentures.
The advance tax payable by him isRs.
Answer: Nil

Q.17 When the actual rent is (per annum) Rs.72,000, fair rent is Rs.96,000 and standard rent is Rs.84,000 and no property
tax has been paid, the chargeable income from house property is Rs.

Answer: Rs. 58,800

Q.18 In case of assessee who has securities partly in physical form and partly in dematerialized form, FIFO method will
be applied in respect of the
.
Answer: Dematerialized holding

Q.19 When a domestic company deriving business income pays Rs.30,000 to an approved institution engaged in
scientific research it is eligible for deductionof % under section 35 of Income tax Act,1961.

Answer: 100%

Q.20 When fees for cost audit paid to a resident was Rs.40,000, the amount of income-tax deductible at source on
the said amount would be
Answer: Rs.4,000
 Section : C
(4X12 = 48 Marks)
One LAQ

Q.1 8 Marks

Answer:
Depreciation allowable to Mr. P :

Building = Rs. 23,205

Furniture = Rs. 3,315

Plant & Machinery = Rs. 29,934

Depreciation allowable to successor company, Sridhar & company Ltd :

Building = Rs. 11,795

Furniture = Rs. 1,685

Plant & Machinery = Rs. 56,316

 4 Marks
Q.2 Mr. X gifts Rs. 1 Lakh to his wife Mrs. X on 1st April, 2020 which she lends to a firm at interest rate of 14% p.a. On
1st Jan 2021, Mrs. X withdraws the money and gifts it to her son’s wife D. She claims that interest which has
accrued to D, her daughter- in-law, from January 1, 2021 to March 31, 2021 on investment made by D is not
assessable in her hands but in the hands of Mr. X. Is this correct?
What would be the position, if Mrs. X has gifted the money to minor grandson,
instead of the daughter-in- law?

Answer:

Applicability of clubbing provisions

(i) Yes, the statement of Mrs. X is correct.
Section 64(1) provides that in computing the total income of any individual, there shall be clubbed all such
income as arises directly or indirectly to the son’s wife, of such individual, from assets transferred directly
or indirectly to the son’s wife by such individual otherwise than for adequate consideration.

(ii) There is an indirect transfer by Mr. X to the daughter-in-law & therefore, the interest income shall be clubbed
with income of Mr. X.

(iii) If Mrs. X had gifted the money to her minor grandson, then the interest income arising to the minor shall be
clubbed u/s 64(1A) in the total income of that parent (son/daughter-in-law) whose total income (before
including such income) is higher.
 Two LAQ

Q.1 The total income of Mr. M is Rs. 10 lakhs. In this income, Rs. 50,000 was earned by way of Interest on which the 3 Marks
payer of Interest deducted tax at source @ 10% (Rs. 5,000). He paid Advance Tax of Rs. 25,000 in different
installments. TCS collected atsource was Rs. 10,000.
Calculate the self-assessment tax to be paid under section 140A at the time of filingthe Return of income.

[Note: Compute the tax as per old regime.]

Answer:
Self-assessment tax payable u/s 140A = Rs. 72,500.

Q.2 5 Marks

Answer:
Capital gain :
Exemption under section 54F = Rs. 34,68,335
Taxable long-term capital gain = Rs. 86,70,839

Q.3 Track the importance of furnishing the Return of Loss with special reference to theprovisions of section 80 read 4 Marks
with section 139(3).

Answer:
Importance of Return of income as per section 139(3)
[Link] is required to be furnished if a person wants to carry forward his losses.
[Link] any person has sustained any loss in PY & he wants to carry forward following losses:

 Normal business loss u/s 72(1);

 Speculation business loss u/s 73(2);

 Loss from specified business u/s 73A(2);

 Loss u/h “Capital Gains” u/s 74(1);

 Loss from the activity of owning & maintaining race horses u/s 74A(3); he shall
mandatorily furnish a ROL within the time prescribed u/s 139(1) to carry forward loss.

[Link] 139(3) r/w sec. 80 require the assessee to file ROL in same manner as that of ROI within the time
allowed u/s 139(1) & all the provisions of this Act shall apply to ROL as if it is a ROI u/s 139(1).

Note: It is not mandatory to file ROI (Except in case of Company/Firm) as there is No Income.
 Three LAQ

Q.1 Mr. Santhosh sold his residential house property at Vadodara in Dec, 2019. In June, 2020, he recovered rent of Rs.25,000
from Mr. Ramesh, to whom he had let out his house for two years from May 2015 to April 2017. He could not realise two
months rent of Rs.50,000 from him and to that extent his actual rent was reduced while computing income from house
property for A.Y.2016-17.
Further, he had let out his property from June 2017 to Oct 2019, 2020 to Mr. Satish. In April, 2018, he had increased
the rent from Rs.12,000 to Rs.15,000 per month and the same was a subject matter of dispute. In November, 2020, the
matter was finallysettled and Mr. Santhosh received Rs.99,000 as arrears of rent for the period June 17 to October
2019.
Would the recovery of unrealised rent and arrears of rent be taxable in the hands ofMr. Santhosh, and if so, in which
year? He spent Rs.19,000 towards lawyer fees for collecting the arrears of rent.
4 Marks
Answer:
Taxability of unrealised rent recovered and arrears of rent
Since the unrealised rent was recovered in the P.Y. 2020-21, the same would be taxable in the A.Y. 2021-22
under section 25A, irrespective of the fact that [Link] was not the owner of the house in that year.
Further, the arrears of rent was also received in the P.Y. 2020-21, and hence the same would be taxable as
income from house property in the A.Y. 2021-22 under section 25A, even though [Link] was not the
owner of the house in that year. A deduction of 30% of unrealised rent recovered and arrears of rent would be
allowed while computing income from house property of [Link] for A.Y. 2021-22.
Computation of income from house property of Mr. Santhosh for A.Y. 2021-22

Particulars Rs.
(i) Unrealised rent recovered 25,000

(ii) Arrears of rent received 99,000

1,24,000

Less: Deduction @ 30% 37,200

Income from house property 86,800

Note: Any other charge other than standard deduction is not allowed as deduction. Lawyer fees paid is hence
not deductible.

8 Marks
Q.2

Answer:
Total income if the assessee is ordinary resident = Rs. 20,92,000

Total income if he is not an ordinary resident = Rs. 11,92,000

Total income if he is non-resident = Rs. 11,92,000
 Four LAQ

Q.1 What are the conditions to be satisfied for issuing notice of demand u/s 156 requiring the assessee to pay advance tax 4 Marks
and when can it be passed by theAssessing Officer?

Answer:

Conditions for seeking advance tax from taxpayer by the AO

The A.O. may pass an order and issue a notice of demand u/s 156 requiring the assessee to pay advance
tax.
Conditions to be satisfied for issuing such order
• The assessee has already been assessed by way of a regular assessment in any previous year.
• The Assessing Officer is of opinion that such person is liable to pay advance tax.
• Such order can be passed at any time during the financial year but not after last day of February.
• Such order must be made in writing.
• Such order also specifies the amount of advance tax and the installments thereof to be paid by the
assessee.
Note: Such order can be issued even if assessee has paid any installment of advance tax during the year,
which is, in the opinion of the Assessing Officer, not as per the provision of sec. 211.

Q.2 Mr. Madavan (aged 35 years), a resident individual, is a dealer of garments. During the previous year 2020-21, total
5 Marks
turnover of his business was Rs. 135 lakhs (out of which Rs. 22.5 lakhs were received by way of account payee
cheques and balance in cash). Mr. Madavan does not opt to pay tax as per the provisions of section 115BAC. What
would be your advice to Mr. Madavan relating to the provisions of advance tax with its due date, along with the
amount payable, assuming that he wishes to make maximum tax savings without getting his books of account
audited.
Answer:
Computation of advance tax of [Link] under Presumptive Income scheme as per section 44AD
The total turnover of Mr. Madavan, a dealer of garments, is Rs. 135 lakhs. Since his total turnover
from such business is less than Rs. 200 lakhs and he does not wish to get his books of account
audited, he can opt for presumptive tax scheme under section 44AD.
Profits and gains from business under section 44AD = Rs. 10,35,000

An eligible assessee opting for computation of profits and gains of business on presumptive basis
under section 44AD in respect of eligible business is required to pay advance tax of the whole
amount on or before 15th March of the financial year.
Tax liability of Mr. Madavan as per normal provisions of Income-tax Act, 1961 = Rs. 1,27,920

Accordingly, he is required to pay advance tax of Rs. 1,27,920 on or before 15th March of the financial
year. However, any amount by way of advance tax on or before 31st March of the financial year shall
also be treated as advance tax paid during the financial year ending on that day for all the purposes of
the Act.
Q.3 Compute capital gain in the individual cases: 3 Marks

(i) A listed equity share is acquired on 1st of March, 2017 for Rs.150, its fair market value is Rs.270 on 31st March,
2018 and it is sold on 31st of August, 2020 in a recognised stock exchange for Rs. 70.

(ii) A listed equity share is acquired on 1st of May, 2018 for Rs.230, its fair market value is Rs.450 on 31st of March,
2019 and it is sold on 1st of April, 2021 in a recognised stock exchange for Rs.400.

Answer:
Computation of capital gains

(i) In this case, the actual cost of acquisition is less than the fair market value as on 31st
March, 2018. The sale value is less than the fair market value as on 31st of March, 2018 and
also the actual cost of acquisition. Therefore, the actual cost of Rs.150 will be taken as the
cost of acquisition in this case. Hence, the loss under the head long-term capital gain will
be Rs.80 (Rs.70 – Rs.150) per share in this case
(ii) In this case, the actual cost of acquisition is less than the fair market value as on 31st of
March, 2019. However, the sale value is also less than the fair market value as on 31st of
March, 2019. Accordingly, the sale value of Rs. 400 will be taken as the cost of acquisition
and the long-term capital gain will be NIL (Rs.400 – Rs.400).
 Five LAQ

Q.1 State the income-tax consequence of the following transactions: 3 Marks

Mr. A wrote off Rs.3 lakhs due from a customer G as bad debt in the previous year 2018-19. He died on 23rd June,
2019. His son, doing some other business, received Rs.1, 40,000 as final settlement from G in March, 2021 in the
capacity ofbeing the only legal heir of late Mr. A.

Answer:
Recovery against any deduction [section 41(1)]:

 Where an allowance or deduction is allowed in any assessment year in respect of

loss, expenditure or trading liability incurred by the assessee.

 Subsequently during any previous year such assessee has obtained, whether in cash
or in any other manner any amount in respect of such loss, expenditure, or any
benefit in respect of such trading liability by way or remission or cessation thereof.

 Treatment: The amount obtained or benefit accrued shall be deemed to be the income
from profits and gains of business or profession and chargeable to tax.

 The amount received by the son of late Mr. A is chargeable to tax under section 41(1)
under the head “Profits and gains of business or profession”.

Q.2 3 Marks

Answer:

Income from manufacturing operation = Rs. 180 lakhs

Income from agricultural operation = Rs. 20 lakhs

 3 Marks
Q.3 State the income-tax consequence of the following transactions:

Charlie & Co is a partnership firm consisting of 4 equal partners. The firm tookKeyman insurance policy and paid
premium of Rs.1, 50,000 annually. Upon the death of one partner in January, 2021, the firm received Rs.50 lakhs
from the insurance company in respect of keyman insurance policy.

Answer:

Keyman insurance policy:

 As per section 10(10D), any sum received under a keyman insurance policy would not be
exempt from tax. In other words, it is chargeable to tax as income.

 The firm while paying premium on keyman insurance policy would have claimed the same as
expenditure under section 37.

 When the amount is received from the policy, the amount so received becomes chargeable to
tax as income of the firm. Therefore, the sum of Rs.50 lakhs received upon the death of one
partner of the firm is chargeable to tax.

Q.4 State the income-tax consequence of the following transactions:

3 Marks

A charitable trust registered under section 12AA sold in August 2020 its vacant land for Rs.25 lakhs. The land
was acquired in the year 1999 for Rs.5 lakhs. The entire sale proceeds were kept in 3 year fixed deposit with SBI for
construction ofcommunity hall by the trust.

Answer:

Sale of capital asset by Trust [Section 11(1A)]:

 When a capital asset held by a trust is transferred and the whole of the sale consideration
is utilized for acquiring another capital asset, The entire capital gain would be exempt
from tax.

 In this case, the charitable trust has capital gain on sale of land. The entire sale
consideration has been kept in fixed deposit which is one of the specified investments
under section 11(5) of the Act.
Therefore, the entire capital gain is not chargeable to tax as the sale consideration is kept
in the form of approved investment.
 Six LAQ
(3X4 = 12 Marks)
Q.1 Write short note on Disclosures to be made as per ICDS IV – Revenue recognition 3 Marks
Answer:
Following disclosures shall be made in respect of revenue recognition:
a) in a transaction involving sale of goods, total amount not recognised as revenue during the previous year due to lack of
reasonably certainty of its ultimate collection along with nature of uncertainty;
b) the amount of revenue from service transactions recognised as revenue during the previous year;
c) the method used to determine the stage of completion of service transactions in progress; and
d) for service transactions in progress at the end of previous year:
i. amount of costs incurred and recognised profits (less recognised losses) up to end of previous year;
ii. the amount of advances received; and
iii. the amount of retentions.

Q.2 Write short note on Difference between unrealized rent and arrears of rent, realisedin a subsequent year
3 Marks
Answer: Difference between Subsequent collection of unrealized rent and arrears of rent
Unrealized Rent Arrears of rent

Rent which could not be realized from the tenant, if If the assesses has increased the rent payable by the
subsequently realized, gets taxed in the PY of receipt. tenant retrospectively & there is dispute over such
increase and later on, the assesses receives the increased
However, deduction shall be allowed @ 30% of such rent as arrears, is called arrears of rent. It is taxable in the
unrealized rent. PY of Receipt
Taxable @ 70% of amount received Deduction of 30% is allowed on such arrears. Taxable at
70% of amount received.

Q.3 Write short note on Explain the term “tax planning and tax evasion”
3 Marks
Answer:
Tax planning: Tax planning is a way to reduce tax liability by taking full advantages provided by the Act through various
exemptions, deductions, rebates & relief. In other words, it is a way to reduce tax liability by applying script & moral of
law. It is the scientific planning so as to attract minimum tax liability or postponement of tax liability for the subsequent
period by availing various incentives, concessions, allowance, rebates and relief provided in the Act.
Tax evasion: Tax evasion is the illegal way to reduce tax liability by deliberately suppressing income or sale or by
increasing expenses, etc., which results in reduction of total income of the assessee. Tax evasion is illegal, both in script
& moral. It is the cancer of modern society and work as a clog in the development of the nation.

Q.4 Write short note on Intimation or Assessment by income tax department?

3 Marks
Answer:
Intimation and Assessment by income tax department
After submission of return of income or on non-submission of return of income by the assessee, assessment is made by the
Income tax department.
The Assessing Officer can assess the income of the assessee in any of the following manner:
1. Intimation u/s 143(1);
2. Scrutiny Assessment u/s 143(3);
3. Best Judgment Assessment u/s 144;
4. Income Escaping Assessment u/s 147 for making assessment;

Q.5 Write short note on Tax audit requirement in the case of notified professions.
3 Marks
Answer:
In the case of persons carrying on notified profession, the provisions of tax audit contained in section 44AB would be
attracted when the gross receipt exceeds Rs.50 lakhs in the previous year.
However, where the gross receipt does not exceed Rs.50 lakhs, the assessee must admit income @ 50% or more of the
gross receipt in order to be eligible for exemption from tax audit. Thus, by default the provisions of section 44ADA would
apply.
Where the assessee has gross receipt below Rs.50 lakhs and does not want to admit income of 50% or more of the gross
receipts, then the books of account have to be maintained under section 44AA and have to be audited under section 44AB.
In such case, the presumptive provision contained in section 44ADA would not be applicable.
 Section : D Case Study Question

Q.1 Shri Varun is employed in ABC & Co at Kolkata during the previous year 2020-21. His basic salary per month is Rs.
50,000 and dearness allowance which forms part of salary for retirement benefits is 40% of basic salary. ABC & Co also
provided an education allowance of Rs. 3,000 per month for the updation of knowledge by employee.
An accommodation was provided by the ABC & Co. at Kolkata for which rent is paid by the ABC & Co. The rent paid by
the ABC & Co. is Rs. 10,000 per month. Along with the accommodation at Kolkata he was also provided with furniture
items which was taken on hire and the hire charges was paid by ABC & Co. A television set was hired per annum for Rs.
6000 and furniture were hired for Rs. 12,000 per annum. He was provided Refrigerator and washing machine for which
the original cost borne by ABC & Co. was Rs. 1,00,000
Shri. Varun was given a fixed medical allowance of Rs. 5,000 per month and fixed tiffin allowance of Rs. 2,000 per month.
The telephone bill including mobile bill paid by the ABC & Co. which costed them Rs. 15,000 per month. Further a laptop
costingRs.70,000 was provided to him to perform his job from home by ABC& Co on 1.01.2021.
The contribution in Recognised provident fund by ABC & Co was @ 15% of basic salary; along with this the contribution
of Shri. Varun also contributed Rs. 7,500 per month to Recognised provident fund. Shri. Varun paid medical insurance
premium by bearer cheque for Rs. 20,000. He received an interest of Rs. 24,000 from the bank account with UCO Bank for
his savings account. He also paid interest on educational loan taken for his son’s education in an Indian college for
Rs.1,00,000 ayear.
12 Marks

Shri. Varun wants your advice in computing the following for tax planning purposes:

State taxable allowances paid by ABC & Co to Shri Varun.

Compute perquisite value of rent-free accommodation provided by ABC & Co.
Calculate the tax-free and taxable perquisites provided by the employer ABC & Co and compute the gross total
income of Shri. Varun
Compute the quantum of deduction under Chapter VI-A and the total income of Shri. Varun.
You are required to make the computations and assist him.

Answer:

Rs

Perquisite value of rent-free accommodation 1,48,000

Tax-free perquisites:
Telephone bill reimbursed Nil
Laptop Nil

Taxable perquisite 1,48,000

Gross total income 11,50,000

Deduction under Chapter VI A 2,20,000

Total Income 9,30,000

 Suggested Answers_Syl16_June2019_Paper 7

INTERMEDIATE EXAMINATION
GROUP I
(SYLLABUS 2016)
SUGGESTED ANSWERS TO QUESTIONS
JUNE 2019
Paper- 7: DIRECT TAXATION
Time Allowed: 3 Hours Full Marks: 100

The figures in the margin on the right side indicate the full marks.
Question No. 1 is compulsory. Answer any five from the rest.
Wherever necessary, you may make suitable assumptions
and state them clearly in your of the answer.
Working notes should from part of the answer.
All questions relate to the Income-tax Act, 1961
and pertain to the AY-2019-20, unless stated otherwise.

1. (a) Choose the most appropriate alternative for the following (option to be given only in
capital letter A, B, C or D; entire answer need not be reproduced): 1x10=10

(i) In the case of a domestic company (turnover/gross receipts ` 70 crores), the basic
rate of income-tax applicable for computing as per normal provisions would be
________, when the turnover of the company has been ` 45 crores in the previous
year relevant to the assessment year 2017-18. (Note: Ignore surcharge, education
cess, etc.)
(A) 30%
(B) 29%
(C) 25%
(D) 35%

(ii) The maximum marginal rate of tax applicable for individual taxpayer having total
income of ` 1.5 crore (including surcharge and health & education cess) is ________.
(A) 34.32%
(B) 35.88%
(C) 34.944%
(D) 29.12%
(iii) When a charitable trust registered u/s 12AA pays ` 50,000 towards rent to a resident
for the premises occupied by it without deduction of tax at source for the entire
previous year 2018-19, the amount of rental expenditure liable for disallowance
would be ________.
(A) Nil
(B) ` 6,00,000
(C) ` 4,20,000
(D) ` 1,80,000

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 Suggested Answers_Syl16_June2019_Paper 7

(iv) The lock-in-period for capital gain bonds issued by National Highway Authority of
India for the purpose of deduction under section 54EC is ________.
(A) 5 years
(B) 3 years
(C) 7 years
(D) 1 year

(v) The TDS rate for payments made to a non-resident sportsman is ________ %.
(A) 20
(B) 20.8
(C) 30
(D) Nil

(vi) Where a partner of a firm transfers any capital asset to the firm by way of capital
contribution, for the purpose of computing capital gain in the hands of the partner,
the amount of deemed consideration is
(A) cost to the partner.
(B) fair market value of the asset on the date of transfer.
(C) the amount recorded in the books of the firm.
(D) value as determined by the Stamp valuation authority.

(vii) When the gross receipts from profession exceed ` ________ lakhs, it is liable for audit
under section 44AB and the provisions of section 44ADA will not apply.
(A) 50
(B) 25
(C) 100
(D) 20
(viii) Medical insurance premium incurred for senior citizen is eligible for deduction up to
` ________ under section 80D.
(A) 30,000
(B) 50,000
(C) 1,00,000
(D) 60,000

(ix) When a resident senior citizen having gross total income of ` 5,56,000, has derived
interest from savings account in a nationalized bank of ` 8,200 and fixed deposit
interest of ` 47,000 from such bank, he is eligible for deduction of ` ________ from the
gross total income.
(A) 55,200
(B) 8,200
(C) 47,000
(D) 50,000

(x) Seshan, a retired civil servant received monthly pension of ` 60,000 during the
previous year 2018-19. The amount of pension liable to tax after standard deduction
would be ` ________.
(A) 7,10,000
(B) 7,00,000

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 Suggested Answers_Syl16_June2019_Paper 7

(C) 6,80,000
(D) 6,30,000

(b) Match the following (Sufficient to give the corresponding item in column 3 for column 1;
reproducing columns 2 and 4 are not required): 1x5=5
1 2 3 4

(i) ICDS IX A Quoting of Aadhaar number

(ii) Section 139AA B ` 1500 per child u/s 10(32)

(iii) Minor son/daughter clubbing C Borrowing cost

(iv) Sec 45(2) D Exempted from tax u/s 10(17)

(v) Any allowance received by E Conversion of Capital asset into

MP/MLA Stock in trade

(c) State whether the following are True or False: 1x5=5

(i) In applicable situations of TDS, such TDS is to be deducted on amount including
GST component.
(ii) Contribution made to political party by way of cash to the extent of ` 10,000 is
allowed as business expenditure.
(iii) Unabsorbed depreciation can be carried forward for any number of years.
(iv) Interest on normal compensation/enhanced compensation is fully chargeable to
tax in the year of receipt.
(v) Long-term capital gain arising from sale of listed shares (STT paid) is not fully
exempted from tax.

(d) Fill up the blanks: 1x5=5

(i) Payment of royalty to a person resident in India requires deduction of tax at
source at the rate of ________.
(ii) The amount of wages paid to eligible new workmen by an assessee engaged in
non-seasonal manufacturing activity is deductible u/s 80JJAA @ ________ % of the
wages so paid.
(iii) An expenditure, for which cash payment is made for a sum exceeding ` ________
on a single day is disallowed.
(iv) If a return of income is not furnished within the due date prescribed in section
139(1), such return can be filed on or before ________________, provided the
assessment is not completed.
(v) Maximum amount of exemption under section 10(10C) in respect of compensation
received for voluntary retirement is ` ________ .
Answer:
1. (a)
(i) (C) 25%
(ii) (B) 35.88%
(iii) (D) ` 1,80,000
(iv) (A) 5 years

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 Suggested Answers_Syl16_June2019_Paper 7

(v) (B) 20.8

(vi) (C) The amount recorded in the books of the firm
(vii) (A) 50
(viii) (B) 50,000
(ix) (D) 50,000
(x) (C) 6,80,000

1. (b)
(i) ICDS IX C Borrowing cost

(ii) Section 139AA A Quoting of Aadhar number

(iii) Minor son/daughter clubbing B ` 1500 per child u/s 10(32)

(iv) Sec 45(2) E Conversion of Capital asset into

Stock in trade

(v) Any allowance received by MP/MLA D Exempted from tax u/s 10(17)

1. (c)
(i) False
(ii) False
(iii) True
(iv) False
(v) True

1. (d)
(i) 10%
(ii) 30
(iii) 10,000
(iv) 31st March, 2020/ end of relevant assessment year
(v) ` 5,00,000

2. (a) Mohit left India on 07.04.2018 to United Kingdom for employment. He returned to
India on 07.11.2018, after resigning his job. 9
He commenced a business on 01.12.2018 and his turnover was ` 32 lakhs up to
31.03.2019. All payments for the sales were received through crossed account payee
cheques. He wants to declare income under section 44AD.
His salary income in the United Kingdom was ` 6,56,000. When he remained outside
India, he invested in equity shares of Vodafone UK Inc. He earned dividend from
Vodafone UK Inc. (foreign company) ` 60,000 during the previous year 2018-19. He
borrowed ` 2,00,000 from Mr. Narain of Chennai to invest in the shares of the foreign
company and paid interest of ` 20,000 for the year ended 31.03.2019.
Determine his residential status for the assessment year 2019-20 and compute his total
income.
(b) Tarun, employed in a private company, commenced construction of a commercial
complex in July, 2017. He borrowed ` 50 lakhs from a bank @ 9% per annum. Interest

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 Suggested Answers_Syl16_June2019_Paper 7

up to 31.03.2018 was ` 2,20,000 and for the period from 01.04.2018 to 31.12.2018 `
2,30,000. ` 1,40,000 towards interest for the balance three months remained unpaid. 6
The construction of the building was completed on 31st December, 2018. The building
was let out w.e.f. 01.01.2019 for a monthly rent of ` 90,000. Municipal tax of ` 1,20,000
was paid by cash on 10.01.2019. He repaid ` 1,90,000 towards principal during the
previous year 2018-19, of which he paid ` 1,20,000 up to 31.12.2018.
The municipal value of the property is ` 9,00,000.
Compute the income from house property of Tarun for the assessment year 2019-20.

Answer:
2. (a) Determination of residential status:
An individual is said to be resident in India in any previous year if he is in India for a
period or periods amounting in all to 182 days or more; or

Was in India for 60 days or more during the previous year and has remained in India in
4 previous years preceding the previous years in aggregate for 365 days or more.

Extended time in the case of citizens of India, who leaves India for the purpose of
employment outside India, the time limit is 182 days instead of 60 days given above.

When a person satisfies both the conditions, he is a resident. If he does not satisfy any
of the conditions given above, he is non-resident.

In this case, Mohit remained in India for 151 days (6+24+31+31+28+31)

He has not stayed in India for 182 days or more and hence does not satisfy both the
basic conditions.

His status is non-resident.

Computation of Total Income of Mohit for the assessment year 2019-20:

Reason `

Income from Salary

Earned outside India Does not accrue in lndia and hence not Nil
taxable since he is a non resident

Income from business

On ` 32 lakhs @ 6% Accrued in India hence taxable 1,92,000

Income from Other

Sources

Income from dividend Accrued outside India and hence not taxable Nil
since he is a non-resident

Interest on moneys Being not a taxable income in India, it is not Nil

borrowed deductible.

Total Income 1,92,000

2. (b) Computation of Income from House Property of Mr. Tarun for the Asst. Year 2019-20:

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 Suggested Answers_Syl16_June2019_Paper 7

Particulars ` `

Rent received ` 90,000 X 3 2,70,000

Municipal value ` 9,00,000 × 3 /12 months 2,25,000

Since the rent received is more than proportionate 2,70,000

municipal value, the rent received is taken as annual
value

Less: Municipal tax (though paid in cash, it is eligible for 1,20,000

deduction)

Net Annual Value 1,50,000

Less: Interest on moneys borrowed for construction

Up to 31.03.2018 `2,20,000. It is deductible in 5 equal 44,000

annual installments ` 2,20,000 × 1/5

Interest from 01.04.2018 to 31.03.2019 [Interest paid for 3,70,000

whole year is deductible]

4,14,000

Income from house property (2,64,000)

3. (a) Ms. Poorvisha is the HR Manager in Poorni Textiles Ltd. She gives you the following
particulars for the year ended 31-03-2019: 10
- Basic Salary 1,00,000 p.m.
`
- Dearness Allowance ` 24,000 p.m. (30% of which forms part of retirement benefits).
- Bonus ` 21,000p.m.
- Her employer-company has provided her with an accommodation on 1st April,
2018 at a concessional rent. The house was taken on lease by the company for
`12,000 p.m. Ms. Poorvisha occupied the house from 1st November 2018, ` 4,800
p.m is recovered from the salary of Ms. Poorvisha.
- The employer gave her a gift voucher of ` 10,000 on her birthday.
- She contributes 18% of her salary (Basic Pay plus DA) towards recognised provident
fund and the company contributes the same amount.
- Uniform allowance ` 24,000.
The company pays medical insurance premium to effect insurance on the health of Ms.
Poorvisha ` 20,000.

Motor car owned by the employer (Cubic capacity of engine exceeds 1.6 liters)
provided to Ms. Poorvisha from 1st November, 2018 which is used for both official and
personal purposes. Repair and running expenses of ` 70,000 were fully met by the
company. The motor car was self-driven by the employee.

Compute the income chargeable to tax under the head “Salaries” in the hands of Ms.
Poorvisha. Brief note on treatment of each item is required.

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 Suggested Answers_Syl16_June2019_Paper 7

(b) Ashok, Surat furnishes you the following information for the previous year 2018-19: 5
`
(i) Income from coffee grown and cured in Coorg, Karnataka 3,00,000
(ii) Income from tea grown and manufactured in Jorhat, Assam 2,50,000
(iii) Income from Rubber estates in Kerala by sale of field latex
obtained from rubber plants grown there. 4,00,000
(iv) Income from nursery by name „Soundarya Nursery‟, Chennai 2,00,000
(v) Rent from a dwelling house in agricultural land in Coorg,
Karnataka (It is occupied by the coffee estate labourers). 90,000
Compute the agricultural income of Ashok.

Answer:
3. (a)
Computation of Income chargeable to tax under the head “Salaries” in the hands of
Ms. Poorvisha for A.Y 2019-20
Particulars `

Basic Salary [` 1,00,000 × 12] 12,00,000

Dearness allowance [` 24,000 ×12] 2,88,000
Bonus [` 21000 ×12] 2,52,000
Perquisite value in respect of concessional rate [See working note below] 36,000
Gift voucher given by employer on Ms. Poorvisha birthday (entire amount is 10,000
taxable since the perquisite value exceeds ` 5,000) [see note for Alternative
view]
Employer‟s contribution to recognized provident fund in excess of 12% of salary 1,13,472
18% × (` 1,00,000 + ` 24,000) × 12] - 12% × {[` 1,00,000 + ` 7,200 (being 30% of
24000)×12%} = ` 2,67,840 - ` 1,54,368
[Salary = Basic salary + Dearness allowance, to extent it forms part of pay for
retirement benefits
Medical insurance premium of ` 20,000 paid by the employer to effect an Nil
insurance on health of an employee is an exempt perquisite
Provision of motor car (engine cubic capacity more than 1.6 litres) owned by 12,000
employer to an employee without chauffeur for both official and personal
purpose, where the expenses are fully met by the employer - the perquisite
value would be ` 2,400/- p.m. [` 2,400 × 5 months]

Gross Salary 19,11,472

Less: Standard deduction under section 16(ia) 40,000

Salary Chargeable to tax 18,71,472

Working Note:
1. Where the accommodation is taken on lease or rent by the employer, the actual
amount of lease rent paid or payable by the employer of 15% of salary whichever is
lower, in respect of the period during which the house is occupied by the
employee, as reduced by the rent recoverable from the employee, is the value of
perquisite.

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 Suggested Answers_Syl16_June2019_Paper 7

Actual rent paid by the employer from 01.11.2018 to 31.03.2019 = `60,000

[`12,000×5 months]
15% of salary = ` 96,150 [15% × (` 100000 + ` 7200 + ` 21000) × 5 months]
Salary = Basic salary + Dearness allowance, to extent it forms part of pay for
retirement benefits + Bonus
Lower of the above is ` 60,000 which is to be reduced by the rent recovered from
the employee.
Hence, the perquisite value of concessional rent = ` 60,000 - ` 24,000 [` 4,800 × 5
months]
= ` 36,000
2. As per Rule 3(7) (iv), the value of any gift or voucher received by the employee or
by member of his household on ceremonial occasion or otherwise from the
employer shall be determined as the sum equal to the amount of such gift.
However, the value of any gift or voucher received by the employee or by
member of his household below ` 5,000 in aggregate during the previous year
would be exempt as per the proviso to Rule 3(7)(iv).
In this case, the gift voucher of ` 10,000 was received by Ms. Poorvisha from her
employer on the occasion of her birthday. Since the value of the gift voucher
exceeds the limit of `5,000, the entire amount of `10,000 is liable to tax as
perquisites
3. In case of uniform allowance, it is assumed here that total amount of allowance is
incurred for that purpose and hence it is fully exempted from tax.

3. (b)
Computation of agricultural Income of Ashok for the Asst. Year 2019-20
Particulars Agricultural Non-agricultural
Income income

Coffee grown and cured in Coorg, Karnataka [75% 2,25,000 75,000

agri income and 25% of non-agri income]

Income from tea grown and manufactured in 1,50,000 1,00,000

Jorhat, Assam [60% agri income and 40% non-agri
income]

Income from Rubber estates in Kerala [65% agri 2,60,000 1,40,000

income and 35% non agri income]

Income from nursery at Chennai is fully agricultural 2,00,000 Nil

income

Rent from dwelling house in agricultural land in 90,000 Nil

Coorg, Karnataka

Total 9,25,000 3,15,000

4. (a) Vipul held a plot of land in Haryana as capital asset till 31st March, 2017. The land
was acquired by him in the previous year 2013-14 for ` 20,00,000. It was converted

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 Suggested Answers_Syl16_June2019_Paper 7

into stock-in-trade on 1st April, 2017 of real estate business carried on by him. The
fair market value of the land on the said date was ` 35,00,000. 10
Vipul sold the land to Vinod for ` 45,00,000 on 31st January, 2019. The stamp duty
assessed on the said date in respect of the land amounted to ` 50,00,000.
Vipul purchased a flat for ` 15,00,000 on 31st March, 2019 for his residential purpose. He
has no other residential property.
(i) Compute the income arising from the above transactions under appropriate heads
of income in the hands of Vipul.
(ii) What is the effect on assessment of Vinod, if Vinod had bought the land for
constructing a residential property?
Additional Information:
Financial Year Cost Inflation Index
2013-14 200
2017-18 254
2018-19 264

(b) Krishna is employed in XYZ Limited. He gets a basic salary of ` 80,000 per month and
dearness allowance equal to 40% of basic salary. 50% of dearness allowance forms
part of pay for retirement benefits. Both Krishna and XYZ Limited contribute 12% of basic
salary to new pension scheme referred to in section 80CCD. 5
Examine the tax treatment of employer‟s contribution and own contribution in the hands
of Krishna.

Answer:
4. (a)
(i) In the hands of Vipul:
Computation of capital gain for Assessment Year 2019-20
Particulars `

Consideration, being fair market value of land on the date of conversion into 35,00,000
stock-in-trade

Less: indexed cost of acquisition (` 20,00,000 × 254/200) 25,40,000

Long-term capital gain 9,60,000

Less: exemption u/s 54F for investment in residential flat (` 9,60,000 × ` 15,00,000 4,11,429
/ ` 35,00,000)

Taxable long-term capital gain 5,48,571

Computation of business income for Assessment Year 2019-20

Particulars `

Consideration, being stamp duty value on the date of sale 50,00,000

[Under section 43C, actual consideration or stamp duty value, whichever is
more is to be taken as consideration]

Less: Cost of acquisition, being fair market value on the date of conversion 35,00,000

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 Suggested Answers_Syl16_June2019_Paper 7

Business income 15,00,000

(ii) Effect on assessment of Vinod for Assessment Year 2019-20:

As per section 56(2)(x), where immovable property in the nature of capital asset is
received for a consideration less than the stamp duty value, the difference between
the stamp duty value and actual consideration shall be taxed as income from other
sources, if such difference exceeds ` 50,000.

In the instant case, Vinod purchased the land for constructing residential property
meaning thereby that the land is his capital asset. So, the difference between the
stamp duty value and actual purchase price i.e. ` 5,00,000 is taxable in his hands
under the head “income from other sources‟‟.

4. (b)
Tax treatment of employer‟s contribution in the hands of Krishna
Employer‟s contribution to pension scheme referred to in section 80CCD would be
treated as salary because it is specifically included in the definition of “salary” under
section 17(1)(viii). Accordingly, ` 1,15,200, being 12% of basic salary of ` 9,60,000 is to
be included in the salary of Krishna.

Tax treatment of Krishna‟s own contribution in the hands of Krishna:

(i) Krishna‟s contribution to pension scheme is allowable as deduction under section
80CCD(1). However, deduction is restricted to 10% of salary. Salary for this purpose -
basic salary plus DA, if it forms part of pay for retirement benefit.
So, salary for this purpose = ` 9,60,000 + (50% of 40% of ` 9,60,000) = ` 11,52,000.
Deduction under section 80CCD(1) restricted to 10% of salary = ` 1,15,200
(ii) As per section 80CCD(!B), no deduction is permissible as the whole amount of
contribution (i.e. ` 1,15,200) is exhausted under section 80CCD(1)
Above deduction of ` 1,15,200 will be taken into consideration and be subject to
the overall limit of ` 1,50,000 under section 80CCE.
(iii) Employer‟s contribution would be allowable as deduction under section 80CCD(2),
subject to a maximum of 10% of salary. Hence, deduction under section 80CCD(2)
would be ` 1,15,200.
This deduction of employer‟s contribution of ` 1,15,200 is outside the overall limit of
` 1,50,000 under section 80CCE.

5. (a) Explain with brief reasons, the allowability or taxability of the following
expenditure/income in computation of income under the head “Profits and gains of
business or profession”: 2x5=10
(i) Compensation of ` 30 lakhs received by Mr. Jain, a businessman, under an
agreement for not carrying on business of software development.
(ii) Vikram Ltd., engaged in growing and manufacturing tea in India, deposits ` 10
lakhs in NABARD. Profit before considering such deposit is ` 15 lakhs.
(iii) Construction of toilets in a rural area by Sigma Ltd. for ` 10 lakhs in compliance with
Corporate Social Responsibility (CSR) under the Companies Act, 2013.

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(iv) Plot purchased for ` 20 lakhs and construction of a building for ` 82 lakhs by Mr.
Madhusudan for storing sugar, in the course of business of warehousing of sugar.
Expenditure has been capitalized in the books.
(v) Depreciation on a machine acquired for business purpose by Mr. Anand for
`2,50,000, out of which an amount of ` 50,000 was paid in cash.

(b) Shri Mayur has two minor children named Lakshmi (age 10) and Sarath (age 14).
Following details pertain to the minor children for the year ended 31.03.2019: 1x5=5
(i) Minor Lakshmi won Carnatic music competition in TV channel and was awarded
cash prize of ` 2,00,000.
(ii) Minor Lakshmi received cash gifts from friends of Mayur ` 43,000. No single gift
exceeded ` 10,000.
(iii) Minor Sarath received gift of gold chain whose fair market value was ` 80,000 from
his maternal uncle on the occasion of his 14th birthday. He also received cash gift
of `12,000 from friends of Mayur on his birthday.
(iv) Out of accumulated savings of daughter Lakshmi, one vacant land was acquired.
The stamp duty value of the land ` 3,60,000. The documented value of the land
`3,20,000.
Compute the income of minor children of Mayur which is liable for clubbing.

Answer:
5. (a)
SI. Particulars
No.

(i) As per section 28, any sum whether received or receivable , under an
agreement for not carrying out any activity in relation to any business or
profession is chargeable to tax under the head “Profits and gains from business
or profession”.
Therefore, compensation of ` 30 lakhs received by Mr. Jain under an
agreement for not carrying out software development business is taxable as
business income.

(ii) As per section 33AB, in case of assessee engaged in growing and

manufacturing tea in India, deduction allowed in respect of deposit in
NABARD is lower of the amount of such deposit or 40% of profit of such business
computed under the head “Profits and gains of business or profession” (before
this deduction and before adjusting brought forward business loss).
Therefore, ` 6 lakhs, being 40% of profit (lower than actual deposit) is allowable
as deduction.

(iii) Under section 37(1), any expenditure incurred by an assessee on the activities
relating to corporate social responsibility referred to in section 135 of the
Companies Act, 2013 shall not be deemed to have been incurred for the
purpose of business and hence, shall not be allowed as deduction.
In view of above, expenditure of ` 10 lakhs on construction of toilets in rural
area shall not be allowed as deduction.

(iv) Business of warehousing of sugar is a specified business under section 35AD. As

per section 35AD, in case of specified business capital expenditure incurred for

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construction of building for storage of sugar is allowable as deduction,

provided such expenditure is capitalized in the books. Land cost is not
allowable as deduction.
Therefore, the whole amount of ` 82 lakhs spent on building shall be allowed as
deduction.

(v) As per section 43(1), any payment exceeding ` 10,000 on a single day
otherwise by account payee cheque or draft or by electronic mode towards
acquisition of asset shall not form part of the actual cost.
Therefore, depreciation shall be allowed on ` 2,00,000 (i.e. ` 2,50,000 - ` 50,000)

5. (b)
Particulars Reason `

Income of Minor Lakshmi

Winning from Carnatic music competition in TV It is earned out of personal Nil

channel, not liable for clubbing skill of minor child

Cash gifts from friends of Mayur Liable for clubbing 43,000

Purchase of vacant land ` 3,20,000 and the Since the difference is less Nil
stamp duty value is ` 3,60,000. than ` 50,000 it is not liable
to tax.
(Item (B) of sub-clause (b)
of section 56(2)(x))

43,000

Less: Exemption U/s 10(32) 1,500

Income liable for clubbing 41,500

Income of minor Sarath

Gift from maternal uncle on the occasion of 14th Not liable for clubbing Nil
birthday since it is an
exempted income

Cash gift from friends of Mayur Liable for clubbing 12,000

Less: Exemption U/s.10(32) 1,500

Income liable for clubbing 10,500

6. (a) Compute the total income of Mr. Jagan, a resident, from the following details: 9
Particulars Amount (`)

(i) Income under head „Salaries‟ 3,50,000

(ii) Income from owning and maintaining race horses (3,00,000)

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(iii) Long-term capital gain from sale of house plot (90,000)

(iv) Income from house property-X 50,000

(v) Business Income- Medicines (5,00,000)

(vi) Speculative business-A 2,00,000

(vii) Business Income-Textile 3,50,000

(viii) Speculative business-B (1,00,000)

(ix) Income from horse races 1,50,000

(x) Income from house property-Y (3,10,000)

(xi) Short-term capital gain from sale of immovable property 1,00,000

(b) Brindavan & Co. is a partnership firm consisting of 4 partners viz., Ram, Rahim, Robert
and Rakesh. The firm made turnover exceeding ` 100 lakhs and the net profit of firm
was ` 9,50,000 before considering the following items: 6
(i) Shop rent paid for premises to partner Ram ` 17,500 per month. No tax was
deducted at source.
(ii) Depreciation as per Income-tax Rules ` 1,50,000.
(iii) Interest on capital to partners @15% `1,50,000, as authorized by the deed of
partnership.
(iv) Working partner salary to each partner ` 15,000 per month, as per partnership
deed.
You are required to compute the income of the firm for the assessment year 2019-20.

Answer:
6. (a)
Computation of Total Income of Jagan for the Asst. Year 2019-20:
` `

Income by way of Salaries 3,50,000

Income from house property:

Property - X 50,000

Property - Y (3,10,000)

Loss from Property (2,60,000)

But set off under the head house property limited to (2,00,000)

Balance of property loss eligible for carry forward (60,000)

1,50,000

Income from Business:

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Textiles 3,50,000

Medicines (5,00,000)

(1,50,000)

Less: Set off against speculation business income 1,00,000

(50,000)

Less: Set off against capital gain 10,000

To be carried forward for set off in subsequent 8 (40,000)

assessment years

Nil

Speculation Business:

Business-A 2,00,000

Business- B (1,00,000)

1,00,000

Business loss set off against this income (1,00,000)

Capital Gain:

Short-term capital gain 1,00,000

Long-term capital loss from sale of house plot (90,000)

10,000

Less: Business loss set off 10,000

Nil

Income from Other Sources:

Income from horse race 1,50,000

Loss from owning and maintaining race horses ` 3 lakhs to

be carried forward to subsequent years for set off.

Total Income 3,00,000

6. (b)
Computation of Total income of Brindavan & Co for the Asst. Year 2019-20:
`

Net profit before adjustments 9,50,000

Add:
Rent paid to partner ` 2,10,000. Since no tax was deducted at source, 63,000

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30% of the expenditure is disallowed under section 40(a)(ia)

10,13,000

Less: Depreciation as per Income-tax Rules ` 1,50,000

Interest on capital @ 12% is allowed [` 1,50,000 × 12/15] ` 1,20,000

2,70,000

Book Profit 7,43,000

Working partner salary

(1) Actually paid ` 15,000 × 4 × 12 ` 7,20,000

(2) On first ` 3 lakhs @ 90% = ` 2,70,000

On the balance ` 4,43,000 @ 60% ` 2,65,800

` 5,35,800

Least of the above is deductible 5,35,800

Income of the firm 2,07,200

7. (a) Ms. Renu has received the following gifts during the previous year 2018-19: 8
(i) On the occasion of her marriage on 17th January, 2019, she has received `1,00,000
as gift, out of which ` 50,000 are from relatives and balance from friends.
(ii) On 31st January, 2019, she has received gift of ` 55,000 from cousin of her mother.
(iii) She has received a mobile phone worth ` 22,000 from her friend on 16th August,
2018.
(iv) On 1st December, 2018, she acquired a vacant land from her friend for ` 1,50,000.
Stamp duty value on that date ` 2,10,000.
Compute the taxable income from the aforesaid gifts.

(b) (i) State the provisions relating to deduction of tax at source from premature
withdrawal from Employees Provident Fund. 4
(ii) State the time of tax deduction at source and the threshold limits of such deduction
in case of payment to contractors. 3

Answer:
7. (a)
Taxable Reasons
Amount

(i) Nil Gifts received on the on the occasion of marriage are not taxable,
whether they are received from relatives or friends

(ii) 55,000 Cousin of Ms. Renu‟s mother is not a relative. Hence, the gift is
taxable.

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(iii) Nil Mobile phone is not included in the definition of “property” as per
Explanation to section 56(2)(vii)

(iv) 60,000 Purchase of land for inadequate consideration on 1 st December

2018 would attract the provision of section 56(2)(vii). Where any
immovable property is received for a consideration which is less
than the stamp duty value of the property by an amount
exceeding ` 50,000, the difference between the stamp duty value
and consideration is chargeable to tax in the hands of individual.
Hence, ` 60,000 is taxable in the hands of Ms. Renu.

7. (b)
(i) If the employee makes withdrawal before continuous service of five years, the
withdrawal would be subject to tax.
Section 192A provides for deduction of tax @ 10% on premature withdrawal from
employees provident fund scheme.
Tax is to be deducted at the time of payment of accumulated balance due to the
employee.
Tax deduction is not to be made if the amount of such payment or aggregate
amount of such payment to the payee is less than ` 50,000.
(ii) As per section 194C, in case of payment to contractors, tax is to be deducted at
source at the time of crediting the account of the payee or at the time of
payment, whichever is earlier.
No deduction is required to be made if the consideration for the contract does not
exceed ` 30,000.
However, it is provided that tax will be required to be deducted at source where
the amount credited or paid or likely to be credited or paid to a contractor or sub-
contractor exceeds ` 30,000 in a single payment or ` 1,00,000 in the aggregate
during a financial year.

8. Write short notes on any three out of the following: 5x3=15

(a) Losses which cannot be carried forward for set off when the return of income is not filed
within the „due date‟ specified under section 139(1).
(b) Items to be excluded in determining the cost of inventories under ICDS-II.
(c) Verification of return of income for company assessee under section 140.
(d) Scrutiny assessment under section 143(3)

Answer:
(a) Losses which cannot be carried forward where ROI is filed belatedly:
Section 80 says that certain losses cannot be carried forward when the return is not filed
within the „due date‟ specified under section 139(1) of the Act. They are as under:

(i) Business Loss

(ii) Speculation Business Loss

(iii) Loss from Business specified in section 35AD

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(iv) Loss assessable under the head “Capital gain”.

(v) Loss from owning and maintaining race horses.

(b) Items to be excluded in determining the cost of inventories under ICDS-II:

The cost of inventories is governed by ICDS-II not only for the purpose of valuation on the
closing date but also when the inventories are purchased for the purpose of
manufacture or trade.

The following costs shall be excluded in determining the cost of inventories:

 Abnormal amounts of wasted materials, labour or other production costs.

 Storage costs, unless those costs are necessary in the production process prior to
a further production stage.

 Administrative overheads that do not contribute to bringing the inventories to

their present location and condition.

 Selling costs.

(c) Verification of ROI for corporate assessee:

In general Managing Director

If due to any reason it is not possible for MD to verify Any director

or where there is no MD

Where an application for corporate insolvency Insolvency professional

resolution process has been admitted by the appointed by such
Adjudicating Authority under Insolvency and Adjudicating Authority
Bankruptcy Code, 2016

Non-resident company A person holding a valid power

of attorney. Copy of such
power of attorney must be
attached with the return.

Company in the process of winding up Liquidator of the company

Where the management of the company has been Principal officer

taken over by the Central or State Government.

(d) Where the Assessing Officer or the prescribed income-tax authority (here-in-after
collectively referred to as „Assessing Officer‟) considers it necessary to ensure that the
assessee has not -
▪ understated his income; or
▪ declared excessive loss; or
▪ under paid the tax

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he can make a scrutiny in this regard and gather such information and evidence as he
deems fit. And on the basis of such information and evidence so collected, he shall pass
an assessment order. Such order shall be treated as regular assessment order.

Conditions for scrutiny assessment:

▪ A return has been furnished u/s 139 or in response to a notice u/s 142(1); and
▪ Assessing Officer considers it necessary or expedient to ensure that the assessee has
not understated his income, declared excessive loss or under-paid the tax.

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 Suggested Answer_Syl16_Dec2018_Paper_7

INTERMEDIATE EXAMINATION
GROUP I
(SYLLABUS 2016)

SUGGESTED ANSWERS TO QUESTIONS

DECEMBER 2018

Paper-7: DIRECT TAXATION

Time Allowed: 3 Hours Full Marks : 100

The figures in the margin on the right side indicate full marks.
Wherever required, the candidate may make suitable assumption(s) and
State the same clearly in the answer.
Working Notes should form part of the relevant answer.
All sub- division of the same question are to be answered serially and not at different places.
All the questions relate to income –tax assessment year 2018 – 19 and the provisions stated
relate to the Income tax Act, 1961, unless otherwise stated in the question.
Answer Question No. 1, which is compulsory and any five from Question Nos. 2 to 8.

1. (a) Choose the most appropriate alternative for the following (Option to be given only in
capital letters A, B, C or D; entire answer need NOT be reproduced): 1×10=10

(i) Short-term capital gain on sale of listed shares (STT paid) in a recognized stock
exchange is chargeable to income-tax @ ______ %.
(A) 10
(B) 15
(C) 20
(D) 30
(ii) When the total income of an individual exceeds Rs.50 lakhs, the surcharge is payable
@
(A) 5%
(B) 7%
(C) 10%
(D) 12%
(iii) When the amount is withdrawn from National Pension System Trust, it is chargeable to
tax to the extent the withdrawal exceeds ______________ % of the contribution of the
assessee.
(A) 10
(B) 25

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 Suggested Answer_Syl16_Dec2018_Paper_7

(C) 15
(D) 20
(iv) Ms. Jothi (aged 23) got married and left India to join her husband in the United
Kingdom on 10.06.2017. She had never left India earlier. Her residential status for the
assessment year 2018-19 is:
(A) Resident and ordinarily resident
(B) Resident but not ordinarily resident
(C) Non-resident
(D) None of the above
(v) While computing TDS on salary paid to employees, the losses given below to the
applicable extent would be considered by the employer:
(A) Loss from business
(B) Loss from house property
(C) Long-term capital loss
(D) Short-term capital loss
(vi) When tax is not deducted at source on annual rent of Rs.2 lakhs paid to landlord by
a company, the amount liable for disallowance under section 40(a) (ia) is
(A) Nil
(B) Rs.2,00,000
(C) Rs.20,000
(D) Rs.60,000
(vii) When the assessee has loss from house property, the maximum amount of such loss
eligible for set of against other permissible incomes would be
(A) Rs.30,000
(B) Rs.1,50,000
(C) Rs.2,00,000
(D) No Limit
(viii) When a capital asset was acquired on 01.04.1980 and sold in June, 2017, the cost of
acquisition or the fair market value of the asset as on ------, at the option of the
assessee is to be adopted for indexation purpose:
(A) 01.04.2011
(B) 01.04.2001
(C) 01.04.1991
(D) 01.04.1981
(ix) When a motor car is sold for Rs.12 lakhs by a dealer to a buyer holding PAN, the
amount of tax collectible as source shall be _______ .
(A) Rs.12,000 (1%)
(B) Rs. 24,000 (2%)
(C) Rs. 1,20,000(10%)
(D) NIL

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(x) Cash donation given to a charitable trust (approved under section 80G) is eligible for
deduction under that section, when the amount of donation does not exceed Rs.----
------.
(A) 2,000
(B) 5,000
(C) 7,000
(D) 10,000
(b) Match the following (Sufficient to give the corresponding item in column 3 for column 1;
reproducing columns 2 and 4 are not required): 1×5=5
1 2 3 4
(i) Depreciation on patents (A) 40%
(ii) Amount received by an individual as a (B) Valuation of inventories
loan in a reverse mortgage
(iii) Interest partner on capital (C) 25%
(iv) Depreciation on solar power (D) Exempted, since there is no
generating system transfer
(v) ICDS II (E) Allowed up to 12% p.a.

(c) State whether the following statements ate True or False: 1×5=5
(i) Cost of self-generated goodwill of business is deemed to be Nil.
(ii) Reimbursement of ordinary medical expenses by the employer is fully exempted.
(iii) Where capital gain arises to an individual from the transfer of a capital asset,
being immovable property under a joint development agreement, the capital
gain is chargeable to tax in the previous year in which the certificate of
completion for whole or part of the project is issued by the competent authority.
(iv) In order to avail carry forward of unabsorbed depreciation, the assessee must
furnish the return of income within the due date specified in section 139(1).
(v) In order to claim exemption under section 54B, the agricultural land, which is
transferred, must have been used by the assessee or his parents for at least 3
years prior to the date of transfer
(d) Fill in the blanks: 1×5=5
(i) The total income computed will have to be rounded off to the nearest multiple of
Rs. ____________.
(ii) Domestic company means a/an __________company.
(iii) Additional depreciation on factory building for Rs.30 lakhs, acquired by a
manufacturer on 1st Dec, 2017 is__________.
(iv) Unabsorbed depreciation can be carried forward for ________ years.
(v) An assessee, who receives leave encashment during continuation of his service,
can also claim __________.

Answer: 1 (a)
(i) (B) 15
(ii) (C) 10%
(iii) (B) 25
(iv) (A) Resident and ordinarily resident

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 Suggested Answer_Syl16_Dec2018_Paper_7

(v) (B) Loss from house property

(vi) (D) Rs.60,000
(vii) (C) 2,00,000
(viii) (B) 01.04.2001
(ix) (A) Rs.12,000 (1%)
(x) (A) Rs.2,000

Answer: 1 (b)
1 2 3 4
(i) Depreciation on patents (C) 25%
(ii) Amount received by an individual as a (D) Exempted, since there is no
loan in a reverse mortgage transfer
(iii) Interest partner on capital (E) Allowed up to 12% p.a.
(iv) Depreciation on solar power (A) 40%
generating system
(v) ICDS II (B) Valuation of inventories

Answer: 1 (c)
(i) True
(ii) False
(iii) True
(iv) False
(v) False

Answer: 1 (d)
(i) 10
(ii) Indian
(iii) Nil
(iv) Any number of
(v) Relief under section 89

2. (a) Mr. Barun furnishes you the following information for the year ended 31st March, 2018:
SI. No Particulars Rs.
(i) Pension received in India from a former employer in United 1,80,000
Kingdom (UK)
(ii) Income from business in Singapore (Controlled from India) 1,00,000
(iii) Interest on company deposit in Singapore (credited in bank 80,000
account held there)
(iv) Profit from business in Kolkata controlled from UK 2,00,000
(v) Income from tea cultivation in Sri Lanka 3,00,000
(vi) Income from property in Singapore but received in Malaysia 2,50,000

Compute the total income of Mr. Barun, where he is (i) an ordinarily resident in India;
(ii) a resident but not ordinarily resident in India, and (iii) a non-resident. 9

(b) Mr. Chaturvedi, Delhi has 3 house properties in various parts of India. The details are
given below:

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 Suggested Answer_Syl16_Dec2018_Paper_7

Location of property Delhi Chandigarh Kolkata

Usage Self occupied Let out Let out
Amount Rs. Amount Rs. Amount Rs.
Rent received NIL 3,60,000 1,80,000
Fair rent 2,40,000 3,00,000^ 1,50,000
Municipal value 2,10,000 2,40,000 1,20,000
Standard rent 1,80,000 2,10,000 90,000
Municipal tax-Due 20,000 40,000 30,000
Municipal tax- paid by the assessee NIL NIL 20,000
Interest on moneys borrowed 2,80,000 1,40,000 1,50,000

Note : All the properties were acquired/ constructed after 01.04.2010.

You are required to compute the income of Mr. Chaturvedi chargeable under the
head "Income from house property" for the assessment year 2018-19. 6
Answer: 2 (a)
Computation of total income of Mr. Barun for the Asst. Year 2018 – 19
S. No Particulars ROR RNOR NR
(i) Pension received in India from a former 1,80,000 1,80,000 1,80,000
employer in UK
(ii) Income from business in Singapore (controlled 1,00,000 1,00,000 Nil
from India)
(iii) Interest on company deposit in Singapore 80,000 Nil Nil
(credited in bank account held there)
(iv) Profit from business in Kolkata controlled from UK 2,00,000 2,00,000 2,00,000
(v) Income from tea cultivation in Sri Lanka 3,00,000 Nil Nil
(vi) Income from property in Singapore but received 2,50,000 Nil Nil
in Malaysia
Total Income 11,10,000 4,80,000 3,80,000

Answer: 2 (b)
Computation of Income from House Property of Mr. Chaturvedi for the Asst. Year 2018 - 19
Location of property Delhi Chandigarh Kolkata
Usage Self occupied Let out Let out
Annual value Nil 3,60,000 1,80,000
Less: Municipal tax paid Nil Nil 20,000
NAV Nil 3,60,000 1,60,000
Less: Deductions u/s.24
Standard deduction @ 30% Nil (1,08,000) (48,000)
Interest on moneys borrowed (1,40,000) (1,50,000)
Interest on moneys borrowed limited to (2,00,000)
Income from House Property (2,00,000) 1,12,000 (38,000)
Chargeable Income from House Property (1,26,000)

3. (a) Mr. Subramani is Senior Manager (Finance) of VKS Steel Ltd. The particulars of his
emoluments for the year ended 31.03.2018 are given below:
Basic Salary Rs. 60,000 per month
Dearness Allowance Rs. 40,000 per month (30% is for retirement benefit)
Annual performance Incentive Rs.1,80,000

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House Rent Allowance Rs. 10,000 per month

Mr. Subramani pays rent of Rs.20,000 per month for a flat occupied from 1st November,
2017 at Erode, Tamil Nadu.
He received gift voucher of Rs.6,000 from the employer on the occasion of his
marriage anniversary.
The employer provided him a motor car (cubic capacity of the engine exceeds 1.6
liters) without chauffeur with effect from 1st December, 2017. Running and
maintenance expences of Rs. 30,000 were fully borne by the employer. The car is
used by Mr. Subramani both for official and private purposes.
The employer paid the following premiums for Mr. Subramani:
(i) Medical insurance premium Rs.12,000
(ii) Life insurance premium Rs. 15,000
(iii) Accident insurance premium Rs.10,000
Tax on employment paid to Erode Municipal Corporation by Mr. Subramani Rs. 5,000.
Compute the income chargeable to tax under the head "Salaries" in the hands of Mr.
Subramani for Assessment Year 2018-19. 9

(b) Mr. Manish, a resident in India, has the following incomes for the year ended 31st
March, 2018:
Rs.
Income from sale of tea grown and manufactured in India 4,00,000
Income from growing and manufacturing rubber in India 5,00,000
Income from agricultural operations in Sri Lanka (cultivated paddy 1,00,000
Income derived from sale of coffee grown, cured, roasted and grinded 2,00,000
in India

Determine the quantum of income which is regarded as agricultural income and non-
agricultural income in the hands of Mr. Manish for the assessment year 2018-19. 6
Answer: 3 (a)
Computation of income chargeable under the head ―Salaries‖ in the hands of
Mr. Subramani for the Assessment year 2018 – 2019
Particulars Rs. Rs.
Basic salary (Rs. 60,000 × 12) 7,20,000
Dearness Allowance (Rs. 40,000 × 12) 4,80,000
Annual Performance Incentive 1,80,000
House Rent Allowance (Rsl0,000 × 12) 1,20,000
Less: Exemption under section 10(13A),
being lower of the following three
amounts:
(i) Actual allowance received
(Rs.10,000 × 5) 50,000
(ii) Rent paid in excess of 10% salary ( Rs.
20,000 × 5) -10% [ (Rs. 60,000 × 5) +
(Rs. 12,000 × 5)] 64,000

(iii) 40% of salary (40 % of [(Rs. 60,000 × 5) 1,44,000

+ (12,000 × 5) ]
Salary includes basic salary and DA 50,000
forming part of retirement benefit 70,000
Taxable portion of HRA
Gift voucher from the employer 6,000

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Perquisite value of motor car provided (Rs. 9,600

2,400 × 4
Medical insurance premium paid by Nil
the employer is not taxable under section
17(2)
Life insurance premium paid by the 15,000
employer is taxable perquisite under
section 17(1)
Accident insurance premium paid by the employer is not taxable, as Nil
no immediate benefit would become payable and benefit will
accrue at a subsequent date depending upon occurrence of certain
event. Moreover, the employer has taken the policy in its own
business interest so as to indemnify itself from payment of
compensation.
14,80,600
Less: Deduction under section 16 for professional tax paid 5,000
Taxable salary 14,75,600

Alternative view in respect of gift voucher, :

It is possible to take a view only the sum excess of Rs.5,000 is taxable im view of the

Lagngtage of CBDT circlar4 no 15/2001 dated 12.12.2001t such gifts up to R.s,000 in

aggregate per annuum exempt is exempt , beyond which it to which it is to be taxed

Answer: 3 (b)
Computation of Agricultural and Non- Agricultural Income of Mr. Manish
Type of operations/income Rule no Agri Business
income income
Income from sale of tea grown and 8 2,40,000 1,60,000
manufactured in India. (60%) (40%)
Income from growing and manufacturing 7A 3,25,000 1,75,000
rubber in India. (65%) (35%)
Income from cultivation in Sri Lanka (paddy) Not Nil 1,00,000
regarded as agricultural income, since the lands
are outside India.
Income derived from sale of coffee grown, 7B(1A) 1,20,000 80,000
cured, roasted and grounded in India. (60%) 40%)
Aggregate Income 6,85,000 5,15,000
4. (a) The summarised financial position of Purva India (P) Ltd. of Cs on 31/12/2017 is as
under:
Liabilities Amount Rs. Assets Amount Rs.
Equity share capital of Rs.10 Land 6,00,000
each 8,00,000

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 Suggested Answer_Syl16_Dec2018_Paper_7

Preference share capital 1,00,000 Building (WDV as per

Income tax Act) 3,00,000
Reserves 2,00,000 Machinery (WDV as per 4,00,000
Income tax Act)
Loan Creditors 6,00,000 Current Assets 10,40,715
Creditors 6,00,000
Provision of Dividend
Distribution Tax 40,715
23,40,715 23,40,715

Additional Information: The Company went into liquidation on the balance sheet date;
all current assets and building realized at book value. The realized money was applied
towards payment of outside liabilities including Dividend Distribution Tax, and there
after the preference shareholders.
Mr. Utkarsh is a holder of 10% equity shares and 20% preference shares of the
company. Equity shares were originally acquired by him 16.08.2002 at face value.
However, he had subscribed to preference shares on 01.04.2017, which were issued at
par. He received a part of land (MV Rs.5,00,000) and cash (for preference share) Rs.
20,000.
Compute the capital gain in hands of the company and Mr. Utkarsh. 8

(b) Ms. Pinky submits the following particulars for the year ended 31st March, 2018:

SI. Particulars Rs.

No.
(i) Loss from let out residential building—computed 3,00,000
(ii) Arrear rent from a commercial building received during the year 40,000
(commercial property had been sold in June, 2015)
(iii) Textile business discontinued from 31st October 2016— Brought 60,000
forward business loss of Asst. Year 2014-15
(iv) Profit from chemical business of current year (computed) 5,50,000
(v) Bad debt written off in the Assessment Year 2013-14 relating to 1,00,000
textile business recovered during the year consequent to Court
decree
(vi) Long-term capital gain on sale of shares (STT paid) in recognized 90,000
stock exchange on 23.05.2017
(vii) Speculation business in oil seeds— profit 3,00,000
(viii) Winning from lottery (Gross) 11,00,000
(ix) Loss from the activity of owning and maintaining race horses 2,10,000
You are required to compute the total income of Ms. Pinky and also ascertain the
amount of losses that can be carried forward. 7

Answer: 4 (a)
Computation of capital gain for the A. Y. 2016- 17 in the hands or Purva India (P) Ltd.

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Particulars
As per Sec.46(l), at the time of liquidation of company, any transfer by way of
distribution of assets to its shareholders is not treated as transfer for the purpose of
capital gain.
However, if any asset is sold in the market the same shall be liable to capital gain
In the given case, only one capital asset is sold i.e. building and the same being sold
at book value; hence no capital gain arises in the hands of the company.

Computation of capital gain for the A. Y 2018 – 19 in the hands of Utkarsh

Particulars Working Details Amount (Rs.)
In case of equity share
Sale consideration See Note below 4,80,000
Less: Expenses on transfer Nil
Net sale consideration 4,80,000
Less: (i)Indexed cost of (10% of Rs.8,00,000) 2,07,238
acquisition 272/105
(ii) Indexed cost of Nil 2,07,238
improvement
Long-term Capital Gain 2,72,762
In case of Preference share
Sale consideration 20,000
Less: Expenses on transfer Nil
Net sale consideration 20,000
Less: (i) Cost of acquisition 20% of Rs.1,00,000 20,000
(ii) Cost of improvement Nil 20,000
Short Term Capital Gain Nil

Market value of land received Rs.5,00,000

Less: Dividend u/s 2(22) (c) being 10% of accumulated profit Rs.20,000
Sale consideration Rs.4,80,000

Answer: 4 (b)
Computation of total income of Ms. Pinky for the Assessment year 2018 – 2019
Particulars Rs. Rs.
Income from house property
Loss from let out property 3,00,000
Arrear rent received 40,000
Less : Deduction U/s.24 @ 30% 12,000
28,000
Loss from house property 2,72,000
Amount of loss eligible for set off: Ceiling (2,00,000)
Amount eligible for carry forward Rs.72,000
Income from business:
Bad debt of discontinued business recovered 1,00,000
Less: Loss brought forward relating to discontinued 60,000
business
Income from discontinued business 40,000

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Profit from chemical business of current year 5,50,000

Income from Business 5,90,000
Profit from speculation business 3,00,000
Income from Business 8,90,000
Less: Loss under the head 'house property' set off 2,00,000
Income from business after set off 6,90,000
Capital gain:
Long term capital gain (STT paid) - exempt U/s.10(38) Nil
Income from other sources
Winning from lottery-taxable @ 30% under section 115BB 11,00,000
• Loss from the activity of owning and maintaining Nil
horse
races not eligible for set off against any other income,
and
• to be carried forward and set off only against the
same source.
Total Income 17,90,000

5. (a) Mr. Bhushan, engaged in manufacture of chemicals, furnishes his Manufacturing,

Trading and Profit & Loss Account for the year ended 31st March, 2018 as under:
Particulars Rs. Particulars Rs.
To Opening stock 3,40,000 By Sales 1,14,00,000
To Purchases 1,00,20,000 By Closing stock 19,00,000
To Manufacturing Expenses 10,40,000
To Gross Profit 19,00,000
1,33,00,000 1,33,00,000
To Salary 4,30,000 By Gross Profit 19,00,000
To Bonus 80,000 By Discount 25,000
To Bank term loan interest 90,000 By Agricultural Income 1,50,000
To Factory rent 1,20,000 By Dividend from 75,000
Indian Companies
To Office rent 2,10,000
To Administration Expenses 3,30,000
To Net Profit 8,90,000
21,50,000 21,50,000

Additional Information:
(i) The total turnover of Mr. Bhushan for the Financial Year 2016-17 was Rs.132 lakhs.
(ii) Salary includes Rs.1,80,000 paid to his daughter. The excess payment considering
her qualification and experience is ascertained as Rs.40,000.
(iii) Factory rent was paid to his brother. Similar portions are let out to others by him for
a rent of Rs.96,000 per annum.
(iv) No tax was deducted at source from the office rent paid during the year.
(v) Purchases include Rs.70,000 paid by cash to an agriculturist for purchase of grains
(being raw material).
(vi) Depreciation allowable under section 32 of the Income-tax Act, 1961 amounts to
Rs.45,000 for assets held as on 01.04.2017. During the year, a machinery costing
Rs.5,00,000 was acquired on 01.07.2017 and was put to use from 15.10.2017.

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(vii) Administration expenses include commission paid to a purchase agent of

Rs.12,000 for which no tax was deducted at source.
(viii) The following expenses debited above were not paid till 31.03.2018 and up to the
'due date' for filling the return specified in section 139(1):
(I) Term loan interest of Rs.35,000;
(II)
Demurrages to Indian Railways for using their clearing yard beyond
stipulated hours (disputed by the assessee), forming part of manufacturing
expenses Rs.30,000.
Compute the income of Mr. Bhushan chargeable under the head "Profits and gains of
business or profession" for the Assessment Year 2018-19. 10

(b) Mr. Raghavan, aged 57, is a person with disability. He furnishes you the following
information for the year ended 31.03.2018.
(i) Income from business (computed) Rs.7,00,000
(ii) Dividend from an Indian company Rs.10,50,000
(iii) Interest on Savings bank account with a nationalized bank Rs.17,000
(iv) Medical insurance premium paid by account payee cheque
For self Rs. 20,000
For brother, wholly dependent on him Rs.15,000
Compute his total income for the Assessment Year 2018-19. 5
Answer: 5 (a)
Computation of income from business of Mr. Bhushan for the Assessment year 2018 – 19
Rs. Rs.
Net profit as per Profit & Loss Account 8,90,000
Add:
Salary paid in excess to daughter -disallowed 40,000
Factory rent paid excessively to brother-disallowed 24,000
Office rent paid exceeding Rs.1,80,000 without deduction of 63,000
tax at source. 30% is disallowed. 30% of Rs.2,10,000
Assessee is required to deduct tax at source. Provisions of
section 40(a)(ia) will apply as the total turnover of Bharat
exceeded Rs.100 lacs during the immediately preceding
financial year i.e.2016-17.
Purchase of grains from agriculturist by paying cash is one of
the exceptions given in rule 6DD.
Commission paid to agent Rs. 12,000 without tax deduction
at source. As the commission payment is less than Rs.15,000
the tax deduction under section 194H is not attracted.
Hence the disallowance under section 40(a)(ia) is also not
attracted,
Demurrages to Railways paid beyond the due date specified 30,000
in section 139(1) is not allowable under section 43B.
Term loan interest paid beyond the due date specified in 35,000
section 139(1) is not allowable under section 43B.
10,82,000
Less:
Depreciation allowable under section 32 45,000
On new machinery Rs.5 lakhs × 15% × ½ thereon (as it was put
to use for less than 180 days) 37,500

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Additional depreciation on new machinery:

Rs.5 lakhs × 20% × ½ thereon (as it was put to use for less than
180 days) 50,000
Agricultural income credited to 1 & E Account 1,50,000
Dividend from Indian companies credited to I & E Account 75,000
3,57,500
Income chargeable under the head "Profits and gains of
business or profession" 7,24,500

Answer: 5 (b)
Particulars Rs. Rs.
Income from Business (computed) 7,00,000
Income from other sources:
Dividend from Indian companies, when it exceeds Rs.10 lakhs, is 50,000
exempt only up to Rs. 10 lakhs u/s 10(34) read with s. 115BBDA,
balance is taxable
Savings bank interest 17,000
Gross Total Income 7,67,000
Less: Deduction under Chapter Vl-A
Under section 80D
In respect of medical insurance for self 20,000
Paid for his brother, is not eligible Nil
Under section 80TTA in respect of SB interest 10,000
Under section 80U in respect of disability 75,000
Total deduction under Chapter Vl-A 1,05,000
Total Income 6,62,000
6. (a) CMA Anup Banerjee is in practice as Cost Accountant. He follows mercantile basis of
accounting. His income & expenditure account for the year ended 31st March, 2018
is given below:
Expenditure Rs. Receipts Rs.
Salary and stipends 10,50,000 Professional fees 45,00,000
Bonus to staff 1,00,000 Share of profit from a partnership 2,00,000
firm
Meeting, Conference and 2,50,000 Interest on fixed deposit in a bank 27,000
Seminars (Net of TDS)
Fees to consultants 1,50,000 Honorarium for valuation of 54,000
answer papers of various institutes
(Net of TDS)
Travelling and conveyance 4,60,000
Rent for office premises 6,00,000
Provision for bad debts 40,000
Depreciation 1,45,000
Provision for income tax 7,02,000
Excess of income over 12,84,000
expenditure
47,79,000 47,79,000
Other information:
(i) Depreciation as per the Income-tax Act Rs.2,00,000.

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(ii) Salary and stipends include Rs.40,000 paid to one trainee for passing CMA final
examination with rank.
(iii) Bonus to staff was paid in November, 2018.
(iv) In the financial year 2016-17, a sum of Rs.15,000 was due to a consultant, which
was allowed. The said amount was paid on 14th May, 2017 in cash.
Compute the total income of CMA Anup Banerjee for the Assessment Year 2018-19.
He has not opted for presumptive taxation scheme under section 44ADA. The due
date for furnishing the return of income under section 139(1) may be taken as 31st Oct,
2018. 15
Answer: 6 (a)
Particulars Rs. Rs.
Profits & gains of business or profession
Net surplus as per Income & Expenditure A/c 12,84,000
Add:
Payment to a trainee for passing CMA Final examination
with rank is in the nature of incentive to boost the
morale of the staff. The expenditure is wholly and
exclusively for the purpose of profession of the
assessee and allowable u/s 37(1). As the amount has
already been debited to income & expenditure account,
no adjustment is necessary
Bonus to staff not paid before the due date of filing return
of income disallowed u/s 43B 1,00,000
Under section 36(1)(vii), bad debt does not include
provision for bad debts. Hence, provision for bad debts is 40,000
disallowed
Depreciation debited to profit & loss account 1,45,000
Provision for income-tax disallowed u/s 40(a) 7,02,000
Amount of consultancy fee due in the financial year 2016- 15,000
17 paid in cash for sum exceeding Rs. 10,000 added back
u/s 40A(3)
10,02,000
22,86,000
Less:
Share of profit from a firm exempted under section 10(1A). 2,00,000
Interest on bank FD account considered under the head
"income from other sources" 27,000
Honorarium for valuation of answer papers considered
under the head "income from other sources" 54,000
Depreciation as per Income-tax Act 2,00,000
4,81,000
Taxable income from profession (A) 18,05,000
Income from other sources
Interest on bank FD (Gross) 27,000 × 100/90 30,000
Honorarium for valuation of answer papers
(Gross) Rs.54,000 × 100/90 60,000
Tax is deducted under section 194J @ 10%
Taxable income from other sources 90,000

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Gross total income (A) + (B) 18,95,000

Deduction under Chapter VIA Nil
Total income 18,95,000

7. (a) Explain with reasons, the taxability of the following transactions under the head "Income
from other sources":
(i) Veena received interest of Rs.5,00,000 on additional compensation on account of
compulsory acquisition of land acquired few years back. Year-wise break up of
interest received:
Rs. 1,20,000 for the Financial Year 2015-16, Rs. 2,40,000 for the Financial Year
2016-17 and Rs. 1,40,000 for the Financial Year 2017-18.
3
(ii) Gopal has shareholding (with voting rights) of 12% in Krishna Pvt. Ltd., a closely
held company. He received loan of Rs. 2,50,000 from the company on 1st May,
2017, for which he furnished adequate security to the company. The accumulated
profit of the company at that time was Rs. 1,75,000. Gopal repaid the loan on 30th
Sept., 2017. 3
(iii) Family pension of Rs.60,000 received by Sreelekha, widow of Late Vikram. 1
(iv) Vasant, whose salary income is Rs.4,00,000 has received a cash gift of Rs.60,000
from a charitable trust registered under section 12AA for meeting his medical
expenses.
1
(b) State the due dates for payments of advance tax, along with the quantum of amount
payable in each installment. Present your answer in the form of a table. 7

Answer: 7 (a)
(i) As per section 145A(b), interest received by an assessee on compensation or on
enhanced compensation shall be deemed to be the income of the year in which it
is received. Therefore, entire interest received i.e. Rs. 5,00,000 shall be taxed in the
assessment year 2018-19.
Under section 56(2)(viii), interest received on compensation or additional
compensation is to be taxed under the head "income from other sources".
As per section 57(iv), 50% of such interest received shall be allowed as deduction.
Therefore, amount taxable in Assessment Year 2018-19 = Rs. 5,00,000 - 50% of Rs.
5,00,000 = Rs. 2,50,000
(ii) As per section 2(22)(e), where a person holding 10% or more shareholding in a
closely held company obtains loan or advance from the company, the amount of
such loan or advance to the extent of accumulated profits of the company shall be
deemed to be dividend in the hands of such shareholder. It is immaterial whether
the shareholder repays the loan in the same previous year.
Therefore, out of loan of Rs. 2,50,000, the sum of Rs. 1,75,000 shall be treated as
dividend in the hands of Gopal.
Exemption under section 10(34) is not available in respect of such deemed
dividend.
It is immaterial that adequate security was provided or that the loan was repaid
during the same year.
(iii) As per section 56, family pension is assessable as income from other sources.
Deduction is allowed under section 57 @ 33 1/3 % of such pension or Rs. 15,000,
whichever is less. So, taxable family pension = Rs. 60,000 - 15,000 = Rs.45,000.

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(iv) As per section 56(2)(vii), any sum of money or property received without
consideration is income under the head "income from other sources".
However, this provision is not applicable if money or property is received from a
charitable trust registered under section 12AA.
Therefore, cash gift of Rs. 60,000 received by Vasant from the charitable trust is not
taxable.
Answer: 7 (b)
Due date for payment of advance tax [Sec. 211]
Assessee Due date of installment (of Minimum amount payable
previous year)
An eligible assessee in respect On or before March 15 100% of advance tax
of an eligible business referred liability
to in Sec. 44AD or 44ADA.
On or before June 15 Upto 15% of advance tax
liability
On or before September 15 Upto 45% of advance tax
liability less amount paid
in earlier installment
On or before December 15 Upto 75% of advance tax
liability less amount paid
in earlier installment(s)
Other assesses
On or before March 15 Upto 100% of advance tax
liability less amount paid in
earlier installment(s)

Notes:
a) Any amount paid u/s 211 on or before 31st March of the previous year, shall be
treated as advance tax paid during the financial year.
b) Where an assessee is a senior citizen (or super senior citizen) and does not have any
income chargeable under the head "Profits and gains of business or profession",
provision of advance tax is not applicable. In other words, senior citizen not having
business income is not liable to pay advance tax.

8. Write short notes on any three of the following: 5×3=15

(a) Verification of return of income in the case of an individual, HUF and political party
(b) Any five transactions where quoting PAN is mandatory
(c) ICDS-I on "Accounting Policies"
(d) Best judgment assessment under section 144
Answer: 8 (a)
Verification of return of income
The return under Section 139 shall be verified:
In the case of an individual –
(i) By the individual himself; or
(ii) Where he is absent from India, by the individual himself or by some person duly
authorized by him on his behalf; or
(iii) Where he is mentally incapacitated from attending to his affairs, by his guardian or
any other person competent to act on his behalf and

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(iv) Where, for any other reason it is not possible for the individual to verify the return, by
any person duly authorized by him this behalf.
In case of (ii) and (iv) above, the person verifying the return should hold a valid power of
attorney from the individual to do so, which shall be attached to the return.
In case of (ii) and (iv) above, the person verifying the return should hold a valid power of
attorney from the individual to do so, which shall be attached to the return.
in the case of a Hindu Undivided Family — only by the Karta.
However, in the following two cases it can be verified by any other adult member of the
family:
Where the karta is absent from India; or where the Karta is mentally incapacitated from
attending to his affairs.
in the case of a political party — by the chief executive officer of such party (whether
such Chief Executive Officer is known as Secretary or by any other designation).

Answer: 8 (b)
Every person shall quote its PAN in all documents pertaining to following transactions
entered into by him:
(i) Transactions related to sale or purchase of motor vehicles (other than two wheeled
vehicles), which requires registration.
(ii) Opening an account (other than a time deposit and a basic savings bank deposit
account) with a banking company or a co-operative bank.
(iii) Making application for issue of credit card or debit card.
(iv) Opening of a demat account.
(v) Payment in cash exceeding Rs.50,000 to a hotel or restaurant against a bill or bills
at any one time.
(vi) Payment in cash exceeding Rs.50,000 in connection with travel to any foreing
country or payment for purchase of any foreign currency at any one time.
(vii) Payment exceeding Rs.50,000 to any mutual fund or purchase of its units.
(viii) Payment exceeding Rs.50,000 to a company or an institution for acquiring
debentures or bonds issued by it.
(ix) Payment exceeding Rs.50,000 to RBI for acquiring bonds issued by it.
(x) Deposit in cash exceeding Rs.50,000 during any one day with a banking company
or a cooperative bank.
Answer: 8 (c)
 Accounting policies adopted by a person shall be such so as to represent a true and
fair view of the state of affairs and income of the business, profession or vocation.
 The treatment and presentation of transactions and events shall be governed by their
substance and not merely by the legal form.
 Marked to market loss or an expected loss shall not be recognised unless the
recognition of such loss is in accordance with the provisions of any other Income
Computation and Disclosure Standard.
Fundamental Accounting Assumptions
The fundamental accounting assumptions i.e., Going Concern, Consistency and Accrual
are assumed as followed. No specific disclosure is required, if these assumptions are

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followed. However, if such assumption are not followed, the fact shall be disclosed.
Change in Accounting Policies
An accounting policy shall not be changed without reasonable cause.
Disclosure of Accounting Policies
 All significant accounting policies adopted by a person shall be disclosed.
 Any change in an accounting policy which has a material effect shall be disclosed
(with quantum of the effect, if ascertainable). Where such amount is not
ascertainable, the fact shall be indicated.
 Disclosure of accounting policies or of changes therein cannot remedy a wrong or
inappropriate treatment of the item.
Answer: 8 (d)
(i) When the assessment is made by the Assessing Officer to the best of his judgment
after considering all relevant materials it is called best judgment assessment.

(ii) Assessing officer cannot reduce the tax liability of the assessee by assessment under
this section. A refund cannot be granted under section 144.

In the following situations assessment shall be made under section 144:

(iii) If the person fails to file the return under section 139(1), 139(4) or 139(5); or

(iv) If the person fails to comply with the terms of notice under section 142(1); or

(v) If the person fails to comply with the directions under section 142(2A) requiring him to
get his accounts audited ; or

(vi) If the person fails to comply with the terms of notice under section 13(2), requiring his
presence or production of evidence and documents.

In any of the given situation, the Assessing Officer is empowered to make an assessment
under section 144, to the best of his judgment.

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INTERMEDIATE EXAMINATION
GROUP - I
(SYLLABUS 2016)

SUGGESTED ANSWERS TO QUESTIONS

JUNE - 2018
Paper - 7 : DIRECT TAXATION
Time Allowed : 3 Hours Full Marks : 100

The figures in the margin on the right side indicate full marks.
All questions are compulsory.

In Question No. 1, all sub-questions are compulsory.

In Question Numbers 2 to 8, student may answer any 5 questions.

Wherever necessary, you may make suitable assumptions
and state them clearly in your answer.

Working notes should form part of the answer.

All questions relate to the Income-tax Act, 1961 and

pertain to the AY-2018-19, unless stated otherwise.

1. (a) Choose the most appropriate alternative: 1×10=10

(i) Which of the following is not a case of deemed ownership of house property?
(A) Transfer to spouse for inadequate consideration
(B) Transfer to minor child for inadequate consideration
(C) Co-owner of a Property
(D) None of the above

(ii) Where assessment has not been completed, belated income tax return for the
A.Y. 2018-19 can be filed up to:
(A) 31.03.2019
(B) 31.02.2019
(C) 31.03.2020
(D) Cannot be filed belatedly.

(iii) An individual estimates that he is required to pay ` 1,00,000 as advance tax. By

15th of December, how much amount must be paid by the individual?
(A) ` 30,000
(B) ` 75,000
(C) ` 1,00,000
(D) Nil

(iv) Section 80 RRB the Income-tax Act, 1961 deals with deduction from gross total
income in respect of income by way of
(A) Interest on debentures of a government company
(B) Royalty income on authors
(C) Royalty on patents
(D) Royalty from text-books

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 Suggested Answers_Syl2016_June2018_Paper 7

(v) Preliminary expenses that can be amortized under the Income-tax Act 1961 has
to be restricted to ______________ of the cost of the Project.
(A) 5%
(B) 15%
(C) 20%
(D) None of the above

(vi) Maximum Marginal Rate for the A.Y. 2018-19 is _______________________ .

(A) 34.5%
(B) 33.99%
(C) 35.535%
(D) None of the above

(vii)Rebate u/s 87A can be claimed by

(A) Any resident
(B) Resident Individual
(C) Any person
(D) Any person other than non resident

(viii)As per section 115BBDA dividend from Indian companies is taxable in the hands
of certain recipients at _______ when the aggregate dividend exceeds ` _______.
(A) 10%, 1 lakh
(B) 15%, 10 lakhs
(C) 10%, 10 lakhs
(D) 5%, 5 lakhs

(ix) ICDS VIII deals with ____________________ .

(A) Government Grants
(B) Securities
(C) Revenue recognition
(D) Construction Contract

(x) Income escaping assessment is covered under section _________ .

(A) 144
(B) 156
(C) 143(3)
(D) 147

(b) Match the following: 1×5=5

(i) Alternate minimum tax (A) Section 44AD

(ii) Return by whom to be verified (B) Section 263
(iii) Revision by commissioner (C) Section 140
(iv) Presumptive tax (D) Section 80EE
(v) ` 50,000 (E) Section 115JC

(c) State whether true or false: 1×5=5

(i) All incomes that accrue to a minor child will be included in the total income of
that parent whose total income is greater.
(ii) Caution money forfeited by the assessee is taxable in the year of forfeiture under
the head capital gains.
(iii) Paintings are not considered as personal effects in the context of "capital asset"
definition.
(iv) In the hands of a manufacturer, factory building newly constructed is not eligible
for additional depreciation.
(v) Income from assets acquired by spouse out of pin money or household savings is
not subject to clubbing.

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(d) Fill in the blanks: 1×5=5

(i) Deduction under section 80GGB in respect of house rent paid is applicable to
_____________ .
(ii) Unabsorbed depreciation shall be allowed to be carried forward for any number
of years and such carried forward unabsorbed depreciation may be set off
against any income, other than ______________.
(iii) Income referred to in sec. 68 to sec. 69D shall be taxable @ ___________.
(Excluding SC and Cess)
(iv) ___________ received by an electoral trust shall be exempted.
(v) Income from sub-letting of a house property by a salaried employee is taxable
under the head ________.

Answer:

1. (a) (i) (C) Co-owner of a property

(ii) (A) 31-03-2019
(iii) (B) Rs. 75,000
(iv) (C) Royalty on patents
(v) (A) 5%
(vi) (C) 35.535%
(vii) (B) Resident individual
(viii) (C) 10%, 10 lakhs
(ix) (B) Securities
(x) (D) 147

(b)
(i) Alternate minimum tax (E) Section 115JC
(ii) Return by whom to be verified (C) Section 140
(iii) Revision by commissioner (B) Section 263
(iv) Presumptive tax (A) Section 44AD
(v) ` 50,000 (D) Section 80EE

(C) (i) False

(ii) False
(iii) True
(iv) True
(v) True

(d) (i) Individual (Section is wrongly quoted in the question paper)

(ii) Income under the head “Salaries”, Winning from lotteries, cross word puzzles,
etc.
(iii) 60%
(iv) Any voluntary contributions
(v) Income from Other Sources

2. (a) (i) Compute the tax liability of Sri A. Harichandraprakash whose total income is 5
(A) ` 49,62,500
(B) ` 51,00,000
Note : (Source of income is Salary only)

(ii) Explain the following concepts 3

 Tax Planning
 Tax Avoidance
 Tax Evasion

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(b) Two brothers Rama and Shankar are co-owners of a house property with equal
shares. The property was constructed during the Financial Year 1998-1999. The
property consists of 8 identical units and is situated at Salem. During the Financial Year
2017-2018 each owner occupied 1 unit for residence and balance 6 units were let out
at a rent of ` 14,000 per unit per month. The municipal value of property is ` 9,00,000
and municipal tax are 10% of municipal value, paid during the year. The other
expenses are as follows:
(i) Repairs ` 90,000
(ii) Insurance premium paid ` 15,000
(iii) Interest payable on loan taken ` 3,50,000

One of the let out remained vacant for 4 months during the year. Rama could not
occupy his unit for 6 months as he was transferred to Bangalore. He does not own any
other house. The other income of Rama and Shankar are ` 3,50,000 and ` 1,80,000
respectively for the Financial Year 2017-2018.
The co-owners received during the year ` 1,40,000 as unrealized rent for 2014-2015
and ` 50,000 as arrears of rent.
Compute the income under the head "Income from House Property" and total income
of the two brothers for the Assessment Year 2018-2019.

Answer:

2. (a) (i)
Particulars Case A Case B
Tax liability before rebate 13,01,250 13,42,500
Less : Rebate u/s 87A - -
Add: Surcharge - 1,34,250
Tax and surcharge payable 13,01,250 14,76,750
Less: Marginal Relief - 64,250
Tax after marginal relief 13,01,250 14,12,500
Add : Education & Secondary Education Cess 39,038 42,375
Total Tax Payable 13,40,288 14,54,875

(ii) Tax planning is a way to reduce tax liability by taking full advantages provided by
the Act through various exemptions, deductions, rebates & relief. In other words, it
is a way to reduce tax liability by applying script & moral of law. It is the scientific
planning so as to attract minimum tax liability or postponement of tax liability for
the subsequent period by availing various incentives, concessions, allowance,
rebates and relief provided in the Act.

Tax avoidance is an exercise by which the assessee legally takes advantages of

loopholes in the Act. Tax avoidance is a practice of bending the law without
breaking it. It is a way to reduce tax liability by applying script of law only. Most of
the amendments are aimed to curb such loopholes.

Tax evasion is the illegal way to reduce tax liability by deliberately suppressing
income or sale or by increasing expenses, etc., which results in reduction of total
income of the assessee. Tax evasion is illegal, both in script & moral. It is the
cancer of modern society and work as a clog in the development of the nation.

(b)
Computation of Income from let out portion of House Property
Particulars Amount (`) Amount (`)
Let out portion (75%) 6,75,000
Gross Annual Value
(a) Municipal value (9,00,000*75/100)
(b) Actual Rent (14,000*6*12)-(14,000*1*4) 9,52,000 9,52,000

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 Suggested Answers_Syl2016_June2018_Paper 7

= `10,08,000 - ` 56,000 Whichever is higher

Less : Municipal tax 75% of ` 90,000 67,500
Net annual value 8,84,500
Less : Deduction u/s 24
(a) 30% of NAV 2,65,350
(b) Interest on loan taken for the house (75% of ` 3,50,000) 2,62,500 5,27,850
3,56,650
Add: Unrealised rent 1,40,000
Arrears of rent 50,000 1,90,000
5,46,650
Less : 30% standard deduction 57,000
Income from House property 4,89,650
50% share of each co-owner 2,44,825

Calculation of total income for the Assessment Year 2018-2019

Particulars Rama (`) Shankar (`)
(I) Self-Occupied House Property (Annual Value) Nil Nil
Less : Deduction u/s 24(b) Nil Nil
Interest on loan taken for construction `43,750 per person, 30,000 30,000
restricted to `30,000, construction completed before 01.04.1999
Loss from house property (30,000) (30,000)
(II) Let our portion (75%) - see working note below 2,44,825 2,44,825
Income from house property 2,14,825 2,14,825
Other income 3,50,000 1,80,000
Total income 5,64,825 3,94,825

3. (a) Mr. Ashwin of Chennai sold a vacant site for ` 30 lakhs to Mr. Raina on 01.05.2017. The
value of land for stamp duty purposes was ` 25 lakhs. The vacant site was acquired in
April, 2000 for ` 3 lakhs. The fair market value of the vacant site on 01.04.2001 was ` 4
lakhs. The entire sale consideration plus a housing loan of ` 38 lakhs from a
nationalized bank was availed for acquiring a residential building for ` 68 lakhs in
Pune on 01.07.2017. The stamp duty paid for the purpose of acquisition was ` 2,90,000.
The property was let out for a monthly rent of ` 10,000 from 01.07.2017. Interest on
housing loan during the year till its closure, amounted to ` 2,80,000.

Mr. Ashwin sold yet another vacant site for ` 28 lakhs on 21.01.2018. This vacant site
was acquired in October, 2015 for ` 20 lakhs. He utilized the entire sale proceeds
realized in January 2018 for repaying the housing loan.

His other incomes are (i) Income from business (computed) ` 3,90,000 and (ii) Bank
interest of ` 60,000 from term deposits and ` 15,000 from SB account.

Compute the total income of Mr Ashwin for the assessment year 2018-19.

Cost inflation index : F. Y. 2001-02 = 100; F.Y. 2015-16 = 254; F.Y. 2017-18 = 272. 7

(b) State whether the following transactions attract tax deduction at source (TDS)
provisions and the rate of tax & the amount of tax deductible in applicable cases:

(i) Interest on recurring deposit of ` 12,000 paid by a nationalized bank to Mr. Dhoni.
(ii) Prize amount of ` 8,000 paid by Excellence Ltd. to Mr. Saha a winner of crossword
puzzle contest conducted by the company.
(iii) Commission of ` 21,000 paid to Kumble & Co. by Dravid Co. Ltd for purchase of
raw materials.
(iv) Chandra Ltd. paid ` 40,000 per month as generator rent from 1st August, 2017 and
up to 31st March, 2018 to Mr. Shastri. 8

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Answer:

3. (a)
Computation of Total Income Mr. Ashwin for Assessment Year 2018-19
` `
Income from House Property:
Rent for 9 months (`10,000 × 9) 90,000
Less: Deduction U/s. 24 @ 30% 27,000
Interest on moneys borrowed 2,80,000
3,07,000
2,17,000
Loss from House Property- but limited to (2,00,000)

Income from Business: Computed 3,90,000

Capital Gain:
Sale of vacant site -1 30,00,000
Less: Indexed cost of acquisition (` 4,00,000 × 272 /100) 10,88,000
Long term capital gain - (A) 19,12,000

Sale of vacant site - 2 28,00,000

Less: Indexed cost of acquisition (` 20,00,000 × 272 /254) 21,41,732
Long term capital gain - (B) 6,58,268

Total Capital Gain (A) + (B) = 25,70,268

As the new residential house was acquired for ` 58 lakhs and NIL
the entire sale consideration is also ` 58 lakhs, the entire
capital gain is exempt U/s.54 F

Other Sources:
Bank interest (Term Deposits) 60,000
Bank SB interest 15,000
75,000
Gross Total Income 2,65,000
Deduction Chapter Vl-A
(i) Section 80 C in respect of stamp duty limited to ` 1,50,000
(ii) Section 80TTA for Bank SB interest 10,000
1,60,000
Total Income 1,05,000

(b) (i) Section 194 A is applicable for recurring deposit interest paid by bank when it
exceeds ` 10,000.
The tax deductible at source at 10% being `1,200.

(ii) As per Section 194B winning by way of crossword puzzle is liable for tax deduction
when the amount of winning exceeds `10,000
As the amount of winning is only ` 8,000, no tax is deductible at source

(iii) Section 194H will apply when commission/brokerage exceeds ` 15,000

The taxis deductible at 5% on ` 21,000 being `1,050

(iv) Section 194-1 will apply when the rent paid during the year exceeds ` 1,80,000.
The tax is deductible at 2% being ` 6,400 (2% of ` 3,20,000)

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 Suggested Answers_Syl2016_June2018_Paper 7

4. (a) Mr. Kamal employed in Rajini Mfg. Co. Ltd., Mumbai as General Manager furnishes
the following information for the year ended 31.03.2018:
Particulars Amount (`)
Basic salary (per month) 50,000
Dearness Allowance (eligible for retirement benefits) 80% of basic salary
House Rent Allowance (per month) 10,000
Rent paid by him ` 15,000 per month for 6 months and ` 20,000
per month for balance 6 months (at Mumbai)
City Compensatory Allowance (per month) 2,500
Medical reimbursements (annual) 13,000
Gymkhana club annual membership fee reimbursed by employer 20,000
Mobile phone bill reimbursed by the employer (Used for both 37,500
official and personal use)
Motor car (cubic capacity of engine 2.2 litres) owned by the 85,800
employee but the maintenance expenses fully met by the
employer (Motor car was used both for personal and official use)
Cash gift paid by the employer in appreciation of performance 30,000
on 01.012018
Contribution to recognized provident fund :
Employee 1,20,000
Employer 90,000
Contribution to National Pension Trust:
Employee 60,000
Employer 55,000
Medical insurance premium paid by means of uncrossed cheque 18,000

You are requested compute the total income of Mr. Kamal for the assessment year
2018-19. 10

(b) State with brief reasons whether the following are agricultural income either in whole
or in part: 1x5=5
(i) Purchase of standing sugarcane crop by Mr. Amin for ` 2 lakhs and after cutting
the canes, selling them for ` 2,50,000.
(ii) Income from milk dairy run by Mr. Raj in his agricultural lands ` 50,000.
(iii) Income from sale of plants ` 1,00,000 earned by Mr. Jain who maintains a nursery
by name Soundarya Nursery.
(iv) Income from sale of rubber ` 3,20,000 realised by Mr Ram Nair who owns rubber
estate and cultivates rubber.
(v) Income from gracing of catties allowed in the land owned by Mr. Richard ` 60,000.

Answer:

4. (a)
Computation of Total Income of Mr. Kamal for the Assessment Year 20018-19
` `
Basic salary 6,00,000
Dearness allowance @ 80% of basic pay 4,80,000
City Compensatory Allowance 30,000
House rent allowance:
Allowance received 1,20,000
Less: Exemption U/s.10(13A)
50% of salary + DA 5,40,000
Actual HRA 1,20,000
Excess rent paid over 10% of salary 1,02,000 1,02,000
(` 2,10,000 = `1,08,000) (Lower of the following)
18,000

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Medical reimbursement - below `15,000 hence not Nil

taxable
Gymkhana club membership fee taxable 20,000
Mobile phone bill reimbursed by employer 37,500
Cash gift for employer taxable as 'salary' 30,000
Motor car perquisite: Actual expenses 85,800
Less: Tax free @ ` 2,400 per month 28,800
(assuming chauffeur is not provided)
57,000
Employer's contribution to NPS 55,000
Employer's contribution to RPF less than 12% of Basic + Nil
DA, hence not taxable
13,27,500
Less: Deduction U/s. 80 C in respect of RPF 1,20,000
Deduction U/s. 80 CCD:
Employer's contribution ` 55000 Nil
Employee's below 10%, hence allowed 50,000
Deduction U/s. 80 D: Paid by cheque 18,000
1,88,000
Total Income 11,39,500

(b)
(i) To term an income as agricultural income, both basic operations and
subsequent operations must be present. A standing crop purchase will not lead
to agricultural activity and hence the profit earned cannot be termed as
agricultural income.
(ii) Income from dairy means income generated by maintaining catties. Therefore
there is no activity connected to land. Hence it is not an agricultural income.
(iii) Running a nursery with plants seeks both basic operations and subsequent
operations; furthers, as per definition, it is deemed to be agricultural income and
therefore the entire income would be agricultural income.
(iv) Income from rubber cultivation is partly agricultural income and partly non-
agricultural income. 65% of the income is agricultural income and 35% of the
income is non-agricultural income which is chargeable to income-tax.
(v) Permitting gracing of catties in vacant land does not involve any basic or
subsequent operations and the grass so grown spontaneously is not income from
agriculture.

5. (a) Ahuja Industries Ltd. engaged in manufacturing activity and generation of power,
gives you the following information for the year ended 31st March, 2018:
Description Op. WDV Acquisition/ New acquisition Sold during the
(01.04,2017) Date used from year
Plant ` 5,00,000 ` 60,000 01.11.2017 ` 80,000
(01.05.2017) (01.01.2018)
Windmill — ` 60,00,000 01.09.2017 —
(01.06.2017)
Computer ` 3,00,000 ` 90,000 01.11.2017 ` 40,000
(01.10.2017) (Office use) (01.03.2018)
Patent — ` 4,00,000 01.12.2017 —
(01.12.2017)
Compute the depreciation and additional depreciation for the assessment year 2018-
19. The computation must be such that the same is most beneficial to the assessee. 9

(b) State with one line reason, the due date for filing the return of income in the following
cases:
(i) Mr. Solkar, engaged in trade, has total turnover of ` 220 lakhs for the year ended

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 Suggested Answers_Syl2016_June2018_Paper 7

31.03.2018.
(ii) Krish Srikanth, an advocate, has aggregate professional receipts of 12,40,000
opting to admit income under section 44ADA.
(iii) Mr. Abid Ali, having 5 heavy goods transport vehicles which are run on hire,
opting to admit income under section 44AE.
(iv) M/s. Jayantilal & Mankad, a firm engaged in hotel business with annual turnover
of `130 lakhs preferring to offer income based on applicable presumptive
provisions.
(v) Vaman Kumar Charitable Trust registered under section 12AA having total income
of `12 lakhs. (before giving effect to the provisions of section 11 and 12, and
before seeking accumulation of income for application in the future years.) 6

Answer:

5. (a)
Computation of Depreciation and Additional Depreciation
Ahuja Industries Ltd. for the Assessment Year 2018-19
Description Closing WDV Depreciation / Addl. Depreciation Addtl.
before Depreciation ` Depreciation
depreciation ` `
Plant 4,80,000 @ 15% on ` 4,20,000 63,000
(i.e. 5,00,000 + @ 7.5% on ` 60,000 4,500
60,000 –
80,000)
@ 10% on ` 60,000 6,000
Windmill 60,00,000 @ 40% on ` 60,00,000 24,00,000
@ 20% on ` 60,00,000 12,00,000
Computer 3,50,000(i.e. @ 40% on ` 2,60,000 1,22,000
3,00,000 + @20% on `90,000
90,000 –
40,000)
Additional depreciation Nil
Patent 4,00,000 Depreciation @ 25% on ` 50,000
4,00,000 (1/2 thereon)
Additional depreciation Nil
Total claim 26,39,500 12,06,000

(b)
(i) As the turnover has exceeded `100 lakhs, the books of have to be audited
under section 44AB and the due date is 30.09.2018.
(ii) In the case of professionals, who opt for section 44ADA, the due date for filing
the return is 31.07.2018.
(iii) In the case of persons engaged in plying of goods vehicle for hire, the due date
for filing the return is 31.07.2018.
(iv) Where a firm desires to offer income as per presumptive provisions contained in
section 44AD, the due date for filing the return is 31.07.2018.
(v) In the case of charitable trust where the total income before giving effect to
provision of section 11 & 12 exceeds the maximum amount not chargeable to
tax, it has to be audited as mentioned in section 12A(l)(b) and the return has to
be furnished on or before 30.09.2018

6. (a) The Profit & Loss Account of ABC & Associates, a partnership firm for the previous year
2017-18 is given below:
Particulars ` ` Particulars `
Establishment and other 96,00,000 Gross Profit 1,56,40,000
expenses

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 Suggested Answers_Syl2016_June2018_Paper 7

Interest to partners @ Profit on sale of equity 2,80,000

15% shares (Sold after 2 years
A 1,80,000 through recognized
B 2,40,000 stock exchange)
C 1,20,000 5,40,000
Salary to working partners 8,40,000 Rent from house property 1,20,000
A 4,80,000
B 3,60,000
Interest on bank deposit 20,000
Profit on sale of equity 2,40,000
shares (after 10 months
through recognized
stock exchange)
Net Profit 53,20,000
1,63,00,000 1,63,00,000

Additional information:
(i) Establishment expenses include bonus ` 2,40,000 which was paid on 30-12-2018.
(ii) The firm is eligible for deduction under section 80-IC.
(iii) Establishment expenses also included securities transaction tax of ` 2,000.

Compute the tax liability of the firm for the assessment year 2018-19. Assume that no
extension of time has been granted u/s 139(1) for filing the return of income. 10

(b) Aswini's accounts are not required to be audited under section 44AB. He furnished his
return of income for Assessment Year 2018-19 on 1st August, 2018. He has the
following losses during the previous year 2017-18:
Loss from house property let out: ` 12,000
Loss from business: ` 60,000
Unabsorbed depreciation: ` 15,000
Short-term capital loss from sale of shares: ` 8,000
State, with reason, whether Aswini is entitled to carry forward above losses and
unabsorbed depreciation. 5

Answer:

6. (a)
Computation of total income of ABC & Associates for the Assessment Year 2018-19
Particulars ` `
Income from house property:
Actual rent 1,20,000
Less: Deduction under section 24 @ 30% 36,000 84,000
Profits and gains from business or profession:
Net profit as per Profit & Loss Account
Add: Expenses disallowed 53,20,000
Bonus as per section 43B 2,40,000
Securities Transaction Tax 2,000
Interest to partner in excess of 12% 1,08,000
Salary to partners 8,40,000 11,90,000
65,10,000
Less: Rent 1,20,000
Profit on sale of shares sold after 2 years 2,80,000
Interest on bank deposit 20,000
Profit on sale of shares sold after 10 moths 2,40,000 6,60,000
Book Profit 58,50,000
Less Partners' Remuneration
90% of first ` 3,00,000 2,70,000
60% of balance 55,50,000 33,30,000
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 Suggested Answers_Syl2016_June2018_Paper 7

Restricted to remuneration as per partnership deed 36,00,000 8,40,000

50,10,000
Capital gain-short-term capital gain 2,40,000
Income from other sources 20,000
Gross Total Income 53,54,000
Less: Deduction under section 80-IC 50,10,000
Total Income 3,44,000

Computation of adjusted total income

Total Income 3,44,000
Add: Deduction under section 80-IC 50,10,000
Adjusted total income 53,54,000

Computation of tax payable

Regular income tax:
On short-term capital gain of ` 2,40,000 @15% 36,000
On balance income of ` 1,04,000 @ 30% 31,200
67,200
Alternate minimum tax @ 18.5% on ` 53,54,000 9,90,490
As AMT is higher than regular tax payable, adjusted total income is deemed to be
the total income.
Thus tax payable = ` 9,90,490 + ` 29715(education cess) = `10,20,205

(b) As per section 139(1), due date for filing return of income in case of individual having
income exceeding basic exemption limit but not liable to tax audit under section
44AB is 31st July of the assessment year.

Section 139(3) provides that return showing loss is to be filed in the same manner as in
the case of a return of income within the time allowed under section 139(1). Hence,
even though Aswini has loss, he is required to file loss return before the due date i.e.
31st July, 2018

As he has filed the return after the due date, his return is a belated return under
section 139(4).

As per section 80 filing of return of loss or before the due date specified in section
139(1) is mandatory for carry forward of business loss under section 72(10, speculation
business loss under section 73(2), loss from specified business under section 74(1) , loss
under the head "capital gains" and loss from the activity of owning and maintaining
race horses under section 74A(3).

In view of above provisions, Aswini will be not be entitled to carry forward loss from
business ` 60,000 and short-term capital loss ` 8,000.

Section 80 does not prohibit carry forward of loss under the head "income from house
property" under section 71B and unabsorbed depreciation under section 32(2) in
case of belated return.

Therefore, Aswini is entitled to carry forward loss from house property ` 12,000 and
unabsorbed depreciation `15,000, even though return was filed beyond due date.

7. (a) Discuss the taxability or otherwise in the hands of the recipients: 2x5=10
(i) PQR Private Limited issued 15,000 shares at ` 150 per share (face value ` 100 per
share). The fair market value of the share is ` 130 per share.
(ii) Mr. Sakshitha received a sum of ` 92,000 being proceeds at the time of maturity
of a life insurance policy (taken 5 years back) and ` 1,10,000 being proceeds of
maturity value of a Key-man insurance policy.

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(iv) Nilay, a member of his father's HUF, gifted a house property to the HUF. The stamp
duty value of the house is ` 8 lakhs.
(iv) Rashmi received a cell phone worth ` 60,000 as gift from her friend on the
occasion of her birth day.
(v) On the occasion of her marriage Tripti received cash gifts of ` 1,30,000, which
includes ` 60,000 from her friends.

(b) ABC & Co., a partnership firm, consisted of 4 equal partners up to 31.03.2017. It had
accumulated business losses of ` 8 lakhs and unabsorbed depreciation of ` 6 lakhs
relating to assessment year 2016-17. On 01.04.2017 one partner retired. The firm, for the
previous year ended 31st March, 2018, made a turnover of ` 150 lakhs. The firm
wishes to opt for presumptive taxation.

The entire sale proceeds were realized through banking channel.

Compute the total income of the firm for the assessment year 2018-19. 5

Answer:

7. (a) (i) As per section 56(2)(viib) where a closely held company issues shares at a
premium, the excess of the issue price of the shares over the fair market value is
taxable in its hands under the head "Income from other sources.

Therefore, ` 3,00,000 [i.e. 15,000 x (`150 - ` 130)] shall be taxable as income

in the hands of PQR Private Ltd under the head "Income from other sources".

(ii) Any amount received at the time of maturity of a life Insurance Policy (not being
key-man insurance policy) will be exempt u/s 10(10D).

Hence ` 92,000 will be exempt and there being no exemption for the latter,
` 1,10,000 will be taxed as income from other sources.

(iii) As per section 56(2)(vii), immovable property received without consideration by a

1 HUF from its relative is not taxable.

In the instant case, since Nilay is a member of his father's HUF, he is a relative of
the HUF. Hence, ` 8 lakhs, being the stamp duty value of the house property
received by HUF, without consideration, will not be taxable in the hands of the
HUF.

(iv) Cell phone is not included in the definition of property as per Explanation to
section 56(2)(vii).

Therefore, the value of cell phone received by Rashmi is not taxable as income in
1 her hands.

(v) As per section 56(2(vii) gifts received on the occasion of marriage are not
taxable. Therefore, cash gifts received by Tripti are not taxable in her hands,
whether the same are received from relatives or non-relatives.

(b)
Computation of Total Income of ABC & Co U/s.44 AD
`
Presumptive income @ 6% of the turnover of `150 lakhs 9,00,000
Less:
Unabsorbed depreciation of ` 6 lakhs deemed to have been allowed and
hence is not deductible. [unabsorbed depreciation is deemed to be part
of current depreciation as per section 32(2)]

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 Suggested Answers_Syl2016_June2018_Paper 7

Unabsorbed business loss brought forward ` 8 lakhs. Since one partner

retired from the firm, 25% being his share in the firm is not eligible for set off.
The amount eligible for set off ` 8 lakhs × 3/4 6,00,000
Total income of the firm 3,00,000

8. Write short notes on any three of the following: 5×3=15

(a) Fee for delay in furnishing the return of income;
(b) Scrutiny assessment
(c) ICDS : Accounting policies
(d) Adjustments during the course of processing of return of income u/s 139(1).

Answer:

8. (a)
Particulars
Where a person required to furnish a return of income u/s 139, fails to do so within the
due date, he shall pay fee of
Case Fee
Total income does not exceed ` 5 lakhs ` 1,000
Total income exceeds ` 5 lakhs
- if the return is furnished on or before 31st December of the assessment year ` 5,000
- In any other case ` 10,000
Note:
If the return is filed within due date Section 234F is not applicable.

(b)
Particulars
Where the Assessing Officer or the prescribed income-tax authority (here-in-after
collectively referred to as 'Assessing Officer') considers it necessary to ensure that
the assessee has not -
 understated his income; or
 declared excessive loss; or
 under paid the tax.
He can make a scrutiny in this regards and gather such information and evidence
as he deems fit and on the basis of such information and evidence so collected, he
shall pass an assessment order. Such order shall be treated as regular assessment
order.
Conditions for Scrutiny Assessment
 A return has been furnished u/s 139 or in response to a notice u/s 142(1); and
 Assessing Officer considers it necessary or expedient to ensure that the assessee
has not understated his income, declared excessive loss or under-paid the tax.

(c) ICDS I: Accounting Policies

Accounting policies adopted by a person shall be such so as to represent a true and

fair view of the state of affairs and income of the business or profession or vocation.

The treatment and presentation of transactions and events shall be governed by their
substance and not merely by the legal form.

Marked to market loss or an expected loss shall not be recognized unless the
recognition of such loss is in accordance with the provisions of any other Income
Computation and Disclosure Standards.

The fundamental accounting assumptions i.e., going concern. Consistency and

accrual are assumed as followed. However, if any such assumption is not followed,
the fact shall be disclosed.

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 Suggested Answers_Syl2016_June2018_Paper 7

An accounting policy shall not be changed without reasonable cause.

All significant accounting policies adopted by a person shall be disclosed.

Any change in accounting policy which has a material effect shall be disclosed with
monetary impact. If such impact is not ascertainable, the fact must be disclosed.
(d) Adjustments in course of processing of return under section 143(1) (wrongly stated as
139(1) in the question paper)

In course of processing the return of income the Assessing Officer shall make the
following adjustments:

(a) any arithmetical error in the return.

(b) an incorrect claim, if such incorrect claim is apparent from any information in the
return.
(c) disallowance of loss claimed, if the return of the previous year for which set off of
loss is claimed was furnished after due date.
(d) disallowance of expenditure indicated in the audit report but not taken into
account in computing the total income in the return.
(e) Disallowance of deduction claimed under sections 10AA, 80-IA, 80-IAB, 80-IB, 80-
IC, 80-ID or 80-IE, if the return is furnished after the due date.
(f) addition of income appearing in Form 26AS or Form 16A or Form 16 which had not
been included in computing the total income in the return.

Such adjustments shall not be made unless an intimation is given to the assessee of
such adjustments either in writing or in electronic mode. The response received from
the assessee, if any shall be considered before making any adjustment and in a case
where no response is received within 30 days of the issue of such intimation, such
adjustments shall be made.

DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 14
 SUGGESTED_ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-7

INTERMEDIATE EXAMINATION
GROUP - I
(SYLLABUS 2016)
SUGGESTED ANSWERS TO QUESTIONS
DECEMBER - 2017
Paper - 7 : DIRECT TAXATION
Time Allowed : 3 Hours Full Marks : 100

The figures in the margin on the right side indicate full marks.
Wherever required, the candidate may make suitable assumption(s) and
state the same clearly in the Answer.
Working Notes should form part of the relevant answer.
All questions relate to the Income-Tax Act, 1961.

All the questions relate to Assessment Year 2017-2018, unless otherwise stated.
Answer Question No. 1, which is compulsory and any five from Question No. 2 to Question No. 8.

1. (a) Choose the most appropriate alternative: 1×10=10

(i) When Mr. Balu paid royalty to Dr. Peter of Sweden for use of know-how in India,
such payment is
(A) exempt from tax.
(B) accruing in India.
(C) Accrues in Sweden.
(D) received in India.
(ii) In the case of foreign company with total income of more than ` 1 crore but less
than ` 10 crores the surcharge leviable is at
(A) 5%
(B) 12%
(C) 2%
(D) 1%
(iii) Mr. Hari resident in India received ` 11 lakhs by way of dividend from Indian
companies. Such dividend is
(A) exempt from tax.
(B) taxable at regular rates.
(C) taxable at maximum marginal rate.
(D) taxable at 10%.
(iv) When an employee receives money on closure of national pension system trust it is
(A) chargeable to tax.
(B) exempt from tax.
(C) 40% is exempt from tax.
(D) 60% is exempt from tax.
(v) When employer contributes to approved superannuation fund it is chargeable to
tax as perquisite when the contribution exceeds
(A) ` 1,50,000
(B) ` 1,00,000
(C) ` 50,000
(D) ` 20,000
(vi) When the shares are held in unlisted company, it is treated as long term capital
asset when the holding period exceeds
(A) 36 months.
(B) 24 months.
(C) 12 months.
(D) 6 months.

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 SUGGESTED_ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-7

(vii)Long term capital gain arising from transfer of unlisted securities in the hands of
non resident/foreign company is chargeable to tax at
(A) 10%
(B) 20%
(C) 30%
(D) 40%
(viii)Interest on housing loan taken by individual being his first residential house is
eligible for deduction under section 80EE up to a maximum of
(A) ` 30,000
(B) ` 50,000
(C) ` 1,50,000
(D) ` 2,00,000
(ix) A start-up can claim deduction under section 80-IAC for ______ consecutive years
beginning from the year in which the eligible start-up was incorporated.
(A) 1
(B) 2
(C) 3
(D) 5
(x) When the return of income for the assessment year 2017-18 is filed under section
139(4), the assesse can revise the return on or before
(A) 31.03.2018
(B) 31.12.2018
(C) 31.03.2019
(D) 31.12.2019

(b) Match the following: 1×5=5

(i) Additional depreciation for plant used for more than 180 days (a) 60%
(ii) Basic exemption limit of income for resident individual being (b) ` 3,500
senior citizen
(iii) Rate of tax for LLP (c) ` 3,00,000
(iv) Deprecation for computers (d) 30%
(v) Exemption in respect of Post office SB interest (e) 20%

(c) State whether the following are True or False: 1×5=5

(i) Interest on deposit certificates issued under Gold Monetization Scheme, 2015 is
exempt from tax.
(ii) The monetary limit of ` 5 lakhs in respect of gratuity received by an employee
covered by Payment of Gratuity Act, 1972 is exempt from tax.
(iii) Medical insurance premium paid by son for parents who are senior citizens is
deductible up to a maximum of ` 35,000.
(iv) In order to avail carry forward loss from house property, the return of income must
be filed before the due date specified in section 139(3).
(v) 30% of the additional employee cost incurred by the employer is deductible
under section 80JJAA.

(d) Fill in the blanks: 1×5=5

(i) When a director of a company received 30 lakhs by way of non-compete fee, it is
taxable under the head _______________ .
(ii) When unrealized rent is received based on court decree but at the time of receipt
the property was not owned by the assesse, it is taxable under the head
___________ .
(iii) When Mr. Ashwin received ` 20,000 as scholarship for meeting the cost of
education it is ________________.
(iv) The Income Computation Disclosure Standards (ICDS) will apply only when the
assesse adopts _____________ method of accounting.
(v) Speculation loss can be carried forward for a maximum period of ___________
(number of) years after the year of such loss.

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 SUGGESTED_ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-7

Answer:

1. (a) (i) (B)

(ii) (C)
(iii) (D)
(iv) (C)
(v) (A)
(vi) (B)
(vii) (A)
(viii) (B)
(ix) (C)
(x) (C)

(b)
(i) Additional depreciation for plant used for more than 180 days (e) 20%
(ii) Basic exemption limit of income for resident individual being (c) ` 3,00,000
senior citizen
(iii) Rate of tax for LLP (d) 30%
(iv) Deprecation for computers (a) 60%
(v) Exemption in respect of Post office SB interest (b) ` 3,500

(C) (i) True

(ii) False
(iii) False
(iv) False
(v) True

(d) (i) Profits and gains of business or profession

(ii) Income from house property
(iii) Exempt from tax (or exempt)
(iv) Mercantile (or accrual)
(v) 4

2. (a) Surbhi has two houses, both of which are self-occupied. You are required to compute
Surbhi's income form house property for the Assessment Year 2017-18 and suggest
which house should be opted by Surbhi to be assessed as self-occupied so that her
tax liability is minimum. 6
The particulars of these are given below:
(Value in `)
Particulars House-I House-II
Municipal Valuation per annum 1,30,000 1,15,000
Fair Rent per annum 1,10,000 1,70,000
Standard rent per annum 1,00,000 1,65,000
Date of completion 31-03-1999 31-03-2001
Municipal taxes payable during the year (paid for House II 12% 8%
only)
Interest on money borrowed for repair of property during — 55,000
current year

(b) State the implications of the following transactions carried out by Kalai & Co. a
partnership firm (Whose turnover always exceeded ` 500 lakhs) with reverence to the
provisions applicable for the assessment year 2017-18: 9
(i) Audit fees of ` 35,000 paid by electronic transfer but no tax was deducted at
source.
(ii) Arrear salary of ` 60,000 paid in cash to an employee who was posted in a ship for
10 days continuously. Tax was deducted at source on the total salary paid to the
employee during the year.

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 SUGGESTED_ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-7

(iii) Lorry freight paid by cash ` 30,000.

(iv) ` 3 lakhs freight paid to Indian Railways without deduction of tax at source.
(v) Salary paid to a son of a partner ` 20,000 per month. The market rate of such
salary for similar qualification is found to be ` 15,000 per month.
(vi) Income tax paid in cash ` 22,000.
(vii) Interest on term loan paid to Canara Bank ` 18,000 without deduction of tax at
source.
(viii)Interest on capital paid to partners at 15% in accordance with the condition
contained in the partnership deed.
(ix) Keyman insurance policy premium paid ` 40,000.

Answer:

2. (a) Surbhi has more than one house property for self-occupation. She can avail the
benefit of self-occupation (i.e. benefit of "NIL" Annual Value) only in respect of one of
the house properties, at her option. The other house property would be deemed to
be let out property, in respect of which the expected rent would be the gross annual
value. Surbhi should, therefore, consider the most beneficial option while deciding
which house property should be treated by her as self-occupied.

Option 1 (House I opted to be self-occupied and house II deemed to be let out)

Income from house property for Assessment Year 2017-18

Particulars `
House I (Self-occupied) [Annual value is NIL] Nil
House II (Deemed to be let-out) (See working note below) 54,060
Income from house property 54,060

Option 2 (House I -deemed to be let out and House II opted to be self-occupied)

Income from house property for Assessment Year 2017-18

Particulars `
House 1 deemed to be let out (see working below) 70,000
House II (Self-occupied) [Annual value is Nil, but deduction for interest (30,000)
would be available, subject to a maximum of ` 30,000 (loan being taken
for repair of house property)
Income from house property 40,000

Since option 2 is more beneficial, Surbhi should opt to treat House II as self-occupied
and house I is deemed to be let out, in which case her income from house property
would be ` 40,000 for Assessment Year 2017-18.

Working note:
Computation of income from house I and house II assuming that both are deemed to
be let out
Particulars House 1 House II
` `
Gross Annual Value
Expected rent is the gross annual value of house property.
Expected rent = Higher of Municipal Value and Fair Rent, but 1,00,000 1,65,000
restricted to Standard Rent
Less: Municipal tax (paid by the owner during the previous Nil 9,200
year)
Net Annual Value 1,00,000 1,55,800
Less: Deductions under section 24
(a) 30% of NAV 30,000 46,740
(b)Interest on borrowed capital (allowed in full in case of -- 55,000

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 SUGGESTED_ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-7

deemed let out property

Income from house property deemed to be let out 70,000 54,060

(b) (i) Audit fees of ` 35,000 paid by electronic transfer but no tax was deducted at
source: As the payment exceeded ` 30,000, tax is deductible at source under
section 194J @10%. As the tax was not deducted, 30% of the expenditure is liable
for disallowance as per section 40(a)(ia)
(ii) Arrear salary of ` 60,000 paid in cash to an employee who was posted in a ship
for 10 days continuously. Tax was deducted at source on the total salary paid to
the employee during the year: Where an employee is temporarily posted for a
continuous period of 15 days or more in a place other than his normal place of
duty or on a ship, payment of salary to such employee in cash is covered by rule
6DD, which provides exceptional circumstances where disallowance under
section 40A(3) shall not be made. In this case, the employee was posted on a
ship for 10 days continuously. Therefore, arrear salary of ` 60,000 shall be
disallowed under section 40A(3).
(iii) Lorry freight paid by cash ` 30,000: As per proviso to section 40A(3) cash payment
made for plying, hiring or leasing goods carriages exceeding ` 35,000 shall only
be liable for disallowance. As the payment was made in cash for ` 30,000, the
payment is eligible for deduction.
(iv) ` 3 lakhs paid to Indian Railways without deduction of tax at source: As the
payment was made to Indian Railways i.e. Government, tax is not deductible at
source. Hence, the entire expenditure is allowable as deduction.
(v) Salary paid to son of a partner ` 20,000 per month. The market rate of such salary
for similar qualification is found to be ` 15,000: Where payment is made to a
relative of a partner and the Assessing Officer is of the opinion that such payment
is excessive or unreasonable having regard to the market value of goods or
services received, such excess or unreasonable amount is disallowed under
section 40A(2). Hence, the excess salary of ` 60,000 is to be disallowed.
(vi) Income tax paid in cash ` 22,000: It is liable for disallowance regardless of mode
of payment, as income tax is disallowed under section 40(a)(ii).
(vii) Interest of term loan paid to Canara Bank `18,000 without deduction of tax at
source: As per section 194A, tax is not required to be deducted at source from
interest paid to bank governed by Banking Regulation Act, 1949. Hence, no
disallowance under section 40(a)(ia) is called for.
(viii)Interest on capital paid to partners at 15% in accordance with the condition
contained in the partnership deed: Though the payment of interest is in
accordance with partnership deed, the excess of interest over 12% is liable for
disallowance, since section 40(b) prescribes the ceiling at 12%.
(ix) Keyman insurance policy premium paid ` 40,000: The payment of insurance
premium under keyman insurance policy is made wholly and exclusively for the
purpose of business and hence the same is eligible for deduction u/s 37(1).

3. (a) Mr. Rajiv, a resident individual, engaged in a wholesale business of health products.
He is also a partner in XYZ & Co., a partnership firm. The following details are made
available for the year ended 31.03.2017:
SI. No. Particulars ` `
(i) Interest on capital received from XYZ & Co., at 15% 1,50,000
(ii) Interest form bank on fixed deposit (Net of TDS ` 1,500) 13,500
(iii) Income-tax refund received relating to assessment year 34,500
2014-15 including interest of ` 2,300
(iv) Net Profit from wholesale business Amounts debited 5,60,000
include the following:
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
12.07.2017 and for the other on 31.12.2017)
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 SUGGESTED_ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-7

Salary to manager by way of a single cash payment 21,000

(v) The WDV of the assets (as on 01.04.2016) used in above
wholesale business is as under:
Computers 1,20,000
Motor Car (20% used for personal use) 3,20,000
(vi) LIP paid for independent son 60,000
PPF of his wife 70,000
You are required to compute the total income of the Mr. Rajiv for the assessment year
2017-18 and the closing WDV of each block of assets. 9

(b) Examine the applicability of TDS provisions for the financial year 2016-17 and amount
of tax, if any, to be deducted in the following cases: 6
(i) Payment of fee for technical services of ` 22,000 and royalty of ` 25,000 to Mr.
Ram who is having PAN.
(ii) Payment of ` 2,00,000 made to Mr. X for purchase of diaries made according to
specifications of M/s ABC Ltd. However, no material was supplied for such diaries
to Mr. X by M/s ABC Ltd.
(iii) Rent paid for plant and machinery ` 1,50,000 by a partnership firm having sales
turnover of ` 25,00,000 and net loss of ` 15,000.

Answer:

3. (a)
Computation of total income of Mr. Rajiv for Assessment Year 2017-18
Particulars ` `
A. Profits and gains of business or profession
Income from wholesale business
Net profit as per books 5,60,000
Add: Depreciation as per books 34,000
Disallowance of municipal tax for second half under section 3,500
43B, as the payment was made after the due date for filing the
return of income (` 7,000/2)
Disallowance under section 40A(3) in respect of salary paid in 21,000
cash since the same exceeds ` 20,000
20% of car expenses for personal use disallowed u/s 37(1) 8,000 66,500
6,26,500
Less: Depreciation allowable under the Income-tax Act
On computers: ` 1,20,000 x 60% 72,000
On Motor Car : ` 3,20,000 x 15% ` 48,000
Less: Disallowance for personal use (20%) ` 9,600 38,400 1,10,400
5,16,100
Income from firm: Interest from partnership firm to the extent of 1,20,000
12% allowed in the hands of the firm (` 1,50,000x12/15)
Business Income (A) 6,36,100
B. Income from other sources:
Interest on bank fixed deposit 15,000
Interest on income-tax refund 2,300 17,300
Gross total income (A + B) 6,53,400
Less: Deduction under section 80C
LIP for independent son 60,000
Contribution to PPF in wife's name 70,000
Since the maximum deduction under section 80C and 80CCE is 1,30,000 1,30,000
` 1,50,000, the entire sum of ` 1,30,000 is deductible
Total income 5,23,400

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 SUGGESTED_ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-7

Closing WDV as on 31-03-2017:

Computers (` 1,20,000 - ` 72,000) ` 48,000
Motor Car (` 3,20,000 - ` 38,400) ` 2,81,600

(b) (i) As per section 194J, liability to deduct tax is attracted only in case the amount
paid or payable as fees for technical services and royalty, individually, exceeds `
30,000 during the financial year.
In the given case, since the individual payment for fees for technical services i.e.
` 22,000 and that for royalty i.e. ` 25,000 is less than ` 30,000 each, there is no
liability to deduct tax at source.

(ii) According to section 194C, the definition of "work" does not include the
manufacturing or supply of product according to the specification by customer
in case the material is purchased from a person other than the customer.
Therefore, there is no liability to deduct tax at source in respect of payment of `
2,00,000 to Mr. X, since the contract is a contract for sale.

(iii) As per section 194-I, tax is to be deducted at source @ 2% on payment of rent for
plant and machinery, only if the payment exceeds `1,80,000 during the financial
year.
Since rent of ` 1,50,000 paid by a partnership firm does not exceed ` 1,80,000, tax
is not deductible.
Amount of turnover and the amount of profit/loss are not relevant.

4. (a) Following is the Profit and Loss Account of Mr. Abdul for the year ended 31.03.2017:
Particulars ` Particulars `
To Staff Salary 4,85,000 By Gross Profit 14,48,800
To Shop rent 1,20,000 By Post office SB A/c interest 14,200
To Admin. Expenses 2,96,000 By Dividend from listed Indian Companies 43,000
To Drawings 96,000 By Bank SB interest 12,000
To Depreciation 2,22,000
To Medical Expenses 37,000
To Net Profit 2,62,000
15,18,000 15,18,000
Additional information:
(i) Shop rent was paid to wife of Mr. Abdul and ` 60,000 is found to be excessive
payment considering its size and location.
(ii) Depreciation allowable under the income-tax rules works out to ` 1,81,000.
(iii) Medical expenses include expenditure for family members of ` 16,000. Balance
relate to staff medical expenses.
(iv) Drawings denote personal expenses of the proprietor.
(v) During the year he acquired a residential house for ` 20 lakhs which included
stamp duty and registration fee of ` 1,60,000.
You are requested to compute the total income of Mr. Abdul for the assessment year
2017-18. 7

(b) Mr. Mohan is sales manager in Steel King (P) Ltd. at Chennai. During the financial year
2016-17, he gets the following emoluments from his employer:
Particulars `
Basic salary upto 30.09.2016 20,000 p.m.
From 01.10.2016 30,000 p.m.
Dearness allowance @ 50% basic salary [it is not eligible retirement
benefits]
Transport allowance 2,000 p.m.
Children education allowance (for 2 children) 1,000 p.m.
Tiffin allowance (actual expenses ` 9,000) 15,000
Tax paid on employment 3,000
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 SUGGESTED_ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-7

Contribution to recognized provident fund by the employer @ 15% of

basic salary.
An unfurnished accommodation taken on lease by the employer was
given to the employee for the whole year. Lease rent paid by the
employer `1,80,000. Amount recovered from the employee `2,000 per
month.
Domestic servant salary reimbursed by the employer as per 5,000 p.m.
employment agreement.

Compute the salary income of Mr. Mohan for the assessment year 2017-18. 8

Answer:

4. (a)
Computation of Total Income of Mr. Abdul for the Assessment Year 2017-18
Particulars ` `
A. Profits and gains of business or profession
Net profit as per Profit & Loss Account 2,62,000
Add: Depreciation debited to Profit & Loss Account 2,22,000
Rent to wife-excess payment disallowed u/s 40A(2) 60,000
Medical expenses for family members-disallowed u/s 37(1) 16,000
Drawings debited to Profit & Loss Account 96,000 3,94,000
6,56,000
Less: Depreciation as per Income-tax rules 1,81,000
Post office SB A/c interest 14,200
Dividend from Indian companies-exempt u/s 10(34) 43,000
Bank SB Interest 12,000 2,50,200
Business income 4,05,800
B. Income from other sources
Post office SB account interest `14,200 less exemption under 10,700
section 10(15) of ` 3,500
Bank SB interest 12,000 22,700
Gross Total Income 4,28,500
Less: Deduction under section 80C in respect stamp duty on 1,50,000
residential house `1,60,000, but deduction is limited to ` 1,50,000
Deduction under section 80TTA in respect of Bank SB Interest 10,000 1,60,000
Total Income 2,68,500

(b)
Computation of salary income of Mr. Mohan for the Assessment Year 2017-18
Particulars ` `
Basic salary (` 20,000 x 6) + (` 30,000 x 6) 3,00,000
Dearness allowance @ 50% of basic salary 1,50,000
Transport allowance ` 2,000 x 12 24,000
Less: Exemption under section 10(14): ` 1,600 x 12 19,200 4,800
Fixed Tiffin allowance-fully taxable 15,000
Children education allowance 12,000
Less: Exemption under section 10(14): ` 100 x 2 x 12 2,400
9,600
Tax on employment paid by the employer-perquisite u/s 17 3,000
Contribution of employer to employees' provident fund in 9,000
excess of 12% is taxable [3% of ` 3,00,000]
Value of rent free accommodation:
Actual amount of lease rent ` 1,80,000
15% of salary (i.e. `3,00,000+ `4,800 + `15,000+`9,600) ` 49,410
Lower of above 49,410

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 SUGGESTED_ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-7

Less: Amount recovered from the employee @ ` 2,000 per month 24,000
25,410
Reimbursement of salary of domestic servant (` 5,000 x 12) 60,000
Gross salary 5,76,810
Less: Deduction under section 16 in respect of professional tax paid 3,000
Taxable salary 5,73,810

5. (a) State the taxability of the following transactions for the assessment year 2017-18:
2x6=12
(i) Mr. Ashok acquired a vacant site from Mr. Brijesh (non relative) for ` 6 lakhs when
the stamp duty valuation of the vacant site on the date of registration of
document was ` 10 lakhs.
(ii) Rosy & Co. a partnership firm engaged in trading of vacant lands. It sold vacant
land for ` 40 lakhs when the stamp duty valuation of the lands was ` 55 lakhs.
(iii) Ms. Janaki received family pension of ` 84,000.
(iv) Ms. Jency got gift of 500 listed equity shares of a company from her husband
when the market value of the share was ` 150 per share. After a month, the
company issued bonus shares in 1:1 ratio. The original shares were acquired by
her husband 4 months before the date of gift for ` 50,000. All the 1000 shares were
sold for ` 1,50,000 through off-market transaction. How much is taxable and in
whose hands it is taxable as income?
(v) Mr. Jayaram retired from a nationalized bank on 30.11.2016, sold his motor car for
` 5 lakhs. The Car was used by him for the last 5years and was received as gift
from his brother who acquired the car for ` 10 lakhs on 10.01.2010.
(vi) Mr. Vasu acquired an agricultural land situated in a village (rural area) for ` 10
lakhs from Mr. Sundar (non relative) when the stamp duty valuation on the date of
registration of document was ` 12 lakhs.

(b) Mr. Vidyasagar received following gifts during the financial year 2016-17:
(i) Gift on the occasion of marriage from friends ` 70,000.
(ii) Gift on the occasion of birthday from friends ` 55,000.
(iii) Gift from maternal uncle on birthday ` 35,000.
(iv) Gift of motor car by grandfather's younger brother. Fair market value of the car on
the date of gift ` 3,50,000.
Compute the amount of gifts includible in the total income of Mr. Vidyasagar for the
financial year 2016-17. 3

Answer:

5. (a) (i) ` 4 lakhs is taxable under the head "income from other sources" in the hands of
Ashok under section 56(2).
For the purpose of computing capital gain in the hands of Mr. Brijesh, the
deemed sale consideration would be ` 10 lakhs as per section 50C.
(ii) Even where the immovable property being land or building or both is dealt with
as stock-in-trade of a business, as per section 43CA the difference between
stamp duty value and the actual consideration would be taxable as income from
business.
Hence, ` 15 lakhs would be taxable as business income under section 43CA in the
hands of Rosy & Co.
(iii) As per section 57(iia) on family pension a standard deduction shall be allowed to
Mr. Janaki @ 33 1/3% of such pension or ` 15,000, whichever is less.
Therefore, the balance amount of ` 69,000 is taxable under the head "income
from other sources in the hands of Ms. Janaki.
(iv) Short-term capital gain arising from sale of original shares gifted i.e., ` 25,000 (`
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 SUGGESTED_ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-7

75,000 - ` 50,000) shall be taxed in the hands of husband of Ms. Jency under
section 64.
Capital gain attributable to bonus shares will not be liable for clubbing under
section 64 since it is an accretion to the original shares. Therefore, ` 75,000 being
the sale consideration from sale of bonus shares whose cost of acquisition is Nil is
taxable in the hands of Ms. Jency as short-term capital gain.
(v) As per section 2(14), "capital asset" does not include personal effects (i.e.
moveable property held for personal use).
Since Mr. Jayaram was an employee, the motor car constituted his personal
effect. Therefore, sale of motor car shall not result in capital gain.
(vi) The term "property" as defined in section 56(2)(vii) does not include rural
agricultural land which is not a "capital asset".
Regardless of whether the transaction is between relatives or not, the difference
between the stamp duty value and the sale consideration is not liable to tax.

(b)
Particulars `
Gift on occasion of marriage from relatives and friends-fully exempt Nil
Gift on the occasion of birth day from friends-taxable 55,000
Gift from maternal uncle who is covered by the definition of relative. Nil
Hence, it is exempt
Grandfather's younger brother is not covered by the definition of "relative". Nil
However, motor car is not covered by in the definition of the term
"property" in Explanation to section 56(2)(vii)
55,000
As the aggregate amount of gift chargeable to tax exceeds ` 50,000, the
entire amount is includible in the total income of Mr. Vidyasagar.

6. (a) Mr. Rahman furnishes you the following information for the financial year 2016-17:
Particulars `
Loss from speculation business-A 80,000
Profit from speculation business-B 40,000
Loss from self occupied house property 1,80,000
Income from let out house property 4,00,000
Income from trading and manufacturing business @ 8% 2,00,000
Salary income 3,70,000
Interest on PPF deposit 65,000
Long term capital gain on sale of vacant site 1,10,000
Short term capital loss on sale of jewellery 50,000
Investment in tax saver deposit on 31.03.2017 60,000
Brought forward loss of business of assessment year 2011-12 1,00,000
Donation to a charitable trust recognized under section 12AA and 1,40,000
approved under section 80G
Enhancement compensation received from Government for compulsory 3,00,000
acquisition of lands in the year 2004.
You are requested to compute the total income of Mr. Rahman for the financial year
2016-17 and any loss eligible for carry forward. 8

(b) Mr. Gangai Amaran (age 50) incurred following expenditures during the financial
year: 2016-17:
SI. No. Particulars `
(i) Medical expenditure on the treatment of his non-dependent father 30,000
(age 82)
(ii) Medical expenditure on treatment of his non-dependent mother (age 25,000
73)
(iii) Medical expenditure for a surgery undergone by himself 50,000

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 SUGGESTED_ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-7

(iv) Medical insurance premium for non-dependent mother (age 73) 35,000
(v) Medical insurance premium for self (paid by cheque) 27,000
(vi) Preventive medical health check-up paid in cash for himself. 7,000
Compute the amount eligible for deduction under section 80-D for the financial year
2016-17. 7
Answer:

6. (a)
Computation of total income of Mr. Rahman for the Assessment Year 2017-18
Particulars ` `
Salary income 3,70,000
Income from house property:
Income from let out property 4,00,000
Loss from self-acquired property (1,80,000)
2,20,000
Profits and gains from business or profession:
Loss from speculation business-A (80,000)
Profit from speculative business-B 40,000
Loss to be carried forward (40,000)
Income from trading and manufacturing business 2,00,000
Less: brought forward business loss of Assessment Year 2011-12 1,00,000
1,00,000
Capital Gain:
Long-term capital gain on sale of vacant site 1,10,000
Less: set-off of short-term capital loss on sale of jewellery 50,000
60,000
Enhanced compensation received from Government for 3,00,000
compulsory acquisition of land u/s 45(5)-Cost is deemed to be Nil
3,60,000
Income from other sources:
Interest of PPF deposit - exempted Nil
Gross Total Income 10,50,000
Less: Deduction u/s 80C in respect of tax saver deposit 60,000
9,90,000
Less: Deduction under section 80G in respect of donation to 1,40,000
approved charitable institution : Amount of donation
Limited to 10% of total income before deduction under 99,000
section 80G which is ` 99,000
Deduction @ 50% of ` 99,000 49,500
Total Income 9,40,500

(b)
Computation of deduction under section 80-D for the Assessment Year 2017-18
Particulars Reason `
(i) Medical expenditure on the Eligible for deduction as he is a very 30,000
treatment of his non-dependent senior citizen. Also because no
father (age 82) amount was paid towards his health
insurance.
(ii) Medical expenditure on Not deductible as she is not a very Nil
treatment of his non-dependent senior citizen.
mother (age 73)
(iii) Medical expenditure for a Not deductible as he is not a very Nil
surgery undergone by himself senior citizen
(age 50)
(iv) Medical insurance premium for It is deductible even though she is not Nil
non-dependent mother (age 73) dependent on him. But limited to `

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 SUGGESTED_ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-7

30,000 but since the limit has been

exhausted in (i) above, no further
deduction is allowable.
(v) Medical insurance premium for Eligible, but limited to ` 25,000 25,000
himself paid by cheque.
(vi) Preventive medical health check Eligible but limited to ` 5,000. But as Nil
up paid in cash for himself the entire amount of Rs. 25,000 has
already been exhausted in (v) above,
no further deduction is allowed
Total deduction 55,000

7. (a) MSV Ltd. gives you the following information for the year ended 31.03.2017:
Particulars `
Net profit as per Statement of Profit and Loss 50,00,000
The following expenses are debited to statement of Profit and Loss:
Capital expenditure incurred for promoting family planning among 2,00,000
employees
Interest paid for delayed payment of consideration for purchase of 3,00,000
machinery to the supplier being a unit under the MSMED Act, 2006. The
machinery is eligible for depreciation @ 15%.
Donation to political parties (by cheque) 1,00,000
Expenditure incurred for issue of bonus shares 75,000
Cost of know-how acquired from Dr. Singhania on 01.06.2016 4,00,000
The following items are credited to Profit and Loss Account:
Electricity subsidy refunded during the year 60,000
Bad debt written off and was allowed earlier, recovered now. 90,000
Dividend received from subsidiary company Vijay (P) Ltd. 50,000
You are requested to compute the income of the company for the Assessment Year
2017-18. 7

(b) You are requested to state whether the following will attract penalty provisions for the
financial year 2016-17. 4x2=8
(i) Mr. Jayant whose turnover was ` 150 lakhs for the financial year 2016-17 admitted
income as per books of account as ` 6,50,000. The return was filed without getting
the books of account audited under section 44AB.
(ii) Mr. Maheswari received ` 5 lakhs by cash on 01.10.2016 for sale of an apartment
at Thane to Mr. Mahesh. As the agreement between the parties got cancelled, Mr.
Maheswari refunded the advance by account payee cheque on 01.02. 2017.

Answer:

7. (a)
Computation of total income of MSV Ltd for the Assessment Year 2017-18
Particulars `
Net profit as per Statement of Profit and Loss 50,00,000
Add:
Capital expenditure incurred for promoting family planning among 1,60,000
employees is eligible for deduction in 5 annual installments under section
36(1)(ix). Hence 4/5th disallowed
Interest paid for delayed payment of consideration for purchase of 3,00,000
machinery to the supplier being MSMED Act, 2006 is not deductible
Donation to political parties by cheque considered separately under 1,00,000
section 80GGB
Expenditure incurred for issue of bonus shares is a revenue expenditure Nil

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 SUGGESTED_ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-7

deductible under section 37(1) as the issue does not expand the capital
base of the company through fresh inflow of funds
Cost of know how acquired from Dr. Singhania on 01.06.2016 being a 4,00,000
capital expenditure is not allowable under section 37(1)
59,60,000
Less:
Electricity subsidy refunded during the year being a revenue subsidy Nil
chargeable to tax. As the amount has already been credited to Statement
of Profit and Loss, no adjustment is required.
Bad debts written off and allowed recovered now is chargeable to tax Nil
under section 41(4). As the amount has already been credited to the
Statement of Profit and Loss, no adjustment is required
Dividend received from subsidiary company, Vijay (P) Ltd. is exempted 50,000
under section 10(34) and hence the same is to be excluded.
Depreciation on know-how @25% under section 32 1,00,000
Gross Total Income 58,10,000
Less: Deduction under section 80GGB in respect of donation to political 1,00,000
parties
Total Income 57,10,000

(b) (i) In the case of an assessee whose turnover exceeds ` 100 lakhs, the books of
account have to be audited under section 44AB.
Where the assessee opts to admit income under section 44AD, then the turnover
up to ` 200 lakhs is eligible for presumptive income determination at 8%.
In this case, Mr. Jayant's turnover is ` 150 lakhs and hence can offer income
under section 44AD at 8% of the turnover. (The presumptive income shall be 6%
of the turnover where the sale proceeds are received through banking channel)
However, without getting the books of account audited Mr. Jayant has filed the
return by admitting the income at ` 6,50,000 which is less than 8% of ` 150 lakhs.
As the books of account were not audited then the penalty imposable would be
0.5% of the turnover or ` 1,50,000, whichever is less. (Section 271B)

(ii) When a person receives money whether as advance or otherwise, in relation to

transfer of immovable property and the sum is ` 20,000 or more it must be by
means of account payee cheque or account payee bank draft or use of
electronic clearing system through a bank account (Section 269SS)
For contravention of section 269SS the penalty imposable under section 271D is
equivalent to the sum so accepted.
Therefore, Mr. Maheswari who accepted ` 5 lakhs in cash as advance for transfer
of immovable property will be liable for penalty of ` 5 lakhs under section 271D.
He has repaid the amount by account payee cheque and hence the repayment
is not in contravention of section 269T and hence is not liable for penalty.

8. Write short notes on any three of the following: 5×3=15

(a) State the type of assesses to whom the Income Computation Disclosure Standards
(ICDS) apply?

(b) Who must sign the return of income in the following cases:
(i) Hindu undivided family when karta is bedridden.
(ii) Local authority.
(iii) Political party.
(iv) Limited Liability Partnership.
(v) Association of persons

(c) Revised return.

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 SUGGESTED_ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-7

(d) Advance tax for senior citizens being resident / non-resident.

Answer:

8. (a) Applicability of ICDS

It is applicable to persons having income under the head "profits and gains of
business or profession" and / or "Income from other sources".
it is applicable only to those who follow mercantile system of accounting. It does not
apply to those who follow cash system of accounting.
It is applicable for limited purpose of adjusting the income chargeable to tax and
does not mandate maintenance of books of account as per ICDS,
Wherever there is conflict between the provisions of law and ICDS, the provisions of
law would prevail.
Wherever there is conflict between the court decisions and ICDS, the ICDS being
latest one would prevail over the court decisions. It is applicable from Assessment
Year 2017-18 onwards.

(b) (i) Hindu undivided family when Karta is bedridden: Where the Karta is absent from
India or is mentally incapacitated from attending to his affairs, any other adult
member of such family must sign the return of income-section 140.
(ii) Local authority: Return of income is to be signed by the Principal Officer - section
140.
(iii) Political Party: Chief executive officer of such party (whether known as secretary
or any other designation) must sign the return of income-section 140.
(iv) Limited Liability Partnership: Return of income is to be signed by a designated
partner or where for any unavoidable reason such designated partner is not able
to sign or where there is no designated partner, it can be signed by any partner
thereof-section 140.
(v) Association of persons: Return must be signed by any member of the association
or the principal Officer thereof-section 140.

(c) Revised Return [section 139(5)]

When a person has furnished a return under section 139(1) (i.e. within prescribed time
limit) or a belated return under section 139(4) he can file a revised return.
The filing of revised return is to correct any omission or wrong statement therein.
The time limit is any time before expiry of one year from the end of the assessment
year or before the completion of assessment, whichever is earlier.
Assessment for this purpose means regular assessment under section 143(3) or best
judgment assessment under section 144. In other words the assessee can file a
revised return of income after completion of summary assessment under section
143(1) but before completion of regular assessment under section 143(3) or best
judgment assessment under section 144.
The assessee can revise his return for more than once within the time prescribed in
section 139(5).

(d) Advance tax for senior citizen

Advance tax is payable by an assessee where the total tax liability after deduction of
TDS/TCS is more than ` 10,000-section 208.

However, individuals, who are resident, are exempted from paying advance tax in
the following cases (section 207):
(i) They do not have income chargeable under the head "profits and gains from
business or profession and
(ii) They have attained the age of 60 years or more at any time during the previous
year.
In the case of non-resident there is no exemption from payment of advance tax.

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 SUGGESTED_ANSWERS TO QUESTIONS_SYL2016_DEC2017_PAPER-7

Whether or not such non-resident senior citizen has business or professional

income has to pay advance tax, when tax liability exceeds ` 10,000.

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 Suggested Answer_Syllabus 2016_Jun2017_Paper 7

INTERMEDIATE EXAMINATION
GROUP - II
(SYLLABUS 2016)

SUGGESTED ANSWERS TO QUESTIONS

JUNE - 2017
Paper - 7 : DIRECT TAXATION
Time Allowed : 3 Hours Full Marks : 100
The figures in the margin on the right side indicate full marks.
Wherever required, the candidate may make suitable assumption(s) and
state the same clearly in the answer.
Working notes should form part of the relevant answer.
All questions relate to the Income-tax Act, 1961.
All the questions relate to Assessment Year 2017-2018, unless otherwise stated.
Answer Question No. 1, which is compulsory and any five from Question Nos. 2 to 8.

Section - A
1. (a) Find the most suitable alternative for the following: 1×10=10

(i) The number of identities included in the definition of persons is

(A) five
(B) six
(C) seven
(D) eight
(ii) A trust shall not be considered as charitable trust for according the benefits of
section II, when the commercial activities in the previous year exceed _______.
(A) 10 lakhs
(B) 25 lakhs
(C) 15 lakhs
(D) 30 lakhs
(iii) Deduction available under section 24(a) is_________________________ of NAV.
(A) 30%
(B) 50%
(C) 15%
(D) 70%
(iv) Expenditure incurred by a businessman for ready to use software is entitled to benefit of
(A) 15% as depreciation
(B) 30% as depreciation
(C) 60% as depreciation
(D) 100% as revenue expenditure
(v) The basic exemption limit for a resident super senior citizen above the age of 80 is
(A) 2,00,000
(B) 2,50,000
(C) 5,00,000
(D) None of the above
(vi) The provisions relating to interest on delay in payment of refund are given in section

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 Suggested Answer_Syllabus 2016_Jun2017_Paper 7
(A) 234A
(B) 234B
(C) 244A
(D) 244B
(vii)Which of the following can be corrected while processing the return of income
under section 143(1)?
(A) Any arithmetical error in the return
(B) Any mistake in the return of income
(C) Any error of principle in the return of income
(D) Any claim by the taxpayer which is against law
(viii)Notice under section 156 is given for
(A) failure to submit return
(B) tax demand
(C) deferment of tax
(D) None of the above
(ix) As per section 271H, where a person fails to file the statement of tax deducted/
collected at source i.e. TDS/TCS return on or before the due dates prescribed in
this regard, then he shall be liable to pay penalty under section 271H. Maximum
penalty that can be levied is _______________.
(A) 1,00,000, but not exceeding the amount of TDS/TCS.
(B) 2,00,000
(C) 3,00,000
(D) 3,00,000
(x) The threshold exemption limit for Equalization levy is?
(A) 5 lakh
(B) 3 lakh
(C) 2 lakh
(D) 1 lakh

(b) Match the following: 1×5=5

(i) Section 87A (A) 5000
(ii) Section 80GG (B) 5000 (or) Actual Tax (w.e.l.)
(iii) Sukanya Samrudhi Scheme (C) 1500
(iv) Minor child exemption (D) 30% deduction
(v) Arrears of rent (E) Section 80C

(c) State whether true or false: 1×5=5

(i) An Indian company is always resident in India.
(ii) Salary received by a member of Parliament is exempt.
(iii) Income of a self-occupied property cannot be negative.
(iv) Preliminary expenditure are allowed deduction in 10 equal instalments.
(v) Capital gain arises from the transfer of any capital asset.

(d) Fill in the blanks: 1×5=5

(i) In case of an Indian citizen who leaves India during the previous year for
employment outside India, the period of 60 days shall be substituted by_____ days.
(ii) Scholarship received by a student was 2,000 p.m. He spends 16,000 for meeting
the cost of education. The Balance 8,000 is _________ __________.

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 Suggested Answer_Syllabus 2016_Jun2017_Paper 7
(iii) Generally, income is taxable under the head, house property only when the
assesse is the ___________ of such house property.
(iv) Salary, bonus, commission or remuneration due to or received by a working
partner from the firm is taxable under the head ______________ .
(v) Period for holding bonus shares or any other financial asset without any payment
shall be reckoned from the date of ____________ .

Answer:

1. (a) (i) (C)

(ii) There is no option in respect of correct answer as it should be 20% of gross
receipt.
(iii) (A)
(iv) (D)
(v) (C)
(vi) (C)
(vii) (A)
(viii) (B)
(ix) (A)
(x) (D)

(b)
(i) Section 87A (B) 5,000 (or) Actual Tax (w.e.l.)
(ii) Section 80GG (A) 5,000
(iii) Sukanya Samrudhi Scheme (E) Section 80C
(iv) Minor child exemption (C) 1,500
(v) Arrears of rent (D) 30% deduction

(C) (i) True

(ii) False
(iii) False
(iv) False
(v) True

(d) (i) 182

(ii) Exempt
(iii) Owner
(iv) Profits and gains of business or profession
(v) Allotment

Section B
Answer any five questions from this section.

2. (a) Mr. Ramesh, an Indian citizen, gives you the following information for the year ended
31.03.2017.
Business income in Mumbai 2,50,000
Rental income from property let out in London (Converted in Indian rupees) 5,40,000
Fixed deposit interest in India from LMN Bank 60,000
Fixed deposit interest from Bank of England (Converted in Indian rupees) 40,000
Business consultancy income from Essex Ltd. in Hampshire (England), being 75,000
a company incorporated in Delhi having branch office in England. The
business is managed from Delhi. (Converted in Indian rupees)
Agricultural income from land located in Malaysia (Converted in Indian 90,000
rupees)

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 Suggested Answer_Syllabus 2016_Jun2017_Paper 7
Income from nursery at Alwar, Rajasthan 1,40,000

Mr. Ramesh returned to India on 15.06.2016 after remaining in England for 10 years.
During the last 4 years he was in India for 100 days only. Determine the residential
status of Mr. Ramesh for the assessment year 2017-18 and compute his total income
chargeable to tax in India by giving reason for treatment of each item.
Note: Ignore Double Taxation Avoidance Agreement (DTAA). 8

(b) Mr. Raghu is employed with Yes Power Co Ltd. as General Manager (Finance) at
Kolkata. He furnishes you the following information for the year ended 31.03.2017.
Basic salary (per month) 40,000
Dearness allowance (per month) eligible for retirement benefits 30,000
Rent-free accommodation is provided.
A car was provided to him from 01.06.2016 (engine cubic capacity more
than 1.6 litres). It is used both for official and personal purposes. Running
expenses are fully met by employer. Mr. Raghu drives the car himself.
Provident fund contribution of both employer and employee 12% of basic
pay and dearness allowance.
Fixed tiffin allowance (per annum) 20,000
Fixed medical allowance (per annum) 30,000
Credit card annual fee paid by employer (used for personal purposes) 7,000
Only son of Mr. Raghu is given free education in the school run by the
employer. Cost of education is 1,500 per month.
Loan taken by Mr. Raghu from provident fund during the year 50,000
Compute the total income of Mr. Raghu for the assessment year 2017-18. 7

Answer:

2. (a) Mr. Ramesh has remained in India for more than 182 days during the financial year
2016 - 17 and therefore, he satisfies one of the basic conditions.
He does not satisfy the other basic conditions viz. (i) stay of 365 days or more in 4
(preceding) years preceding the previous year.
As regards additional condition he has been non-resident in 9 out of 10 previous
years. Also, his stay in India was less than 730 days during 7 years preceding the
previous year 2016-17.

Therefore his status would be resident but not ordinarily resident.

Computation of Total Income of Mr. Ramesh for the Assessment Year 2017-18
Source of Income Reason
Business income Since the income accrues in India, it is chargeable 2,50,000
to tax in India
Income property in It accrues outside India and it is not from a business Nil
London controlled or profession set up in India. Hence not
chargeable in India.
Fixed deposit interest Since the income accrues in India it is chargeable to 60,000
from LMN Bank tax in India
Fixed deposit interest It accrues outside India and it is not from a business Nil
from Bank of England controlled or profession set up in India. Hence not
chargeable.
Business consultancy It accrues or arises outside India and is from a 75,000
income business controlled from Delhi. Hence chargeable to
tax.
Agri income from It is not chargeable to tax since it is not arising from a Nil
Malaysia business controlled or set up in India.

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 Suggested Answer_Syllabus 2016_Jun2017_Paper 7
Income from Nursery Being agricultural income it is exempt under section Nil
10(1)
Total Income 3,85,000

(b) Computation of Total Income of Mr. Raghu for the Assessment Year 2017-18
Basic salary 4,80,000
Dearness allowance - eligible for retirement benefits 3,60,000
Rent-free accommodation provided @ 15% of salary 1,33,500
A car was provided to him from 01.06.2016 (engine cubic capacity more 24,000
than 1.6 litres). Used both for official and personal purpose. Running
expenses met by employee. ( 2400×10)
Provident fund contribution of employer up to 12% is not chargeable to Nil
tax as perquisite.
Fixed Tiffin allowance - always taxable 20,000
Fixed medical allowance – It is always taxable 30,000
Credit card annual fee paid by employer (used for personal purposes)- 7,000
taxable
Only son of Mr. Raghu is given free education in the school run by the 18,000
employer. Cost of education 1,500 per month. Since the cost of
education exceeds 1,000 it is fully taxable
Loan taken by Mr. Raghu from provident fund during the year- not taxable Nil
“Salaries” / Gross Salary Income 10,72,500
Less: Deduction U/s. 80 C
In respect of PF contribution by the employee @ 12% of 8,40,000 1,00,800
Total Income 9,71,700

3. (a) Gopi Industries furnishes you the following details:

Particulars Machinery Computers Furnitures
WDV as on 01.04.2016 20,00,000 6,00,000 2,00,000
Purchased during the year and used for more than 4,00,000 1,00,000 40,000
180 days
Purchased and used w.e.f. 01.01.2017 1,00,000 2,00,000 20,000
Sold a group of assets on 01.03.2017 2,00,000 1,00,000 50,000

Compute depreciation allowable for the assessment year 2017-18. Ignore additional
depreciation. 6

(b) Rao and Jain is a partnership firm, consisting of 5 partners, with turnover of
1,20,00,000 for the year ended 31.03.2017. The partnership deed provides for interest
on capital at 14% per annum on the capital contribution of 5 lakhs each made by all
the partners. All the partners are eligible for monthly working partner salary of 10,000
each. The firm provides you the following additional information:

Depreciation eligible under Income-tax Rules, 1962 2,00,000

Interest paid on unsecured loans for which no tax was deducted at 5,00,000
source during the year or before the due date for filing return of income
u/s 139(1)
Contract payments made during the year for which tax was deducted 4,00,000
but remitted in financial year 2017-18 and before 'due date' for filing the
return of income specified in section 139(1).

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 Suggested Answer_Syllabus 2016_Jun2017_Paper 7

Rent paid to a partner Mr. Jain for premises occupied by the firm 1,20,000 on which
no tax was deducted at source. The reasonable rent for similar premises was
determined at 1,80,000
The Net Profit of the firm before charging interest on capital and working partner
salary as per books was 8,40,000. Depreciation notionally computed and provided
in the books amounts to 1,60,000.
The partners of the firm want you to compute income under section 44AD and also as
per regular provisions, and suggest which option would be beneficial to them. 9

Answer:

3. (a)
Gopi Industries Computation of depreciation for the Assessment Year 2017-18
Particulars Machinery Computers Furnitures
WDV as on 01.4.2016 20,00,000 6,00,000 2,00,000
Purchased during the year and used for more 4,00,000 1,00,000 40,000
than 180 days
Purchased and used w.e.f 01.01.2017 1,00,000 2,00,000 20,000
25,00,000 9,00,000 2,60,000
Less: Sold on 01.3.2017 2,00,000 1,00,000 50,000
WDV before depreciation 23,00,000 8,00,000 2,10,000
Depreciation
For assets used for more than 180 days 3,30,000 3,60,000 19,000
(15% of 22 (60% on 6 (10% on
lakhs) lakhs) 1.90 lakhs)
For assets used for less than 180 days 7,500 60,000 1,000
(7.5% of 1 (30% on 2 (5% on
lakh) lakhs) 20,000)
Total Depreciation 3,37,500 4,20,000 20,000

Note: It is also possible to taken the view that for computing depreciation, the position
of the block, as at the year end is to be taken. Value of any asset sold can first be
deducted from assets purchased during the year and used for less than 180 days and
only if required, from the balance value in the block in such case, depreciation will
be:
More than 180 days (23,00,000 × 15%) = (7,00,000 × 60%) = (21,00,000 ×10%) =
3,45,000 4,20,000 2,10,000
Less than 180 days Nil 30,000 Nil
Total depreciation 3,45,000 4,50,000 2,10,000

(b)
Computation of Income from Business for the Assessment Year 2017-18
Particulars Section 44AD Regular
Provisions
Net Profit as per Profit and Loss Account 8,40,000
Net Profit as per presumptive provision @ 8% 9,60,000
Add:
Depreciation debited in the books Not applicable 1,60,000
Premises rent paid to partner being a reasonable amount, Not applicable Nil
not liable for any disallowance under section 40A(2)(b)

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 Suggested Answer_Syllabus 2016_Jun2017_Paper 7
Interest on unsecured loan on which tax was not Not applicable 1,50,000
deducted, hence disallowed @ 30%
11,50,000
Less: Depreciation under income-tax rules Not applicable 2,00,000
9,50,000
Less: Interest on capital to partners @ 12% of 25 lakhs Not allowed 3,00,000
Book Profit 6,50,000
Working partner salary allowable
On First 3 lakhs @ 90% = 2,70,000
On balance 3,50,000 @ 60% = 2,10,000
Or Actual salary (10,000 x 12 x 5)= 6,00,000 WEL Not allowed 4,80,000
Net Income from Business 9,60,000 1,70,000
Contract payment: Since TDS is deducted before due date, — —
that is no impact
Suggestion: As the income chargeable to tax under regular provisions is less than the
presumptive income, the firm is advised to opt for regular provisions for filing the
return and not opt for section 44AD.

4. (a) Xavier Ltd. gives you the following data for the assessment year 2017-18:
Net Profit as per Profit and Loss Account 33,00,000
Amounts debited to Profit and Loss Account:
Depreciation (includes on revalued assets 5 lakhs) 17,00,000
Provision for bad and doubtful debts 7,00,000
Bank term loan interest (including unpaid amount of 1,00,000 3,00,000
Expenditure on amalgamation (carried out 4 years ago) amortised under 5,00,000
section 35DD
Transfer to general reserve 10,00,000
Proposed dividend 15,00,000
Provision for taxation (including deferred tax liability) 13,00,000
Expenditures debited on which tax was not deducted at source, though 4,50,000
deductible
Items credited to Profit and Loss Account:
Dividend from Indian companies 4,00,000
Long-term capital gain on sale of listed shares 8,00,000
Agricultural income from lands in Karnataka 3,50,000
Additional Information:
(i) Brought forward depreciation as per books of account 6,50,000.
(ii) Brought forward business loss as per books of account 7,20,000.

You are requested to compute book profit of the company under section 115 JB of the
Income-tax Act, 1961. 7

(b) Ms. Vidya residing in Chennai acquired a residential house for 15,25,000 on 28th May,
1996. It was sold for 100 lakhs in July 2016. The stamp duty valuation on the date of sale
was 110 lakhs. She paid brokerage @2% of sale consideration and on which no tax was
deducted at source.

She deposited 40 lakhs in REC Capital Gain Bonds in September, 2016 and 20 lakhs in
NHAI Capital Gain bonds in February 2017. She acquired a residential property in Colombo

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 Suggested Answer_Syllabus 2016_Jun2017_Paper 7

for 50 lakhs and left for Colombo in August 2016 and occupied the said property. She
returned to India in September 2016 leaving the property vacant till the date of sale.

Her other incomes include (i) 1,50,000 by way of interest on capital @15% from a firm at
Salem; and (ii) income from rubber estates and manufacture of rubber in Kerala amounting
to 3 lakhs., where rubber is grown and processed by her.

She paid 35,000 towards health insurance of her parents who are senior citizens through
credit card and paid in cash 8,000 towards master health checkup for herself.
Cost Inflation Index : F.Y. 1996-97 = 305; F.Y. 2016-17 = 1125
Compute the total income of Ms. Vidya for the Assessment Year 2017-18 under proper heads
of income. Ignore DTAA provisions. 8

Answer:

4. (a)
Computation of Book profit under section 115 JB
Net Profit as per Profit and Loss Account 33,00,000
Add:
Depreciation (includes on revalued assets 5 lakhs) 17,00,000
Provision for bad and doubtful debts 7,00,000
Bank term loan interest (including unpaid amount of 1,00,000) - no Nil
adjustment
Expenditure on amalgamation (carried out 4 years ago) amortised under Nil
section 35DD -no adjustment
Transfer to general reserve 10,00,000
Proposed dividend 15,00,000
Provision for taxation (including deferred tax liability) 13,00,000
Expenditures debited on which tax was not deducted at source - no Nil
adjustment
95,00,000
Less: Depreciation excluding depreciation on revalued assets 12,00,000
Dividend from Indian companies - section 10(34) 4,00,000
Long-term capital gain on sale of listed shares - no adjustment Nil
Agricultural income from lands in Karnataka - section 10(1) 3,50,000
19,50,000
Less: Unabsorbed depreciation or business loss as per books of 6,50,000
account, whichever is less, is deductible
Book Profit 69,00,000

(b)
Computation of Total Income of Ms. Vidya for the Assessment Year 2017-18

Income from Business

Interest on capital from firm @ 12% 1,20,000
Income from rubber manufacture @ 35% (balance 65% is 1,05,000
agricultural income). 35% of 3,00,000
2,25,000
Capital Gains
Deemed sale consideration [Sec. 50c] 1,10,00,000
Less: Brokerage @2% of 100 lakhs 2,00,000

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 Suggested Answer_Syllabus 2016_Jun2017_Paper 7
1,08,00,000
Less: Indexed cost of acquisition
15,25,000 × 1125/305 56,25,000
51,75,000
Less: Exemption under section 54EC 40,00,000
Long-term Capital Gain 11,75,000
Though the investment in capital gain bonds was 60 lakhs the
deduction is limited to 40 lakhs for the reason that the
investment in NHAI was made beyond 6 months after the
date of sale of residential property.
The investment in residential property at Colombo is not
eligible for exemption under section 54.
Gross Total Income 14,00,000
Less: Deduction under section 80D
In respect of health insurance of parents limited to 30,000
In respect of self preventive health checkup 5,000
35,000
Total Income 13,65,000
Note: The house at Colombo being Self – occupied, income charged to tax will be Nil.

5. (a) Mr. Chirag has given the following details relating to financial year 2016-17:
(i) Received 56,000 by way of gift from his friends on the occasion of his marriage.
(ii) Purchased a land at Kanpur for 12,50,000 for construction of a residential house from a
friend. The stamp duty value of the land on the date of purchase was 15,00,000.
(iii) Interest amounting to 1,80,000 relating to earlier years, on enhanced compensation
received during the year. Legal expenses incurred 25,000.
(iv) Received loan of 3,50,000 from CNK Private Limited in which Mr. Chirag holds 12%
voting power. Accumulated profit in the hands of the company at the time receipt of
loan was 2,90,000.
Briefly narrate the tax consequences of the aforesaid items, sharing clearly the amount to be
taxed in each case. 9

(b) The following details have been furnished by Parikshit relating to previous year 2016-17:
Particulars
(i) Income from business (non-speculation) 6,00,000
(ii) Interest on fixed deposit (net of TDS) 63,000
(iii) Long-term capital gain on sale of a residential house 1,00,000
(iv) Unabsorbed short-term capital loss carried forward from Assessment Year 1,10,000
2016-17
(v) Loss in non-speculative business carried on by his wife, Prerana. The 45,000
business was started with the amount gifted by Parikshit during the year
You are required to compute the total income of Parikshit for Assessment Year 2017-18. 6

Answer:

5. (a)
Computation of income of Mr. Chirag under the head
"Income from other sources" for
Assessment Year 2017-18
Particulars

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 Suggested Answer_Syllabus 2016_Jun2017_Paper 7
(i) Gift from friend on occasion of marriage is not liable to tax Nil
under section 56(2)(vii)
(ii) Purchase of land from friend for inadequate consideration. 2,50,000
As per section 56(2)(vii), if an individual purchases any
capital asset for a consideration, which is less than fair
market value (stamp duty value) on the date of purchase
by an amount exceeding 50,000, the excess of fair
market value over the actual consideration is taxable in
the hands of the buyer
(iii) Interest relating to earlier years on enhanced compensation 1,80,000
Less: 50% of interest towards litigation expenses 90,000
Annual chargeable to tax 90,000
Irrespective of the method of accounting, such interest is
taxed in the year of receipt
(iv) Deemed dividend under section 2(22)(e) 2,90,000
As CNK Private Ltd is a closely held company and Mr.
Chirag holds 10% or more voting power, the amount of
loan to the extent of accumulated profit is deemed to be
dividend in the hands of Chirag under section 2(22)(e)

(b)
Computation of total income of Parikhshit for Assessment Year 2017-18
Particulars
Profits & gains from business or profession
Income from own business 6,00,000
Less: Loss suffered in business of Prerana, wife set off under 45,000
section 72 read with section 64(1)(iv) (Note 1)
Income chargeable under this head 5,55,000
Capital gains
Long-term capital gain on sale of residential house 1,00,000
Less: Short-term capital loss carried forward from AY 2016-17 and 1,00,000
set off under section 74 to the extent possible
Income Chargeable under this head Nil
Income from other sources
Interest on fixed deposit ( 63,000 × 100/90) Gross 70,000
Total Income 6,25,000

Notes:
1. For the purpose of clubbing under section 64, income includes "loss". Hence, loss
from business of Prerana, wife has been set off
2. Unabsorbed short-term capital loss of 10,000 ( 1,10,000 - 1,00,00) shall be
carried forward under section 74.

6. (a) Mr. Sengupta (aged 65 years) is a retired person drawing a monthly pension of 6,000.
His taxable long-term capital gain from sale of painting during the previous year
2016-17 is 2,75,000. He has no other income during the year.
Compute his tax liability for Assessment Year 2017-18 (i) if he is resident and (ii) if he is
nonresident. 8

(b) (i) What is "charitable purpose" as envisaged by section 2(15)? 6

(ii) Is audit of accounts of charitable trust mandatory under the Income-tax Act,
1961? 1

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 Suggested Answer_Syllabus 2016_Jun2017_Paper 7
Answer:

6. (a)
Tax liability if Mr. Sengupta is resident

Total income ( 6,000 × 12 + 2,75,000) 3,47,000

Tax on income other than long-term capital gain Nil
Tax on long-term capital gain:
Excess of basic exemption limit on other income ( 3,00,000 - 72,000) 2,28,000
20% of ( 2,75,000 - 2,28,000) 9,400
Education cess & SHEC @ 3% 282
Tax liability 9,682

Tax liability if Mr. Sengupta is non-resident

Tax on income other than long-term capital gain Nil

Tax on long-term capital gain: 20% of 2,75,000 (Note) 55,000
Education cess & SHEC @ 3% 1,650
Tax liability 56,650
Note:
Where the individual assessee is non-resident, he is not entitled to deduct the excess
of basic exemption limit over other income from long-term capital gain for computing
tax liability (section 112).

(b) (i) As per section 2(15), "charitable purpose includes the following:
(a) Relief of the poor
(b) Education
(c) Yoga
(d) Medical relief
(e) Preservation of environment (including water sheds, forests and wild life)
(f) Preservation of monuments or places or objects of artistic or historic interest
(g) Advancement of any other object of general public utility.

The advancement of any other object of general public utility shall not be treated
charitable purpose, if it involves any activity in the nature of trade, commerce or
business or any activity of rendering any service in relation to any trade,
commerce or business, for any consideration, irrespective of the nature of use or
application or retention of the income from such activity.

However, the above restriction is not applicable if such activity is undertaken in

the course of carrying out of such advancement of any other object of general
public utility and the aggregate receipts from such activity or activities during the
previous year, do not exceed 20% of the total receipts of the charitable trust.

(ii) Audit of accounts of charitable trust is mandatory, if the total income without
considering exemption under sections 11 and 12, exceeds the basic exemption
limit.

7. (a) CKS Ltd., an Indian company, intends to distribute dividend of 100 lakhs to its
shareholders. It also received the following dividends during the year ended 31-3-
2017:
(i) 20 lakhs from MNO Ltd., Indian subsidiary company, which paid dividend
distribution tax.

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 Suggested Answer_Syllabus 2016_Jun2017_Paper 7

(ii) 4,50,000 received from KKR Ltd., a foreign company in which CKS Ltd. hold 30%
share.
(iii) 3,00,000 received from IPL Ltd., a foreign company in which CKS Ltd. holds 25%
share.
Compute the dividend distribution tax (DDT) payable by CKS Ltd. if such dividends are
paid during the financial year 2016-17.
Also compute the tax payable by CKS Ltd., on its total income assuming business
income (computed) is 1,85,00,000. 9

(b) Answer the following questions in the context of the provisions relating to advance tax:
6
(i) Who is not liable to pay advance tax, in case of individual assesses?
(ii) State the due dates of installment for payment of advance tax and the amount of
installment for such assessees who are not covered under the provisions of section
44AD.

Answer:

7. (a)
Computation of dividend distribution tax payable
Particulars
Dividend to be distributed by CKS Ltd. 1,00,00,000
Less: Dividend received from MNQ Ltd, Indian subsidiary 20,00,000
company on which DDT was paid
Dividend received from KKR Ltd., a foreign company in which 4,50,000
CKS Ltd. holds 30% shares
24,50,000
Net amount on which DDT is payable 75,50,000
Net dividend to be grossed up ( 75,50,000 × 100/85) 88,82,353

DDT payable: 88,82,353 × 17.304% (Note: 1) 15,37,002

Computation of tax payable on total income

Income from business 1,85,00,000

Income from other sources
Dividend from Indian subsidiary, MNO Ltd exempted from tax ---
under section 10(34)
Dividend from KKR Ltd and IPL Ltd. 7,50,000 7,50,000
Total income 1,92,50,000
Tax on dividend received from KKR Ltd at 15% as per section 67,500
115BBD ( 4,50,000 × 15%) 56,40,000

Tax on other income: 30% of ( 1,92,50,000 - 4,50,000)

57,07,500
Add: Surcharge at 7% 3,99,525
61,07,025
Education cess @ 3% 1,83,211
Tax liability 62,90,236
Tax liability (rounded off) u/s 288B 6290,240

(Note: 1):
DDT payable:

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 Suggested Answer_Syllabus 2016_Jun2017_Paper 7

7550000 x 15/85 = 1332353

Add: S.C @ 12% = 159882
1492235
Add: Cess @ 3% 44,767
1,537,002

(b) (i) As per section 207(2), an individual who is resident in India is not liable to pay
advance tax, if-
(a) he does not have any income chargeable under the head "profits and gains
from business or profession" and
(b) he is of the age of 60 years or more at anytime during the year.

(ii)
Due date of installment Amount payable
On or before 15th June of the Not less than 15% of such advance tax
previous year
On or before 15th September Not less than 45% of such advance tax, as reduced
of the previous year by the amount paid in the earlier installment
On or before 15th December Not less than 75% of such advance tax, as reduced
of the previous year by the amount paid in the earlier installment
On or before 15th March of The whole amount of such advance tax, as
the previous year reduced the amount or amounts paid in the earlier
installment or installments

8. Write short notes on any three of the following: 5×3=15

(a) Features of ICDS
(b) Adjustments required to be made while processing the return of income, u/s 143(1).
(c) Provisions of Equalization levy as per the Finance Act, 2016.
(d) Revised return of income: Meaning and interplay of section 139(5).

Answer:
(a) Features of ICDS
1. As per section 145(2) the central Government has power to notify from time to
time income computation and disclosure standards to be followed by any class of
assessee or in respect of any class of income.
2. ICDS are applicable to the assessees who are following mercantile system of
accounting. The same shall not apply to the assessee following cash system of
accounting.
3. If there is a conflict between the provision of the Act and the provisions of ICDS, the
provisions of the Act shall prevail.
4. ICDS are relevant for computation of income under the heads “profits and gains
from business or profession” and “income from other sources” and not for preparation
of accounts of the assessee.
5. Where the income of the assessee under the above two heads of income has not
been computed in accordance with ICDS, the Assessing Officer may make an
assessment in the manner provided for best judgement assessment laid down in
section 144.

(b) Adjustments required to be made in processing of return under section 143(1)

Following adjustments are to be made in course of processing of return under section
143(1):
(i) any arithmetical error in the return.

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 Suggested Answer_Syllabus 2016_Jun2017_Paper 7
(ii) an incorrect claim, if such incorrect claim is apparent from any information in the
return.
(iii) disallowance of loss claimed, if return of the previous year for which set off of loss
is claimed was furnished after the due date specified in section 139(1).
(iv) disallowance of expenses indicated in the audit report, but not considered in
computation of total income in the return.
(v) disallowance of deductions claimed under sections 10AA, 80-IA, 80-IAB, 80-IB, 80-
IC,Section 80ID, Section 80IE, if the return is furnished beyond the due date
specified thereunder.
(vi) Addition of income appearing in Form 16, 16A or 26AS, which has not been
included whole computing the income in the said return.

(c) In terms of the recommendations of the aforesaid Committee on Taxation of E-

Commerce, with effect from 1.6.2016, a new Chapter VIII has been inserted to
provide for as under:
1. Charge of Equalization levy: On and from the date of commencement of this
Chapter VIII, there shall be charged an equalisation levy at the rate of six percent
of the amount of consideration for any specified service received or receivable
by a person, being a non-resident from:
(i) a person resident in India and carrying on business or profession; or
(ii) a non-resident having a permanent establishment in India.

Meaning of specified service: Under section 165(i) of the Finance Act 2016,
"specified service" means online advertisement, any provision for digital
advertising space or any other facility or service for the purpose of online
advertisement and includes any other service as may be notified by the Central
Government in this behalf.

2. When equalisation levy is not chargeable: Under Section 165(2), the equalisation
levy shall not be charged where:
(a) the non-resident providing the specified service has a permanent
establishment in India and the specified service is effectively connected with
such permanent establishment;
(b) the aggregate amount of consideration for specified service received or
receivable in a previous year by the non-resident from a person resident in
India and carrying on business or profession, or from a nonresident having a
permanent establishment in India, does not exceed one. lakh rupees; or
(c) where the payment for the specified service by the person resident in India, or
the permanent establishment in India is not for the purposes of carrying out
business or profession.

(d) Revised return of income

As per section 139(5), if any person having furnished his return under section 139(1)
(i.e. original return filed within due date) or section 139(4) (i.e. belated return)
discovers any omission or any wrong statement therein, he may furnish a revised
return.
The time limit for filing revised return is before the expiry one year from the end of the
relevant assessment year or before the completion of assessment, whichever is
earlier.
If an intimation under section 143(1) is received by the assessee, he can still furnish a
revised return within the time limit stated above, as such intimation is not treated as
an assessment order.
A return filed in response to notice under section 142(1) cannot be revised under

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 Suggested Answer_Syllabus 2016_Jun2017_Paper 7
section 139(5) with effect from assessment year 2017-18.
A revised return can be further revised by the assessee if time limit mentioned in
section 139(5) has not expired.
Once revised return is filed within the time limit, it substitutes the original return.

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