2 (a) Municipal taxes paid by Mr. Hari `4,200 per annum (b) House insurance `1,000 (iii) He earned `1,00,000 in share speculation business and lost `1

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1 NEW COURSE INCOME TAX PAPER SECTION-A Marks: 60 Question No. 1 is compulsory. Candidates are also required to answer any Five questions from the remaining Six questions. In case, any candidate answers extra questions (s) over and above the required number, then only the requisite number of questions first answered in the answer book shall be valued and subsequent extra question(s) answered shall be ignored. "Working notes should form part of the respective answers." All questions pertaining to Income tax, relate to Assessment year , unless stated otherwise in the question. Question 1 Marks 10 Mr. Hari, aged 55 years, a resident individual and practicing Chartered Accountant, furnishes you the receipts and payments account for the financial year Receipts and Payments Account Receipts ` Payments ` Staff salary, bonus and stipend to articled Clerks 20,000 Other general and administrative expenses Office rent 39,60,000 Life insurance premium Motor car (Acquired in January 2018 by way of online 2,00,000 payment) Books bought (annual publication by credit card) Computer acquired on for professional use Domestic drawings Motor car maintenance Public Provident fund subscription Closing balances ( ) Cash & Bank Opening Balances ( ) Cash & Bank Fee from professional Services Motor car loan from interest per annum 20,50,000 12,00,000 48,000 23,000 4,00,000 22,000 25,000 2,50,000 12,000 1,40,000 10,000 41,80,000 41,80,000 Other information: (i) Motor car was put to use for both official and personal purposes. 1/4 th of the motor car is for personal. No interest on car loan was paid during the year. (ii) Mr. Hari purchased a flat in Jaipur for `15,00,000 in July 2012 cost of which was partly financed by a loan from State Bank of India of 10% interest, his own savings `1,00,000 and a deposit from Bank of Baroda for `4,00,000 on lease for 10 `40,000 per month. The following particulars are relevant:

2 2 (a) Municipal taxes paid by Mr. Hari `4,200 per annum (b) House insurance `1,000 (iii) He earned `1,00,000 in share speculation business and lost `1,50,000 in commodity speculation business. (iv) Mr. Hari received a gift of `15,000 each from four of his family friends. (v) He contributed `1,11,000 to Prime Minister s Draught Relief Fund by way of bank draft. (vi) He donated to a registered political party `3,00,000 by way of cheque. Compute the total income of Mr. Hari and the tax payable for the assessment year Solution: Computation of income from profession Gross receipts: Fee from Professional Service 39,60, Payments: Salary, bonus and Stipend (20,50,000.00) Other general and administrative expenses (12,00,000.00) Office rent (48,000.00) Depreciation on 40% (22,000 x 40%) (8,800.00) Motor car maintenance (12,000 x ¾) (9,000.00) Depreciation on 15% (4,00,000 x 15%/2 x ¾) (22,500.00) Depreciation on 40% (25,000 x 40%/2 ) (5,000.00) Income from profession 6,16, Computation of income from house property Gross Annual Value 4,80, Less: Municipal Tax (4,200.00) Net Annual Value 4,75, Less: 30% of NAV u/s 24(a) (1,42,740.00) Less: Interest on capital borrowed u/s 24(b) (10,00,000 x 10%) (1,00,000.00) Income from house property 2,33, Income from Other Sources Gift received from friends (15,000 x 4) u/s 56(2) 60, Computation of Total Income Income from profession 6,16, Income from house property 2,33, Income from other sources 60, Gross total income 9,09, Less: Deduction u/s 80C LIC 23,000 PPF 1,40,000 1,63,000 restricted to 1,50,000 (1,50,000.00) Less: Deduction u/s 80G 50% (1,11,000 x 50%) (55,500.00) Less: Deduction u/s 80GGC (3,00,000.00) Total Income 4,04, Computation of Tax Liability Tax on `4,04,260 at slab rate 7, Add: 2% Add: 1% 77.13

3 3 Tax Liability 7, Rounded off u/s 288B 7, Note: 1. Date of Purchase of books is not mentioned in question hence full year depreciation is allowed. 2. Speculation loss of 50,000 (1,50,000 1,00,000) shall be carried forward for next year. Question 2 Marks 10 Star Enterprises has transferred its unit R to A Ltd. by way of Slump Sale on January 23, The summarized Balance Sheet of Star Enterprises as on that date is given below: Liabilities Amount (` in Lacs) Assets Amount (` in Lacs) Own Capital Accumulated P & L balance Liabilities : Unit P Unit Q Unit R 1, Fixed Assets: Unit P Unit Q Unit R Other Assets: Unit P Unit Q Unit R TOTAL 2,810 TOTAL 2,810 Using the further information below, compute the Capital Gains arising from slump of unit R for Assessment year (i) Slump sale consideration on transfer of Unit R was `930 lacs. (ii) Fixed Assets of Unit R includes land which was purchased at `110 lacs in the year 2008 and was revalued at `140 lacs. (iii) Other fixed assets are reflected at `460 lacs. (i.e. `600 lacs less value of land) which represents written down value of those assets as per books. The written down value of these asset is `430 lacs. (iv) Unit R was set up by Star Enterprises in Oct, NOTE: Cost of Inflation Indices for the financial year and financial year are 122 and 272 respectively. Solution: As per section 50B, in case of slump sale capital gains shall be computed for the entire unit instead of individual assets and capital gain shall be equal to full value of consideration less net worth of the unit on the date of transfer. Also expenses in connection with transfer shall be deducted. Indexation is not applicable. If unit is sold within 3 years, a capital gain is Short term otherwise Capital Gain is Long Term. While computing net worth, revaluation of asset shall be ignored. Net worth shall be the aggregate value of total assets of the undertaking or division as reduced by the value of liabilities of such undertaking or division as appearing in its books of account: Unit R was set up in and unit is sold in which is after 3 years hence there is a long term capital gain. Computation of capital gains on slump sale of Unit R Particulars ` Sale value 930,00,

4 4 Less: Net worth (See Note (i) below) (840,00,000) Long term capital gain 90,00,000 Note (i) : Computation of net worth of Unit R of Star Enterprises Particulars ` Land (excluding `30 lakhs on account of revaluation) 110,00,000 Other Fixed Assets 430,00,000 Other assets 440,00,000 Total assets 980,00,000 Less: Liabilities (140,00,000) Net worth 840,00,000 Note: For calculating Net worth Book value shall be considered and revaluation shall be ignored. Question 3 Marks 10 Compute the Gross Total Income in the hands of an individual, if he is (a) a resident and ordinary resident ; and (b) a non resident for the A.Y S.No. Particulars Amount ` (i) Interest from German Derivatives Bonds (1/3 received in India) 21,000 (ii) Income from agriculture land situated in Malaysia,remitted to India 51,000 (iii) Income earned from business in Dubai, Controlled from India (`20,000 received in 75,000 India. (iv) Profit from business in Mumbai, controlled from Australia 1,75,000 (v) Interest received from Mr. Ashok (NRI) on loan provided to him for business in 35,000 India (vi) Divided from Brown Ltd., an Indian Co. u/s 115 O of IT Act, ,000 (vii) Profit from business in Canada controlled from Mumbai (60% of profits deposited 60,000 in a bank in Canada and 40% remitted to India) (viii) Amount received from an NRI for the use of know-how for his business in 8,00,000 Singapore (ix) Dividend received from foreign company in India 25,000 (x) Past years untaxed foreign income brought to India 50,000 Solution: S.No. Particulars ROR NR (i) Interest from German Derivatives Bonds (1/3 received in India) 21,000 7,000 (ii) Income from agriculture land situated in Malaysia,remitted to India 51,000 - (iii) Income earned from business in Dubai, Controlled from India (`20,000 received in India). 75,000 20,000 (iv) Profit from business in Mumbai, controlled from Australia 1,75,000 1,75,000 (v) Interest received from Mr. Ashok (NRI) on loan provided to him for 35,000 35,000 business in India (vi) Divided from Brown Ltd., an Indian Co. u/s 115 O of IT Act, (vii) Profit from business in Canada controlled from Mumbai (60% of profits deposited in a bank in Canada and 40% remitted to India) Note: The language is not clear. It should be 100% deposited in Canada but 40% remitted to India. OR It should be 60% deposited 60,000 -

5 5 in Canada and 40% deposited in India and in that case 24,000 (40% of 60,000) shall be taxable in case of NR. (viii) Amount received from an NRI for the use of know-how for his business 8,00,000 - in Singapore (ix) Dividend received from foreign company in India 25,000 25,000 (x) Past years untaxed foreign income brought to India - - Total 12,42,000 2,62,000 Question 4 Marks 10 Mr. Honey is working with a domestic company having a production unit in the U.S.A. for last 15 years. He has been regularly visiting India for export promotion of company s product. he has been staying in India for at least 184 days every year. He submits the following information: Salary received outside India (for 6 months) `50,000 P.M. Salary received in India (for 6 months) `50,000 P.M. He has been given rent free accommodation in U.S.A. for which company pays `15,000 per month as rent, but when he comes in India, he stays in the guest house of the company. During this period he is given free lunch facility. During the previous year company incurred an expenditure of `48,000 on this facility. He has been provided a car of 2000 cc capacity in U.S.A. which is used by him for both office and private purposes. The actual cost of the car is `8,00,000. But when he is in India, the car is used by him and the members of his family only for personal purpose. The monthly expenditure of car is `5,000. His elder son is studying in India for which his employer spends `12,000 per year where as his younger son is studying is U.S.A. and stays in a hostel for which Mr. Honey gets `3,000 per month as combined allowance. The company has taken an accident insurance policy and a life insurance policy. During the previous year the company paid premium of `5,000 and `10,000 respectively. Compute Mr. Honey s taxable income from salary for the Assessment Year Solution: Determination of Residential Status As per section 6(1), Stay in India is 182 or more during the previous year, hence he is resident and his stay during the 7 years is more than 729 days and he is resident in India for more than a year in 10 years preceding the relevant previous year and not able to comply even a single condition of section 6(6)(a), hence he is ROR. Computation of Income under the head salary for the A.Y ` Basic Salary (50,000 x 12) 6,00, Rent free Accommodation {Sec 17(2)(i), Rule 3(1)} 94, Working Note: 15% of rent free accommodation salary or rent paid whichever is less Rent free accommodation Salary

6 6 = Basic Pay + Children Education allowance + Hostel Allowance = 6,00, ,200 = `6,31,200 15% of rent free accommodation Salary = `94,680 Rent Paid = `15,000 x 12 = `1,80,000 Perquisite value of unfurnished house = `94,680 Guest House facility (official purpose) Exempt Free lunch Facility Rule 3(7) (iii) Total Incurred `48,000 Total Stay 184 days Value of each lunch ` Less exemption `50.00 Taxable ` Total Taxable ` x 184 = 38, Motor car facility (used for personal and official) (2,400 x 6) Section 17(2) (iii)/rule 3(2) 14, Motor car facility (used for personal purpose only) Section 17(2) (iii)/ Rule 3(2) Taxable value (8,00,000 x 10% x 6/12) 40, Expenditure on car (5,000 x 6) 30, Education Facility Section 17(2) (iii)/rule 3(5) Elder son (12,000-12,000) Nil Younger Son Children Education allowance and Hostel allowance combined 36,000 Less: Exempt Children Education allowance (100 x 12) Section 10(14)/Rule 2BB (1,200) Less: Exempt Hostel allowance (300 x 12) Section 10(14)/ Rule 2BB (3,600) 31, Accident Insurance Policy section 17(2)(v) Nil Life Insurance Policy section 17(2)(v) 10, Gross Salary 8,59, Income under the head salary 8,59, Question 5 (a) Marks 3 Discuss the taxability of the following receipts in the hands of Mr. Sanjay Kamboj under the Income Tax Act, 1961 for A.Y : (i) `51,000 received from his sister living in US on (ii) Received a car from his friend on payment of `2,50, 000 the FMV of which was `5,50,000. Provisions of taxability or Non-taxability must be discussed. Answer: (i) As per section 56(2), Gift received from relative is not taxable. In the given case, Sister is covered under the definition of relative and Gift received from her is not taxable. (ii) As per section 56(2), Gift in Kind exceeding `50,000 received from non - relative is taxable but in the given case Car is not covered under the definition of Gift in Kind hence Car received from nonrelative is not taxable.

7 7 Question 5 (b) Marks 7 Mr. Avani, a resident aged 25 years, manufactures tea leaves from the tea plants grown by him in India. These are then sold in the Indian market for `40 lakhs. The cost of growing tea plants was `15 lakhs and the cost of manufacturing tea leaves was `10 lakhs. Compute her tax liability for the Assessment year Solution: As per Rule 8, If any person is engaged in growing and manufacturing of tea, income shall be computed combined for agriculture as well as business and 40% of such income shall be business income and balance shall be agricultural. Income = Sales Cost of growing tea plants cost of manufacturing tea leaves = `40 lacs `15 lacs - `10 lacs = `15 lacs. Business Income = 15,00,000 x 40% = 6,00,000 Agriculture Income = 15,00,000 x 60% = 9,00,000 Computation of Tax Liability ` Tax on (6,00, ,00,000) at slab rate 2,62,500 Tax on (2,50, ,00,000) at slab rate (1,57,500) Tax on normal income (2,62,500 1,57,500) 1,05,000 Add: 3% 3,150 Tax Liability 1,08,150 Question 6 (a) Marks 5 Mr. Madhav made a gift of `2,50,000 to his handicapped son, Master Tapan who was aged 12 years as on 31 st March 2016, which he deposited in a fixed deposit account in a Nationalised bank at 10% interest p.a. compounded annually. The balance in this account as on 1 st April, 2017 was `2,75,000 and the bank credited a sum of `27,500 as interest on 31 st March, Madhav s father gifted equity shares worth `50,000 of an Indian company to Master Manan, another son of Mr. Madhav (Date of birth 10 th April, 2010 ) in July 2010 which were purchased by him on 8 th December, 2004 for `80,000 Manan received a dividend of `5,000 on these shares in October He sold these shares on 1 st November, 2017 for `5,00,000 and deposited `3,00,000 in a company at 15% interest per annum. Cost Inflation Index: Financial Year Cost Inflation Index Mr. Madhav has a taxable income of `3,50,000 from his profession during the financial year Compute his Gross Total Income for the A.Y

8 Solution: Computation of Gross Total Income for the A.Y ` Income from Profession 3,50, Income under the head other sources Clubbing of Income of Manan section 64(1A) Interest Income (3,00,000 x 15% x 5/12) 18,750 Dividend Income exempt u/s 10(34) Nil 18,750 Less: Exempt u/s 10 (32) (1,500) 17, Income of Tapan (No clubbing since he is handicapped) Nil Income under the head capital Gains Full Value of consideration 5,00, Less: Indexed cost of acquisition (80,000/113 x 272) (1,92,566.37) Long term capital Gains 3,07, (It is assumed that STT is not paid on sale of shares of an Indian company) Gross Total Income 6,74, Rounded off u/s 288B 6,74, Notes: 1. As per section 64(1A), income of minor child shall be clubbed with the income of the parents having higher income but minor child does not include minor child suffering from disability. In the given case master Tapan is handicapped so income of minor child shall not be clubbed. 2. If the income of minor child is to be clubbed, exemption shall be allowed under section 10(32) upto `1,500 per annum per child. Question 6 (b) Marks 5 Briefly mention the provisions of Income Tax Act with regard to Quoting Aadhaar Number u/s 139AA of the Act. Answer: Quoting of Aadhaar Number. Section 139AA Every person applying for allotment of Permanent account number w.e.f shall mention his aadhaar number in the application form for allotment of PAN (form 49A). Also PAN is to be mentioned in the return of Income. If any person has applied for Aadhaar number but has not received, in that case he can mention the enrollment id of aadhaar application. If any person has received PAN before and has not given aadhaar number, such person shall inform his aadhar number to income tax authorities upto the date notified in this regard. In case of failure to comply with the above, PAN already allotted shall be deemed to be invalid. OR

9 9 Question 6 (b) Marks 3+2 (1) State whether quoting of PAN in the following transactions is mandatory or not, as per the provisions of Income Tax Act 1961 for A.Y : (i) Mr. A makes cash payment to a hotel Radisson Blu, Ahmedabad of `50,000 against the bill raised by the hotel. (ii) Mr. Abhishek, in a single transaction, makes contract of `1,20,000 for sale /purchase of securities (other than shares) as defined in section 2(h) of the Securities Contracts (Regulation ) Act, (iii) Payment to Mutual Funds of `70,000 for purchase of its units. Your answers must be supported with reasons. Answer: (i) As per section 139A, quoting of PAN is mandatory in case of making cash payment of hotel or restaurant bill exceeding ` 50,000. In the given case amount is not exceeding `50,000 hence quoting of PAN is not mandatory. (ii) As per section 139A, quoting of PAN is mandatory in case of Sale/purchase of shares and securities exceeding `1 lakh. In the given case amount is exceeding `1 lakh hence quoting of PAN is mandatory. (iii) As per section 139A, quoting of PAN is mandatory in case of Payment of an amount exceeding `50,000 to a Mutual Fund for purchase of its units. In the given case amount is exceeding `50,000 hence quoting of PAN is mandatory. (2) Briefly mention the concept of Self Assessment tax u/s 140A of the IT Act and it components. Answer: In general a person is required to pay tax in advance and balance amount should be paid in the assessment year (after adjusting the amount of TDS) and it is called Self - Assessment tax. In case of delay, interest shall be charged u/s 234A, 234B & 234C. For default in advance tax interest shall be charged under section 234C and for default in self-assessment tax, interest shall be charged u/s 234B. If tax is paid after the last date of filing of return of income, interest shall be charged u/s 234A. Tax and Interest must be paid before filing of return of income as per section 140A otherwise such person shall be considered to be assessee in default and penalty shall be imposed equal to the amount not paid by him. Question 7 (a) Marks 3x2 = 6 Indicate the three situations where the Return of Income has to be compulsorily filed u/s 139 (1) of the Income Tax Act, Answer: Under section 139(1), a return of income is to be filed by the following persons: (i) Every company assessee or partnership firm irrespective of their income or loss shall be required to file return of income e.g. ABC Ltd. has total income of `10,000,in this case, company shall be required to file the return. (ii) Any other person like Individual, HUF etc shall be required to file return of income if Gross total income is exceeding exemption limit e.g. If for previous year gross total income of Mrs. X is `2,55,000 and

10 10 deductions allowed under section 80C to 80U are `60,000 and total income is `1,95,000 and tax liability shall be nil but still Mrs. X has to file her return of income. (iii) Every person who is assessable on behalf of any other person and the person on whose behalf he is assessable has gross total income more than the income exempt from tax, in such cases also, the person is required to file a return of income on behalf of such person. E.g. Minor son of Mr. X has gross total income from film acting `5 lakhs. In this case, Mr. X has to file a return of income on behalf of his minor son. (iv) If any person is resident and ordinarily resident in India and has any asset outside India including a financial interest in any entity or has signing authority in account outside India, such person shall also be required to file his return of income. Question 7 (b) Marks 2+2 = 4 Briefly explain the purpose for which the words PROVISO and EXPLANATION are incorporated under various sections of the Income Tax Act, Answer: The Proviso to a section/sub-section/clause refers to sometimes additional provision, sometimes a special condition and sometimes exceptions to the main provision, eg. Proviso to section 23(1) refers to deduction of municipal tax but section 23(1) refers to computation of gross annual value i.e. it is an additional provision. Similarly proviso to section 17(2) refers to medical facility but section 17(2) refers to different facilities. The Explanation to a section/sub-section/clause gives a clarification relating to the provision contained in the respective section/sub-section/clause, eg. Explanation to section 23(1) covers unrealised rent i.e. an explanation to section 23(1) which refers to gross annual value.