IPCC Gr. I (Solution of November ) Paper - 4 : Taxation

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1 Solved Scanner Appendix IPCC Gr. I (Solution of November ) Paper - 4 : Taxation Chapter - 2 : Basic Concepts Nov [2] (a) An Indian Citizen who comes on a visit to India during PY shall be resident only if he stayed for 182 days or more during PY. Since, he stayed only for 98 days during PY. Therefore, he is non-resident in India for PY Fee of ` 50 lakh charged from LK Limited is Indian income and is therefore taxable in India. Chapter - 5 : Income form House Property Nov [6] (a) Income from House Property: Commercial Property GAV 30, ,60,000 Municipal Taxes 8,000 NAV 3,52,000 Deduction U/s 24 Std. Deduction U/s 30% 1,05,600 Interest on borrowed capital U/s 24(b) [W.N.1] 2,83,333 (36,933) + Arrear of Rent 1,20,000 30% 84,000 47,067 Self Occupied House NAV Nil Int. on borrowed capital 2,00,000 (2,00,000) Income from House Property (1,52,933) 1

2 Solved Scanner Appendix IPCC Gr. I Paper Working Note: 1 Pre-construction Period Interest 25 lakh 10% 8/12 1,66,667 1/5 th of Pre-Construction Period 33,333 + Current year Interest (25 lakh 10%) 2,50,000 2,83,333 Chapter - 6 : Profits & Gains of Business Nov [5] (a) (i) CSR Expense is disallowed as it is as appropriation of profit. (ii) Purchase of Building for setting up a warehousing facility is allowed u/s 35D. (iii) Interest paid without deduction of TDS is disallowed. (iv) CTT paid is allowed as deduction. Chapter - 7 : Capital Gains Nov [3] (a) Computation of Capital Gain Sale Consideration 80,00,000 Indexed COA 20,00,000 43,50,101 Expenses on Transfer 1,00,000 LTCG 35,49,899 Exempt u/s 54 (15 lakh + 10 lakh) 25,00,000 Exempt u/s 54EC 10,00,000 Taxable LTCG 49,899

3 Solved Scanner Appendix IPCC Gr. I Paper Chapter - 12 : Computation of Total Income, Tax Payable, Rebate and Relief Nov [1] {C} (a) Computation of Total Income: Basic Salary 60, ,20,000 HRA 1,80,000 ( ) Exempt W. N. 1 1,44,000 36,000 Children Education Allowance ( ) Exempt 1,80,000 2,400 15,600 7,71,600 PGBP Income from Truck 11, ,000 Income from Other Sources Interest on Post Office Saving Bank A/c ( ) Exempt Interest from Company Deposit ( ) Expense 8,500 3,500 5,000 25,000 5,000 20,000 Interest on National Savings Scheme 25,000 50,000 Gross Total Income 9,09,600 Deduction U/s VI - A Sec. 80C Tuition Fee Sec. 80D Medical Insurance Premium Sec. 80 TTA Interest on SB A/c 80,000 25,000 5,000 1,10,000 Total Income 7,99,600 Working Note:1 HRA Exempt: Least of the following is exempt: 1. HRA Received 1,80, Rent Paid - 10% of Salary (2,16,000 72,000) 1,44, % of Salary (40% 7,20,000) 2,88,000 HRA Exempt 1,44,000

4 Solved Scanner Appendix IPCC Gr. I Paper Computation of Tax Tax on ` 7,99,600 84, % 1, % 850 Tax Payable (rounded off) 87, Nov [4] (a) Computation of Taxable income of Mr. Venus Salary 50, ,00,000 ( ) Set off HP loss of Son 90,000 5,10,000 Capital Gain Long Term Capital Gain 75,000 ( ) Loss b/f set off 75,000 Nil Income from Other Sources FD Interest (72,000 90%) 80,000 ( ) Loss of Spouse business Set off 80,000 Nil Taxable Income 5,10,000 Chapter - 13 : Advance Tax & TDS Nov [7] (a) (i), (ii) (i) The Payment of advance tax in case of capital gains and casual income (1) Advance tax is payable by an assessee on his/its total income, which includes capital gains and casual income like income from lotteries, crossword puzzles etc.

5 Solved Scanner Appendix IPCC Gr. I Paper (2) As it is not possible for the assessee to estimate his capital gains, income from lotteries, etc., it has been provided that if any such income arises after the due date for any installment, then, the entire amount of tax payable (after considering tax deducted at source) on such capital gains or casual income should be paid in the remaining installments of advance tax which are due. (3) When no such installment is due, the entire tax should be paid by 31 st March of the relevant financial year. (4) But, if the entire tax liability is so paid, no interest liability under section 234C would arise for deferment of advance tax, Working Note: In the case of casual income (winnings from lotteries, crossword puzzles, card games, gambling, betting, races including horse races etc.), the entire tax liability is fully deductible at source@ 30% under section 194B and 194BB. Advance tax liability would arise only in respect of the education cess and secondary and higher education cess element of such tax, if the same, along with tax liability in respect of other income, if any, is ` 10,000 or more. (ii) Consequences of failure to deduct tax at source or pay such tax deducted to the credit of the Central Government [Section 201] 1. The following persons shall be deemed to be an assessee in default, if they do not deduct the whole or any part of the tax or after deducting, fail to pay the tax - (i) any person including the principal officer of a Company, who is required to deduct any sum in accordance with the provisions of the Act, and (ii) an employer paying tax on non-monetary perquisites u/s 192(1A). 2. However, no penalty shall be charged under section 221 from such person, principal officer or company unless the Assessing Officer is satisfied that such failure to deduct or pay the tax deducted, was without good and sufficient reasons.

6 Solved Scanner Appendix IPCC Gr. I Paper Such person, principal officer or company shall also be liable to pay simple interest at 1.5% per month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. 4. Such interest should be paid before furnishing the statement in accordance with section 200(3). 5. Where the tax has not been paid after it is deducted, the amount of the tax together with the amount of simple interest thereon shall be a charge upon all the assets of the person or the company, as the case may be. Chapter - 14 : Assessment Procedure Nov [7] (iii) Return shall be verified by the individual himself or where the individual concerned is absent from India or is mentally incapacitated from attending to his affairs by any person duly authorised by him in this behalf. Chapter - 15 :Value Added Tax (VAT) Nov [2] (c) Cost of Input 8,55,000 7,60,000 + Manufacturing & Other Expenses 2,50,000 10,10,000 + Profit 25% 2,52,500 Sale 12,62,500 Output Tax 12,62,500 80% 12.5% 1,26,250 Input Tax (7,60,000 80% 12.5% + 7,60,000 20% 10.5%) 91,960 Net VAT Payable 34,290

7 Solved Scanner Appendix IPCC Gr. I Paper Nov [5] (c) (i) Yes sub-lease can be taxed as lease transactions are liable for VAT. (ii) The goods on which CST is leviable is not vatable. (iii) Sale of food in hotel is sale cum service and therefore liable VAT. It is treated as deemed sale. (iv) Yes, refund can be claimed for goods returned under Hire Purchase Transactions. Chapter - 16 :Service Tax Nov [1] (b) Commission Lucky Star Lottery 37,00,000 10% 3,70,000 Magic Winner Lottery 55,00,000 10% 5,50,000 9,20,000 Service Tax Payable 9,20,000 14% = 1,28,800 If Mr. Dominic opt for special provision, Service Tax Payable would be as under: Service Tax Payable: Lucky Star Lottery 4 8,200 32,800 Magic Winner Lottery 6 12,800 76,800 1,09, Nov [2] (b) Value of Taxable Advertisement Service: Sale of space for advertisement in Zee TV 25,00,000 Sale of space for advertisement in various websites 12,00,000

8 Solved Scanner Appendix IPCC Gr. I Paper Sale of space for advertisement in DNA Newspaper Sale of space for advertisement in various Multiplexes 32,00,000 Preparation of Advertisement 8,50,000 Service Tax Payable = 77,50, % = 11,23,750 77,50, Nov [4] (b) Point of Taxation Due Date of Payment of Service Tax Nov [5] (b) (i) Not chargeable (ii) Not chargeable (iii) Chargeable (iv) Chargeable Nov [7] (b) Value of Taxable Services: Audit fee received from PNB, Delhi 8,50,000 Consultancy charges for services outside J&K 2,90,000 11,40,000 Service Tax Payable = 11,40,000 14% = 1,59,600 Chapter - 17 :Excise Duty Nov [3] (b), (c) (b) 50% of CENVAT Credit need to be reversed. CENVAT Credit to be reversed = 20,00, % = 3,29,600

9 Solved Scanner Appendix IPCC Gr. I Paper (c) Price of Machine 2,00,000 + Packing Charges 10,000 + Extra charge for designing 25,000 2,35,000 + Excise 12% 28,200 2,63, ,160 Working Note : 1. Packing Charges are included in AV. 2. Designing Charges are included in AV. 3. Transit Insurance & Outward fright is not includible is AV. 2,76, Nov [4] (c) Yes, Excise Duty is payable on waste & scrap as they are capable of being sold. Excise Duty not payable on prohibited goods. Duty is payable on monthly basis by 5 th /6 th (in case of e-payment) of the following month, except in March. For March, duty is payable by 31 st March itself. Return is to be filed in form ER-1 on monthly basis by 10 th of next month Nov [7] (c) The amount mentioned in Rule 4 shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT Credit or otherwise on or before the 5 th day of the following month except for the month of March, when such payment shall be made on or before the 31 st March. CENVAT credit in respect of Partial Reverse charge allowed immediately after the payment of service tax by service recipient.

10 Solved Scanner Appendix IPCC Gr. I Paper Chapter - 18 :Customs Duty Nov [6] (b) CIF 1,00,000 Add: Landing 1% 1,000 Assessable Value 1,01,000 Add: 10% 10,100 1,11,100 Add: CVD [W.N.1] 12,600 1,23,700 Add: 2% on (10, ,600) 454 Add: 1% on (10, ,600) 227 1,24,381 Total Duties Payable = 10, , = 23,381 Working Note: 1 MRP 5, ,50,000 Abatement 30% 45,000 1,05,000 Excise Duly on 12% 12,600 Chapter - 19 :Central Sales (CST) Nov [1] {C} (c) Total Sale 75,00,000 Less: Return within 6 month 1,00,000 Less: Goods Rejected 50,000 Taxable Turnover 73,50,000 Sale Return beyond 6 month is liable for CST at the rate of CST or local VAT rate whichever is higher.

11 Solved Scanner Appendix IPCC Gr. I Paper CST Payable On 2% 1,37,000 On 25,000 1,62, Nov [6] (c) (i) CST not applicable when goods are sent by dealer outside the state to his other place of business. However input tax credit shall be allowed by reducing 2% of the tax on input. (ii) CST is applicable if at the time of transfer outside the state, dealer has on order for such purchase in hand. Shuchita Prakashan (P) Ltd. 25/19, L.I.C. Colony, Tagore Town, Allahabad Visit us:

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