MOCK TEST PAPER 2 INTERMEDIATE (IPC) GROUP I PAPER 4 : TAXATION Question 1 is compulsory. Answer any five questions from the remaining six questions. 1 Test Series : October, 2015 Time Allowed 3 Hours Maximum Marks 100 1. (a) Dr. Hari Ram furnishes you the following information: Income and Expenditure Account for the year ended 31 st March 2015 Particulars Rs. Particulars Rs. To Medicines consumed 2,42,000 By Fee receipts 8,47,500 To Staff salary 1,65,000 By Rent 27,000 To Hospital consumables 47,500 By Dividend from Indian companies To Rent paid 60,000 To Administrative expenses 1,23,000 To Net Income 2,46,000 9,000 8,83,500 8,83,500 Rent paid includes rent for his residential accommodation of Rs. 30,000 (paid by cheque) at Chennai. Hospital equipments (eligible for depreciation @ 15%) 01.04.2014 Opening WDV Rs. 5,00,000 07.12.2014 Acquire (Cost) Rs. 2,00,000 (iii) Medicines consumed include medicines (cost) Rs. 10,000 used for Dr. Hari Ram s family. (iv) Rent received relates to a property situated at Madurai (Gross Annual Value). The municipal tax of Rs. 2,000 paid in December, 2014 has been included in the administrative expenses. (v) He received Rs. 5,000 per month as salary from HML hospital. This has not been included in the fee receipts credited to income and expenditure account. (vi) He sold a vacant site in July, 2014 for Rs. 5,00,000. It was inherited by him from his father in January, 1998. The site was acquired by his father in December, 1990 for Rs. 1,50,000.
(Cost inflation index for F.Y.1990-91: 182; F.Y.1997-98: 331 and F.Y.2014-15: 1024) Compute Dr. Hari Ram s taxable income for the year ended 31.03.2015. (10 Marks) (b) Pawan Ltd. exported some goods to Ramson Inc. of USA. It received US $ 9,000 as consideration for the same and sold the foreign currency @ Rs. 61 per US dollar. Compute the value of taxable service under rule 2B of the Service Tax (Determination of Value) Rules, 2006 in the following cases:- (a) RBI reference rate for US dollar at that time is Rs. 62 per US dollar. (b) RBI reference rate for US dollars is not available. What would be the value of taxable service if US $ 9,000 are converted into UK 4,500. RBI reference rate at that time for US $ is Rs. 63 per US dollar and for UK is Rs. 101 per UK Pound. (10 Marks) 2. (a) Mr. Ganesh, a Government employee serving in the Ministry of External Affairs, left India for the first time on 31.03.2014 due to his transfer to High Commission of Australia. He did not visit India any time during the previous year 2014-15. He has received the following income for the Financial Year 2014-15: S. No. Particulars Rs. Salary 5,00,000 Foreign Allowance 4,00,000 (iii) Interest on fixed deposit from bank in India 1,00,000 (iv) Income from agriculture in Nepal 2,00,000 (v) Income from house property in Nepal 2,50,000 Compute his gross total income for Assessment Year 2015-16. (5 Marks) Charles Hooper, an English football player, visits India for 100 days in every financial year. This has been his practice for the past 10 financial years. Find out his residential status for the assessment year 2015-16. (3 Marks) (b) Mr. Shiv, a service provider, wants to furnish consolidated details of lumpsum amounts pertaining to the half year relating to value of taxable service charged, amount realised against the same and service tax payable, in his half-yearly service tax return. Explain whether he can do so. Hans India Pvt. Ltd. s total inter-state sales @ 4 % CST for the Financial Year 2014-15 is Rs. 1,50,00,000 (CST not shown separately). In this regard, following additional information is available: Goods sold to Mr. A for Rs. 1,50,000, on 16.07.2014 were returned by him on 2
12.12.2014. A buyer, Mr. B, to whom goods worth Rs. 55,000 were dispatched on 16.04.2014, rejected such goods. The said goods were received back on 15.11.2014. (iii) Goods sold to Mr. C for Rs. 5,00,000, on 16.04.2014 were returned by him on 12.12.2014. Determine the amount of taxable turnover and tax liability of Hans India Pvt. Ltd. 3. (a) State whether the following are chargeable to tax and the amount liable to tax - Mr. X received a sum of Rs. 20 lakh on 31.3.2015 from Life Insurance Corporation of India in respect of a policy, where the sum assured was Rs. 15 lakh, taken on 1.10.2003 and for which a one time premium of Rs. 10 lakh was paid. Compensation on account of disaster received from a local authority by Mr. Y. (iii) Income derived by Mr. Z from saplings and seedlings grown in a nursery. (iv) Advance received by Mr. W, a shareholder holding 16% shares of a closely held company. (4 2 = 8 Marks) (b) XYZ India Ltd. is engaged in the manufacture of some dutiable goods. It purchased the following goods in the month of February, 2015:- S. No. Item Excise duty paid [Rs.]* (iii) Raw material used for the production of the final product Goods used for generation of electricity for captive consumption Goods used for providing free warranty Value of such free warranty provided by XYZ India Ltd. is included in the price of the final product and is not charged separately from the customers 1,00,000 20,000 10,000 (iv) Light diesel oil 5,000 *(including EC and SHEC) Compute the amount of CENVAT credit available with XYZ India Ltd. (5 Marks) Calculate assessable value and excise duty payable on the basis of following information: Rs. 3
Total invoice price 40,000 State VAT 4,000 Insurance charges for dispatch of final product 200 Packing charges 1,000 Freight charged from factory to the place of customer 2,000 Excise duty rate is 12% and education cesses as applicable (3 Marks) 4. (a) Mr. Gautam is the Chief Executive Officer of Delta Ltd. From the following details, compute the taxable income for the Assessment year 2015-16: Basic salary Rs. 20,000 per month Dearness allowance 30% of basic salary Transport allowance (for commuting between place of Rs. 2,000 per month residence and office) Motor car running and maintenance charges fully paid by Rs. 36,000 employer (The motor car is owned and driven by employee Gautam. The engine cubic capacity is below 1.60 litres. The motor car is used for both official and personal purpose by the employee) Expenditure on accommodation in hotels while touring on official duties met by the employer. Rs. 25,000 Loan from recognised provident fund (maintained by the employer) Rs. 75,000 Lunch provided by the employer during office hours. Cost to the employer Rs. 5,000 Laptop (cost Rs. 75,000) kept by the employer in the residence of Gautam from 1.12.2014 Gautam made the following payments: Medical insurance premium : Paid in cash Rs. 7,000 Paid by cheque Rs. 3,200 (8 Marks) (b) Determine the point of taxation in the following cases with reference to Point of Taxation Rules, 2011:- Vaanya Private Limited is engaged in providing taxable services. It receives advances of Rs. 1,00,000 from clients on 23 rd April, 2014 for the service to be rendered in the month of May, 2014. Rohan & Co. provided management consultancy services to M/s Batra & Sons on 5 th April, 2014 and billed it for Rs. 1,20,000 on 10 th May, 2014. It received 4
the payment for the same on 14th May, 2014. Balaji Enterprises, a dealer in Gujarat, purchased raw material worth Rs. 80,00,000 (excluding VAT) and manufactured finished goods worth Rs. 1,50,00,000 from such raw material in the month of February, 2015. It transferred these finished goods to its branch in Mumbai on March 15, 2015 so that the goods can be sold from there. Thereafter, it received an order from Mr. A for the said finished goods in Mumbai on March 20, 2015 and hence sold the said goods to Mr. A from Mumbai branch. Compute: Amount of input tax credit available for the month of March, 2015 Net VAT payable for the month of March, 2015, and (iii) Balance input tax credit carried forward to next month, if any. Input VAT rate is 12.5% and output VAT rate is 4%. 5. (a) Mr. Anish owns a residential house in Calcutta. The house is having two identical units. First unit of the house is self-occupied by Mr. Anish and another unit is rented for Rs. 12,000 p.m. The rented unit was vacant for three months during the year. The particulars of the house for the previous year 2014-15 are as under: (b) Standard Rent Municipal Valuation Fair Rent Municipal tax paid by Mr. Anish Rs. 2,20,000 p.a. Rs. 2,44,000 p.a. Rs. 2,35,000 p.a. Repairs during the year Rs. 15,000 Interest on borrowed capital 12% of the Municipal Valuation Rs. 2,000 p.m. Compute income from house property of Mr. Anish for the A.Y.2015-16. (8 Marks) With reference to the provisions of Finance Act, 1994, examine the validity of following statements: Postal services provided by Department of Posts to various State Governments are liable to service tax. Pisciculture (breeding of fish) is not liable to service tax as the same is covered under negative list of services. (5 Marks) Vijay & Vakil, a firm of lawyers rendered legal advice to Mr. X, an architect, and ABC Ltd., an advertising agency during October, 2014. Both Mr. X and ABC Ltd. are not entitled for small service provider exemption in the year 2014-15. Who is liable to pay service tax in this case? Will your answer be different if Mr. X and ABC Ltd. sought legal advice from Mr. P, a lawyer? (3 Marks) 6. (a) Mr. Babu inherited from his father four plots of land in 1980. His father had 5
(b) purchased the plots in 1960 for Rs.5 lakhs. The fair market value of the plots as on 1-4-1981 was Rs.8 lakhs. (Rs.2 lakh for each plot) On 25 th April, 2001, Babu started a business of dealer in plots and converted the 8 plots as stock-in-trade of his business. He recorded the plots in his books at Rs. 45 lakhs being the fair market value on that date. In June 2005, he sold the four plots for Rs. 50 lakhs. In the same year, he acquired a residential house property for Rs. 35 lakhs. He invested an amount of Rs. 5 lakhs in construction of one more floor in his house in June 2006. The house was sold by him in June 2014 for Rs. 63,50,000. The valuation adopted by the registration authorities for charge of stamp duty was Rs. 85,50,000. As per the assessee's request, the Assessing Officer made a reference to a Valuation Officer. The value determined by the Valuation Officer was Rs. 87,20,000. Brokerage of 1 % of sale consideration was paid by Babu. The relevant Cost Inflation Indices are : F.Y. 1981-82 100 F.Y. 2001-02 426 F.Y. 2005-06 497 F.Y. 2006-07 519 F.Y. 2014-15 1024 Give the tax computation for the Assessment Year 2015-16. Also, discuss the tax consequence of conversion of plots held as capital asset into stock-in-trade and subsequent sale of said plots. (8 Marks) A service provider has not been able to file the half yearly service tax return by the prescribed due date. He is worried and does not know what recourse is available to him in this situation. He seeks your help on the issue. What advice will you offer him? MNO Co. is buying oil in drums of 200 liters. They pack this oil in small tins of one litre each, put their label giving details of contents, volume and MRP. Advise whether MNO Co. are liable to pay excise duty on small tins sold by them. 7. (a) Mr. Akash doing retail business furnishes you the following information: Total turnover for the financial year: Financial Year Rs. 2013-14 1,20,00,000 2014-15 99,50,000 6
State whether the provisions of tax deduction at source are attracted for the following expenses incurred during the financial year 2014-15: Interest paid to SBI on working capital loan 1,23,600 Advertisement expenses to Mr. Vijay (two separate payments of Rs. 29,000 and Rs.31,000) Rs. 60,000 Factory rent paid to Mr. Vinod 1,81,000 Brokerage paid to Mr. Vaibhav, a sub-broker 7,500 (b) Specify the persons who are authorized to verify under section 140, the return of income filed under section 139 of the Income-tax Act, 1961 in the case of: (iii) (iv) Political party; Local authority; Association of persons, and Limited Liability Partnership (LLP). Safe Alps Cable Car Co runs a cable car to transport pilgrims uphill to a mountain top where a holy shrine is situated. Examine whether Safe Alps Cable Car Co is required to pay any service tax. (d) A German manufacturer is exporting magnets to India. He is selling the magnets in Germany @ Rs. 100 per piece, but exports same magnets to India @ Rs. 50 per piece. Due to availability of cheap imported magnets, Indian manufacturers of the magnets are suffering. What action can be taken by the Government in this regard? 7