Gurukripa s Guideline Answers to May 2016 Exam s CA Inter (IPC) Taxation No.1 is compulsory (4 5 = 20 Marks). Answer any five questions from the remaining six questions (16 5 = 80 Marks). [Internal Choice in Q.No.7(a)] Working Notes should form part of the answer. Wherever necessary, suitable assumptions should be made and stated clearly by way of a Note. All questions pertaining to Income Tax relate to Assessment Year 2016 2017, unless stated otherwise in the. Note: Numbers for Page References are given as under Book Title Padhuka s Students Handbook on Taxation Padhuka s Practical Guide to Taxation Referred as Handbook Prac. Guide 1(a): Income Tax Computation of Total Income 10 Marks Mr. Vinod Kumar, a Resident aged 62, furnishes the following information pertaining to the year ended 31.03.2016 () () Pension received (Net of TDS) 6,27,000 Pertaining to Consultancy Services provided by him: Short Term Capital Gains (from sale of Listed Shares) 65,000 Gross Receipts 12,60,000 Long Term Capital Gains (from sale of Listed Shares) 1,24,000 Expenses: Interest on Fixed Capital from Bank 1,60,000 Rent for Premises 1,44,000 Contribution to PPF 1,10,000 Salary of P.A. 1,20,000 Premium on Life Insurance Policy taken on 10.01.2016 60,000 (Sum assured 5,00,000) Stenographer s Salary 1,00,000 Mediclaim Insurance for self (paid otherwise than by Cash) 27,000 Business Development Expenditure 91,000 Preventive Health Checkup Expenses (in cash) 6,000 Conveyance 3,00,000 Donation given in Cash to a Charitable Trust registered u/s 12AA (eligible for Deduction u/s 80G) 14,000 Additional information : TDS from Pension 25,000 Interest received from Post Office Savings A/c 18,000 1/4 th of Conveyance Exp. is estimated for personal use. Compute Total Income for AY 2016 17, under proper heads of Income. Listed Shares were sold in recognized Stock Exchange. Refer Illustration in Chapter 14 on Taxation of Individuals Assessee: Mr. Vinod Kumar Previous Year: 2015 2016 Assessment Year: 2016 2017 Computation of Total Income and Tax on Total Income Q Salaries Gross Pension ( 6,27,000 + 25,000) 6,52,000 Profits and Gains of Business or Profession (WN) 5,80,000 Capital Gains Long Term Capital Gains from Sale of Listed Shares Exempt u/s 10(38) Nil Short Term Capital Gains from Sale of Listed Shares 65,000 65,000 Income from Other Sources Interest on Fixed Capital from Bank 1,60,000 Interest from Post Office Savings A/c 18,000 Less: Exempt u/s 10(15) (5,000) 13,000 1,73,000 Less: Gross Total Income 14,70,000 Deduction under Chapter VI A U/s 80C Contribution to PPF 1,10,000 U/s 80C Life Insurance Premium (Restricted to 10% of Sum Assured) 50,000 (Total Deduction u/s 80C is restricted to 1,50,000) 1,60,000 1,50,000 May 2016.1
Q U/s 80D Mediclaim Insurance Premium (Non Cash Payment, allowed) 27,000 U/s 80D Preventive Health Checkup (Any mode including Cash) 6,000 (Total Deduction u/s 80D is restricted to 30,000) 33,000 30,000 U/s 80TTA Interest on Savings Bank 10,000 1,90,000 Total Income 12,80,000 Note: Donation in Cash exceeding 10,000 is not eligible for deduction u/s 80G. Working Note: Computation of Profits and Gains of Business or Profession: Gross Receipts 12,60,000 Less: Rent 1,44,000 Salary to PA & Stenographer [ 1,20,000 + 1,00,000] 2,20,000 Business Development Expenses 91,000 Conveyance 3,00,000 7,55,000 Net Profits as per Profit & Loss A/c 5,05,000 Add: Disallowed Expenses Conveyance ( 3,00,000 1/4) 75,000 Profits and Gains of Business or Profession 5,80,000 1(b): Service Tax Value of Taxable Services, ST & Due Date of Payment 6 Marks Dharmendra Ltd gives the following particulars relating to the services provided to its various Clients for the month of January 2016: (i) Total Bills raised for 17,50,000, out of which a Bill for 1,50,000 was raised on a SEZ Unit for services rendered in the said Unit, and payment for bills for 2,00,000 were not received until 31.01.2016. Service Tax is separately charged on the bills raised, wherever applicable. (ii) Amount of 1,14,500 (including Service Tax) was received as an Advance from Ramotar Ltd on 25.01.2016 to whom the Services were provided in March, 2016. Assume that ST is separately charged in the bills as well as for Advance Payment. Assessee is not a small Service Provider. Compute: (i) Value of Taxable Services, (ii) Amount of Service Tax Payable, (iii) Last date for Service Tax Payment. Refer Principles in Pg. 23.3, Para 23.3.1 & Illustration in Page 24.5 of Handbook Computation Total Bills raised excluding Bills raised on SEZ 17,50,000 1,50,000 16,00,000 Advance received on 25.01.2016 1,14,500 100 114.50 1,00,000 Total Value of Taxable Services 17,00,000 Service Tax Payable @ 14% 17,00,000 14% 2,38,000 Add: Swachh Bharat Cess @ 0.50% 17,00,000 0.50% 8,500 Total Service Tax Payable 2,38,000 + 8,500 2,46,500 Last Date for Payment: As per POT Rule 6, other than Individuals / Proprietary Firm / Partnership Firm / LLP are liable to pay ST before 5 th / 6 th of the following Month, i.e. 5 th / 6 th February 2016. 1(c): VAT Input Tax Credit & Net Liability Compute Net VAT Liability of Rohan from the following information for the month of February 2016 Raw Material from Foreign Market (incl. Duty paid on Imports @ 20%) 1,50,000 Raw Material purchased from Local Market: Raw Material purchased from neighbouring State (incl. CST @ 2%) 51,000 Cost of Raw Material 3,00,000 Storage and Transportation Costs 11,000 Add: Excise Duty @ 12.5% 37,500 Manufacturing Expenses 25,000 Add: VAT @ 4% 13,500 There were no Opening and Closing Stocks. 3,51,000 Rohan sold goods to Arya and earned Profit @ 12% on the Cost of Production. VAT Rate on sale of such Goods is 4%. May 2016.2
Similar to Illustration [N 13] in Page No. 27.43 of Handbook Computation of Net VAT Liability Raw Material from Foreign Market (including Import Duty) 1,50,000 Raw Material from Local Market (including Excise Duty but excluding VAT) (Note) 3,37,500 Raw Material from Neighbouring States (including CST being a Cost) 51,000 Manufacturing Expenses (Given) 25,000 Storage and Transportation Cost (Assumed to be incurred on Raw Material) 11,000 Cost of Production 5,74,500 Add: Profit @ 12% on Cost 68,940 Gross Sale Price 6,43,440 Add: Excise Duty @ 12.50% 80,430 Selling Price including Excise Duty 7,23,870 Output VAT @ 4% on 7,23,870 28,955 Less: Input Tax Credit on Raw Material purchased from Local Market (Given) 13,500 Net VAT Liability 15,455 Note: It is assumed that the CENVAT Credit of Excise Duty is not available. Hence, considered as Cost. 2(a): Income Tax Residential Status & Assessee How is the Residential Status of a Company determined for the purposes of Income Tax Act, 1961, for AY 2016 17? How is the term Assessee defined under the provisions of IT Act, 1961? 2 = 8 Marks Page No. 2.7, Para 2.2.3 of Handbook Pg No. 1.13, Para 1.8.1 of Handbook 2(b): Service Tax Value of Taxable Services & ST Mandi & Co is providing taxable Information Technology Software Services. The Firm furnishes the following information relating to services rendered, bills raised, amount received pertaining to services, for the Quarter ending 31.03.2016 as under Amount received being 10% of the Assignment Fees on 31.03.2016 for the Upgradation and Enhancement of the Software Services (including Service Tax) 7,00,000 Services provided to UNICEF & International Organization in Delhi, for design & programming of IT Services. 4,00,000 Services provided to A Ltd for IT Services. ST was not received from the Client due to some dispute. 3,00,000 Services provided to B Ltd for providing Software Services. However, Mandi & Co failed to recover the ST amount from B Ltd due to insolvency of Client. Summary of the bills (all issued in January, 2016) is as under Charges for Software Services 5,00,000 Services Tax @ 14.50% 72,500 5,72,500 Amount received from other Clients during January to March, 2016 including Service Tax 70,00,000 Compute the value of total Taxable Services and Service Tax payable thereon for the Quarter ending 31.03.2016 by Mandi & Co. The Assessee had rendered Taxable Services of 110 Lakhs during the year ended 31.03.2015. Refer Illustration in Chapter 24 of Handbook Note: 1. Since Total Value of Taxable Services > 10 Lakhs during the preceding FY, Mandi & Co is not a Small Service Provider. 2. Since the question is silent on Date of Completion of Service, it is assumed that the same is a continuous supply of service, and hence the Contract is taxable as and when the right to receive the amounts arises under the said Contract. Alternatively, the entire consideration of 70 Lakhs may be considered for ST Levy. 3. It is assumed that all amounts received are inclusive of ST. Computation of Value of Taxable Services & Service Tax Payable Computation Upgradation & Enhancement of Software Services [Note 2] 6,11,354 7,00,000 May 2016.3 100 114.50
Computation Service provided to UNICEF Nil Exempt Services provided to A Ltd & B Ltd [ 3,00,000 + 5,00,000] [Note 3] 6,98,690 8,00,000 Amount received from other Clients 61,13,537 70,00,000 Total Value of Taxable Services 74,23,581 100 114.50 100 114.50 Service Tax Payable @ 14% 10,39,301 74,23,581 14% Add: Swachh Bharat Cess @ 0.50% 37,118 74,23,581 0.50% Total Service Tax Payable 10,76,419 2(c): Computation of Customs Duty Madhav Enterprises imported some goods from USA. Assessable Value of the Imported Goods is 20,00,000. Compute the Customs Duty payable from the following additional information Date of Bill of Entry 30.09.2015 (Rate of BCD is 10%) CVD is payable @ 12.5% Date of Entry Inward 25.09.2015 (Rate of BCD is 8%) Special CVD @ 4% Refer Illustration in Page No. 21.11 of Handbook 1. Assessable Value (AV) 20,00,000 2. Basic Customs Duty (BCD) at 10% 2,00,000 3. CVD @ 12.50% of (AV + BCD) = 12.5% of (20,00,000 + 2,00,000) 2,75,000 4. Total Customs Duty = BCD + CVD = (2+3) 4,75,000 5. Education Cess @ 2% on Customs Duty = 2% on 4,75,000 9,500 6. SHEC @ 1% on Customs Duty = 1% on 4,75,000 4,750 7. Special CVD @ 4% on [AV+BCD+CVD+EC+SHEC] =4%[20,00,000+2,00,000+2,75,000+9,500+4,750] 99,570 Customs Duty Payable (Total of 4 to 7) 5,88,820 Note: Rate of Duty = Rate on the date of filing B/E or Date of Entry Inward, whichever is later, should be considered. 3(a)(i): Income Tax Conditions for Exemption State the conditions to be fulfilled by a Political Party for enjoying exemption in relation to certain Income s under IT Act, 1961. Refer Page No. 3.21, Para 3.8.1 of Handbook 3(a)(ii): Income Tax Exemption u/s 10AA Mr. Suresh has set up an Undertaking in SEZ (Unit A) and another Undertaking in DTA (Unit B) in Financial Year 2010 2011. In the Previous Year 2015 2016, Total Turnover of the Unit A is 180 Lakhs and Total Turnover of Unit B is 120 Lakhs. Export Turnover of Unit A for the year is 150 Lakhs and the Profit for the Unit A is 60 Lakhs. Calculate the deduction available, if any, to Mr. Suresh u/s 10AA for Assessment Year 2016 17, if the manufacturing started in Unit A in Financial Year 2010 2011. Refer Illustration [M 11, N 13] Page No. 3.21 of Handbook Assessee: Mr. Suresh Previous Year: 2015 2016 Assessment Year: 2016 2017 Computation of Business Income Lakhs Profits derived from the Unit in SEZ 60.00 Export Turnover 150 Less: Exemption u/s 10AA = Profit of Business of the Undertaking = 60 50% Total Turnover (25.00) 150 + 30 Business Income 35.00 Note: Since Unit A has been set up in FY 2010 2011, it falls within second 5 year period, for which Exemption is 50%. May 2016.4
3(b): CENVAT Credit Yahoo Pvt Ltd, a Manufacturer furnishes the following information Bill No. Date of Bill Excise Duty / Service Tax Paid () 801 Input Goods A 15.01.2015 15,000 802 Input Goods B 16.05.2015 24,000 810 Input Goods C 12.03.2016 30,000 757 Machinery, (eligible Capital Goods under Chapter 82) 11.03.2015 2,00,000 All the Input Goods and the Machinery were received on the dates of Bills. Bill No. 810 is missing. Yahoo Pvt Ltd is not a SSI unit. Determine the CENVAT Credit that can be availed by Yahoo Pvt Ltd during the month of March 2016. Similar to Illustration [M 15] in Page 26.28 of Handbook Reasoning Input Goods A Nil Credit should be taken within 1 Year, not eligible Input Goods B 24,000 Credit to be taken within 1 Year, eligible Input Goods C Nil Credit cannot be availed without valid document u/r 9 Machinery 1,00,000 CENVAT Credit for March 2016 1,24,000 Since it is Capital Goods, 50% eligible [Assumed that such Credit has not been taken in earlier periods] 3(c): Computation of Assessable Value & Excise Duty Determine the Transaction Value and the Central Excise Duty payable of M/s Rajiv Enterprises from the following particulars 1. Price of Machinery, excluding Taxes and Duties 6,00,000 2. Installation and Erection Expenses (Machinery has been fixed to the Earth) 35,000 3. Packing Charges (Primary and Secondary) 12,000 4. Design and Engineering Charges 4,500 Additional Information: Cash Discount @ 2% on Price of Machinery (not considered in 1 above) was allowed as per terms of Contract, since full payment was received within 15 days of the despatch of Machinery. Bought out Accessories valued at 7,000. The Accessories are optional, and provide ease of use of the Machinery. Central Excise Duty @ 12.5%. Brief note is to be appended for treatment of each item. Similar to Illustration in Page No. 20.19 of Handbook Reason Price of machinery 6,00,000 Add: Packing Charges 12,000 Packing Charges, Design & Engineering Charges have been Design and Engineering Charges 4,500 included as such payments are in connection with sale. Total 6,16,500 Less: 2% Cash Discount [ 6,00,000 2%] (12,000) Allowed as Deduction as it has been passed to the Buyer. Notes: Assessable Value 6,04,500 Excise Duty @ 12.50% 75,563 1. Installation and Erection Expenses have not been included, as they result in immovable property which is not goods. 2. Value of bought out accessories has not been included, as they are optional, and do not provide any value addition. 4(a): Discuss the taxability or otherwise in the hands of the Recipients, as per the provisions of IT Act, 1961 8 Marks (i) ABC Pvt Ltd, a closely held Company, issued 10,000 Shares at 130 per Share. (The Face Value of the Share is 100 per Share and the Fair Market Value of the Share is 120 per Share) May 2016.5 [130 120] 10,000 = 1 Lakh is taxable in the hands of ABC Pvt Ltd. Refer Illustration in Pg. 8.10 of Handbook
(ii) Mr. A received an Advance of 50,000 on 01.09.2015 against the sale of his house. However, due to non payment of instalment in time, the Contract has cancelled and the amount of 50,000 was forfeited. (iii) Mr. N, a Member of his father s HUF, transferred a House Property to the HUF without consideration. The value of the House is 10 Lakhs as per the Registrar of Stamp Duty. (iv) Mr. Kumar gifted a Car to his sister s son (Sunil) for achieving good marks in CA Final Exam. The Fair Market Value of the Car is 5,00,000. Taxable under Income from Other Sources u/s 56 in the hands of Mr. A. Pg. 7.30, Para 7.3.13 of Handbook Refer Qn. 12, Pg. 8.6 of Prac. Guide Gift from a Relative is Not Taxable in the hands of HUF. [Also Refer Sec. 64(2)] Not Taxable. Car is not a Property u/s 56(2). Refer Qn. 12, Pg. 8.6 of Prac. Guide 4(b), (c): Service Tax & CST (b) When can an Assessee avail the benefit of Small Service Provider (SSP) Exemption for the purposes of Service Tax? Name two situations in which such exemption is not available. (c) State with reason, whether the following are True / False, as per the CST Act, 1956: (i) CST is not leviable on inter state sale of Electrical Energy. (ii) Cost of Freight, though not separately shown in the Invoice, will not form part of Sale Price. 2 = 8 Marks Page No. 23.2, Para 23.2 of Handbook True. Pg No. 27.14, Para 27A.3.1 of Handbook False. Pg. 27.8, Para I, Point No. 3 of Handbook 5(a): Income Tax Computation of Depreciation 8 Marks Venus Ltd engaged in manufacture of Pesticides, furnishes the following particulars relating to its Manufacturing Unit at Chennai (for the year ending 31.03.2016) ( in Lakhs) Opening WDV of Plant and Machinery 20 New Machinery purchased on 01.09.2015 10 New Car purchased on 01.12.2015 8 Computer purchased on 03.01.2016 4 Compute Depreciation available as per IT Act, 1961 & WDV of different Blocks of Assets as on 31.03.2016. Additional Information: All Assets were put to use immediately. Computer has been installed in the Office. During the year ended 31.03.2015, a New Machinery had been purchased on 31.10.2014, for 10 Lakhs. Additional Depreciation, besides Normal Depreciation, had been claimed thereon. Depreciation Rate for Machinery may be taken as 15%. Refer No. 9 in Page No. 6.13 of Prac. Guide of Asset (Rate of Depn.) Depreciation Statement as per Income Tax Act, 1961 () WDV as on Addn. At Deductions 01.04.2015 actual cost May 2016.6 Net Value of Block Depn. Curr. Year WDV as on 31.3.2016 1 2 3 4 5 6 7 Block I Plant & Machinery 15% 20,00,000 10,00,000 NIL 30,00,000 7,50,000 (Note 1/2) Block II Motor Car 15% NIL 8,00,000 NIL 8,00,000 60,000 (Note 2) Block III Computer 60% NIL 4,00,000 NIL 4,00,000 1,20,000 (Note 3) Notes: TOTAL DEPRECIATION ADMISSIBLE 9,30,000 22,50,000 7,40,000 2,80,000 1. For the Machinery purchased on 31.10.2014, Additional Depreciation would have been claimed @ 50% of 20% = 10%. Hence, balance 10% is now claimed in the Current PY. The amendment in law is clarificatory in nature and being beneficial to the Assessee. [Note: Alternative view on non applicability of Additional Deprn is possible.] 2. In addition to Normal Depreciation, Additional Depreciation @ 20% is also available for Machinery purchased on 01.09.2015. So, Total Depreciation = Normal [ 30,00,000 15%] + Additional [ 10,00,000 20%] + Balance Additional Deprn for preceding PY Purchase [ 10,00,000 10%] = 7,50,000.
3. Car acquired on 01.12.2015 put into use for less than 180 days entitled for 50% of normal depreciation, i.e. 7.5%. 4. Computer acquired on 03.01.2016 put into use for less than 180 days entitled for 50% of normal depreciation, i.e. 30%. 5: Service Tax Taxability of Services (b) Briefly explain the Concessional / Composition Rates of Service Tax applicable to Air Travel Agents. (c) Discuss whether the following Services are chargeable to Service Tax, in March 2016 (i) An Indian Tour Operator provided the service to Mr. Yuhan, a Japanese National, for a tour in Sri Lanka. (ii) Mr. Amit, an Organizer, provided services to Mr. Kumar in respect of a business exhibition held in Patna. (iii) Mr. Chandra Bhusan provided the services by conducting Religious Rites at the birth ceremony of a Child. (iv) Sunita provided Consultancy Services to Government directly connected with Solid Waste Management. 2 = 8 Marks Pg No. 25.27, Para 25.3.3 of Handbook Exempt. Page No. 23.27, Point No. 6 of Handbook Taxable. Page No. 23.28, Point No. 16 of Handbook Exempt. Page No. 23.27, Point No. 8 of Handbook Taxable. Page No. 23.5, Para 23.3.2 of Handbook, as amended by Notfn.6/2014. 6(a): Income Tax Set off & Carry Forward of Multiple Losses Mr. Aditya furnishes the following details for the year ended 31.03.2016 Loss from Speculative Business A 25,000 Loss from House Property 1,50,000 Income from Speculative Business B 5,000 Income from Trading Business 45,000 Loss from Specified Business covered u/s 35AD 20,000 LT Capital Gain from sale of Urban Land 2,00,000 Income from Salary 2,50,000 LT Capital Loss on sale of Shares (STT not paid) 75,000 Long Term Capital Loss on sale of Listed Shares in Recognized Stock Exchange (STT Paid) 82,000 Following are the brought forward Losses: 1. Losses from Owning and maintaining of Race Horses pertaining to AY 2015 2016 2,000. 2. Brought forward loss from Trading Business 5,000 relating to AY 2012 2013. Compute the Total Income of Mr. Aditya and show the items eligible for Carry Forward. Refer Illustrations in Chapter 10 of Handbook Assessee: Mr. Aditya Previous Year: 2015 2016 Assessment Year: 2016 2017 1. Computation of Total Income Q Salaries: 2,50,000 Income from House Property (1,50,000) Profits and Gains of Business or Profession Income from Speculative Business 5,000 Less: Loss from Speculative Business (5,000) Nil Income from Trading Business 45,000 Less: Brought forward Loss from AY 2012 2013 (5,000) 40,000 40,000 Capital Gains Long Term Capital Gains on sale of Land 2,00,000 Long Term Capital Loss on sale of Shares (STT not paid) (75,000) 1,25,000 Total Income 2,65,000 Note: Long Term Capital Loss on which STT paid is not available for set off. May 2016.7
2. Items Eligible for Carry Forward 1. Loss from owning Race Horses can be set off against Income from owning Race Horses till AY 2019 2020 2,000 2. Loss from Speculative Business shall be carried forward for 4 AY and set off only against Income from Speculative Business. (25,000 Set off in Current Year 5,000) 3. Loss from Specified Business u/s 35AD can be carried forward for any number of years, and set off only against Income from any Specified Business. 20,000 20,000 Total 42,000 6: ST Interest Levy, Returns (b) Briefly touch upon the provisions relating to Interest payable for delayed payment of Service Tax. (c) What are the due dates for filing of Service Tax Returns? Is there any Late Fee payable for any delay in filing of Service Tax Returns? 8 Marks Page No. 25.30, Para 25.4.5 of Handbook Page No. 25.34 & 25.35, Para 25.6.1 & 25.6.2 of Handbook 7(a): Answer any Two of Three sub divisions in Part (a) 4 = 16 Marks (a)(i) Ashwin, a Resident Individual carrying on business, furnishes you the following Turnover during FY 2014 2015 1,20,00,000 Turnover during FY 2015 2016 98,00,000 State whether TDS provisions are attracted for the under mentioned expenses incurred during the FY 2015 2016. If tax has to be deducted at source, state the amount to be deducted. All payments are made to Residents. Commission paid to Babloo = 8,500 Payment to Vijay for repair of Office Building = 23,000 Payment of Fees for Technical Services, to Vivek = 35,000 (a)(ii) Briefly discuss the provisions of Sec.234B of IT Act, 1961 for Short Payment or Non Payment of Advance Tax. (a)(iii) Discuss with reason, whether the following statements are True / False (A) Any amount received by an Individual or his Legal Heir as Compensation for Natural Disaster from the Government, is taxable. (B) Dividend received (on which no Dividend Distribution Tax paid) by a Dealer in Shares or one engaged in buying / selling of Shares, is chargeable under Income from Other Sources. (Discussion must be on the Head of Income). Refer Illustration [N 12] in Page No. 18.17 of Handbook. 194H: 10% of 8,500 = 850 194C: No TDS, since Pmt 30,000 194J: 10% of 35,000 = 3,500 Page No. 12.12, Para 12B.2.2 of Handbook False. Page No. 3.7, Para 3.3 of Handbook [Sec. 10(10BC)] True. Qn. 3 in Page No. 15.2 of Prac.Guide. [Note: Dividend taxable as Income from Other Sources, as held in D G Goenka 129 ITR 260 (Bom) & Sangam Investments Ltd (All)] (b) How is Value of Taxable Service, whose value is not ascertainable, determined? Page No. 24.6, Para 24.2.2 (c) A Manufacturer wishing to avail CENVAT Credit in respect of certain eligible Inputs, wants to store them outside the Factory where he carries on Manufacture. Briefly state the provisions concerned for storage of Inputs outside the Factory. Page No. 26.9, Para 26.2.3 of Handbook May 2016.8