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Direct and Indirect Taxation

Time: 3 Hours

March – 2004 Marks: 100



Q. 1 from Section I is compulsory carrying 22 marks.  


Answer any three questions from remaining questions from Section I carrying 16 marks each.    


Attempt all the questions from Section II carrying 10 marks each.    


Answers to both the sections are to be written in same answer book.    

Q. 1.


Mr. Jitendra is the proprietor of a business. Following is the Profit & Loss A/c for the year ended 31st March 2003.

To Office Salary


By Gross Profit


 ”  Proprietor’s Salary


 ”  Interest on Govt.



 ”  General Expenses


 ”  Dividend from

    Indian Companies


 ”  Bad Debts


 ”  Interest on Post

    Office S/B A/c


 ”  Advertising


 ”  Winning from

     Camel Races 


 ”  Fire Insurance Premium


 ”  Depreciation


 ”  Motor Car Expenses


 ”  Donation


 ”  Sales Tax


 ”  Interest on Prop. Capital


 ”  Provision for Contingencies


 ”  Income Tax


 ”  Life Insurance Premium


 ”  Net Profit

Total 2,94,000 Total 2,94,000

Additional Information :


Donation is made to Indian Olympic Association.


General Expenses include personal expenses of Rs. 2,000.


Depreciation is found to be in excess by Rs. 3,000 as per the IncomeTax Act.


Advertising Expenses include Rs. 1,500 for sponsoring sports activities amongst his employees.


Out of the Sales tax debited to P/L A/c an amount of Rs. 4,500 is not paid till the date of filing of I. Tax return.


Winning from Camel Races is after T.D.S. of Rs. 6,000.

Compute the Net Taxable Income of Mr. Jitendra for A.Y. 2003-04.


Q. 2.


Mr. Nikunj who is totally blind is employed with BXL Ltd. The details of his salary for the previous year 2002-03 is as follows:


Basic Salary

Rs.8,000 p.m.


D. A.

@ 75% of Basic


H.R.A. [Exempt amount Rs. 400 p.m. u/s 10(13A)]

@ 20% of Basic


Entertainment Allowance

Rs.2,000 p.m.


Arrears of Salary



Advance against Salary



Contribution of Employer to Recognised Provident Fund in excess of Prescribed limits



Interest on Recognised Provident Fund in excess of Prescribed limit



Bonus equal to 2 months basis was declared.



Amount spent by him on entertainment

Rs.500 p.m.


Education Allowance [Exempt u/s 10(14) Rs. 1,200]

@ Rs.600 p.m.


Perquisite value of vehicle provided by employer for personal use



Professional Tax Deducted from Salary

Rs.200 p.m.


He paid medical insurance premium for himself and his wife

Rs.7,000 by cheque

Compute the net taxable income for A.Y. 2003-04.


Q. 3.

  Mr. Gharwala is the owner of various house properties. The details of which for the Previous Year 2002-03 is as follows:


Property I is let out on a monthly rent of Rs. 7,500. The fair rent of the property is Rs. 85,000 and municipal valuation is Rs. 80,000. Municipal Tax paid amounted Rs. 8,000 p.a. out of which 50% of the tax is borne by tenant. The house remained vacant for 2 months during the year. Mr. Gharwala had taken loan for construction of this property on which interest paid amounted to Rs. 35,000.


Property II is occupied by himself for his own residence. The municipal valuation of the property is Rs. 1,20,000 and Fair Rent Rs. 1,50,000. The municipal taxes of Rs. 12,000 were paid by him on 29th March 2003. He had constructed this property after 1st April 1999. The Construction started on 01/04/99 and was completed on 31st March 2001. Loan of Rs. 2,00,000 @12% p.a. was taken on 1st April 1999 and is still outstanding. Interest is paid regularly.


Property III was inherited by him from his father which is also kept by him for his own residence. The Municipal valuation of the property is Rs. 46,000 and Fair Rent Rs. 48,000. MR. Gharwala paid municipal taxes of Rs. 4,600 on 10th April 2003 for above house property. He had to pay Rs. 12,000 p.a. as annual charge his sister. Interest on loan for this house property paid was Rs. 6,000 to Mr. Ponting of Australia without any TDS and there is no agent of Mr. Ponting in India for the purpose of income tax.


He also owns an open plot of land which was given on rent during the year for rent of Rs. 20,000.


He had taken a room on rent for his office work at the rent of Rs. 1,500 p.m. However, instead of himself using the room he sub-letted this room to another person at the rate of Rs. 2,000 p.m. during the whole of P.Y. 2002-03.

Compute his Gross Total Income for the A.Y. 2003-04.


Q. 4.


Mr. Shane, an American Citizen, came to India for the first time on 1st April 1998 and started a business in Mumbai. He went out of India on 1st April 2002 and came back to India on 1st Jan 2003 and was in India thereafter. Find out his residential status for A.Y. 2003-04.  


Mr. Dhaval, an Indian Citizen, went out of India for the first time for the purpose of his employment outside India on 1st May 2002 and came back to India on 1st December 2002. Find out his residential status for A.Y.2003-04.  

Q. 5.


Define and Explain the following according to the income tax Act, 1961:

(i) Assessee                     (ii) Person

(iii) Assessment Year         (iv) Previous Year.



Explain the deductions u/s 24 available from income from house property for A. Y. 2003-04.  

Q. 6.


Mr. Sharewala purchased Shares in Indian Companies (unlisted) as investment on 10th June 1982 for Rs. 2,00,000. On 1st June 2000 he started a business as a dealer in Shares and transferred the entire holdings to the business. The market value of the Shares as on that date was Rs. 8,00,000. The Shares were sold by him for Rs. 9,20,000 on 20th Oct 2002. Compute his income from Capital Gains from the above transactions for A.Y. 2003-04.The cost inflation index for

F.Y. 1982-83


F.Y. 2000-01


F.Y. 2002-03




Answer the following for A.Y. 2003-04 giving reasons wherever necessary:


Mr. Pinkesh has a gross total income of Rs. 1,75,000 and his allowable investments for Sec. 88 are Rs. 60,000. He claims rebate u/s 88 @ 20. Is he correct?


Mr. Gambhir who is aged 68 claims rebate u/s 88B on tax payable on total income including long term Capital gains. Will it be allowed?


What is the amount of Interest paid or payable in a P.Y. after which TDS on interest on securities becomes applicable u/s 193.


What is the rate of TDS on Payments Pursuant to any contract or sub-contract of work u/s 194C?


Mr. Sundaram, a member of HUF, converted his separate property as his HUF property in the year 2001. The income of the HUF from said property is Rs. 25,000 during P.Y. 2002-03.Find out in whose hand the said income will be taxable.


Mrs. Kavita gets interest on Capital from a partnership firm where her husband is also a partner. The ITO wishes to club the interest paid in the hands of husband u/s 64(i)(ii). Discuss.

Q. 7.


Define and explain the term "Sale" as per the provisions of the Central Sales Tax Act, 1956.  


State with reasons whether the following transactions are "Sale" as per the provisions of the Central Sales Tax Act, 1956 (any two):
(i) Sales of illegally imported mobile phones
(ii) Installation of plant
(iii) Hire purchase transaction.
  Explain the provisions of Sale/Purchase in course of inter-state trade under the Section 3 of Central Sales Tax Act, 1956.  

Q. 8.

Explain briefly the provisions of Turnover Tax, under Section 9 of the Bombay Sales Tax Act, 1959.  
  Define and explain the following according to the Bombay Sales Tax Act, 1959 (any two):(i) Resale          (ii) Sale Price          (iii) Goods.  


Mr. Nishu furnishes the following information regarding his turnover of purchases and sales transactions. You are requested to find out whether & from which month, as per the provisions of the Bombay Sales Tax Act, 1959, he is liable for registration and paying Sales Tax. Give reasons for your answer.
Month Details of Purchase Details of Sales
Tax Free Goods Import of Total Tax Free Goods Taxable Goods Total
Tax Free Goods Taxable Goods
Rs. Rs. Rs. Rs. Rs. Rs. Rs.
December 2002 1,60,000 2,000 2,400 1,64,400 2,00,000 6,000 2,06,000
January 2003 1,00,000 4,000 2,400 1,06,400 80,000 1,600 81,600
March 2003 1,80,000 3,000 5,000 1,88,000 1,60,000 1,600 1,61,600
April 2003 1,80,000 3,000 6,500 1,89,500 2,30,000 9,000 2,39,000

Q. 9.

M/s Raj & Co. requests you to compute liability under Bombay Sales Tax Act, 1959 for the month of February 2004, from the following information. The firm is a registered dealer under Bombay Sales Tax Act, 1959.



Sale of Schedule "A" goods


­Sale of Schedule "B" goods


Sale of Schedule "c" goods ( at the rate of 13%)


Sale out of Maharashtra


Labour charges received


­Resale of Schedule "C" goods (Registered dealer purchases)

Total 6,20,000
Less: Sale Returns : of Schedule" A" goods 4,000

Second Sale (Resale of Schedule "c" goods)


Schedule "C" goods

Total 20,000

M/s Raj & Co. is also liable to pay purchase tax of Rs. 4,000. Set off available for this month is Rs. 7,300.

Sales figures are exclusive of Sales tax.
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