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Direct and Indirect Taxation
Time: 3 Hours
March – 2005
Marks: 100
N.B. : (1) Q. 1 from Section I is compulsory carrying 22 marks.  
  (2) Answer any three questions from remaining questions from Section I carrying 16 marks each.  
  (3) Attempt all the questions from Section II carrying 10 marks each.  
  (4) Answers to both the sections are to be written in same answer book.  
Q.1.   The following is the Receipts and payments account of MR. Rajesh, an architect, for the year ending on March 31, 2004.
Receipts Amount (Rs.) Payments Amount (Rs.)
To Balance b/d. 3,00,000 By Salaries to staff 88,000
To Professional fees 6,50,000 By Printing & Stationery 98,300
To Rent from House Property 1,20,000 By Society Maintainence charges for :     - Office           8,000     - Houses         5,000 13,000
To Gift received from clients for professional work 8,000 By Advance Tax 30,000
To Loan from HDFC Bank (on April 1, 2003 for House at Panvel) 2,00,000 By Purchase of new house at Panvel (on April 1, 2003)  2,50,000
    By Other Office Expenses 83,000
    By Purchase of Car (on April 1, 2003) 50,000
    By Donation 5,000
    By Mediclaim Insurance Premium (by Cheque) 10,000
    By HDFC Loan Repaid 50,000
    By Municipal Taxes 20,000
    By Interest on HDFC Bank Loan 20,000
    By Balance c/d. 5,60,700
Total 12,78,000 Total 12,78,000
You are also informed that :
(1) The details of his business assets :
Name of the Asset WDV on 1-4-03 Rate of Depreciation as per I.T. Act
Office Premises Rs. 10,00,000 10%
Furniture Rs. 3,50,000 15%
Car -- 20%
(2) He stays in a house at Vashi. He purchased a new house at Panvel on April 1, 2003. The municipal valuation of this house is Rs. 1,00,000. It is rented at a monthly rent of Rs. 10,000 from April 1, 2003.
(3) Municipal taxes paid includes municipal taxes of house at Vashi Rs. 10,000 and Rs. 2,000 for house at Panvel, balance for office.
(4) Donation was made to Indira Gandhi Memorial Trust.
(5) 1/4th of the car use has been for personal purposes.
Determine the taxable income of Mr. Rajesh for the assessment year 2004-05.
Q.2.   Mr. X, joined a company, AB Ltd. on June 1, 2003 and was paid the following emoluments and allowed perquisites as under :   Emoluments :      Basic pay – Rs. 50,000 per month                             Dearness Allowance – Rs. 20,000 per month                             Bonus (Target Achiever) – Rs. 1,00,000 per month   Perquisites : (1)              Furnished accommodation owned by the employer and provided free of cost. Taxable value of this rent free furnished accommodation was Rs. 2,20,000. (2)              Motorcar owned by the company along with Chauffeur for official and personal use, the taxable value being Rs. 36,000. (3)              The company paid medical insurance premium of Mr. X amounting to Rs. 15,000. Before joining the company AB Ltd., he was a Central Government employee and retired on May 31, 2003. He was paid the following emoluments and perquisites till May 31, 2003 by the Government.         Basic Salary                                                        - Rs.  96,000   p.a.         Dearness Allowance                                             - Rs.    6,000  p.a.         Entertainment Allowance since 1960                     - Rs.   24,000  p.a. From June 1, 2003 he receives the monthly pension of Rs. 3,000 from the Government. He received Rs. 30,000 as Leave Salary in respect of earned leave at his credit. He received Rs. 1,20,000 as gratuity. Compute the taxable salary of Mr. X for assessment year 2004-05. 16
Q.3. a) During the previous year ending on March 31, 2004 Mr. A sells the following :-
Assets Date of Sale Sale Proceeds Rs. Cost of acquisition Rs. Year of purchase FMV on 1-4-81 Rs.
Shares 1-4-03 4,10,000 1,00,000 1993-94 1,80,000
Agricultural Land in Urban Area 10-6-03 23,00,000 6,17,250 1986-87 2,00,000
Agricultural Land in Rural Area 25-5-03 30,00,000 2,30,000 1973-74 3,40,000
Debentures (Listed) 10-4-03 3,17,900 2,30,615 1993-94 1,80,000
Personal Car 1-7-03 1,25,000 70,000 1986-87 Not Available
Calculate the income under the head Capital Gain of Mr. A for assessment year 2004-05. Cost Inflation Index : F.Y. 2003-04 – 463; F.Y. 1986-87 – 140; F.Y. 1993-94 – 244.
  b) Mr. B holds the following securities on April 1, 2003 :          - Rs. 1,00,000                    7% securities of Tamil Nadu Government.          - Rs. 60,000                       14% non-listed Debentures of ABC Ltd. On August 1, 2003, he borrows Rs. 33,000 at 7% p.a. and invests it in 8% securities of Central Government purchased at Rs. 110 (Face Value Rs. 100). On October 1, 2003, he further borrows Rs. 40,000 @ 8% p.a. for investing it in 10% listed debentures of DEF Ltd. Determine his income from other sources for the assessment year 2004-05. The interest on all investments are due and received on March 31 every year. 8
Q.4. a) Mr. X is a USA citizen. He came to India on October 15, 2003 for a visit and was in India till 31st March, 2004. In earlier previous years, he is in India as under :
1993-94 188 days
1994-95 190 days
1995-96 185 days
1996-97 200 days
1997-98 40 days
1998-99 300 days
1999-00 195 days
2000-01 185 days
2001-02 100 days
2002-03 200 days
Find out the residential status of Mr. X for the assessment year 2004-05 assuming that he is not a person of Indian origin.
  b) Compute the income of Mr. Kaka for the assessment year 2004-05, assuming that he is resident but not ordinary resident in India during the previous year 2003-04.
(i) Interest on company deposits in India Rs. 70,000
(ii) Income deemed to be earned in India Rs. 31,000
(iii) Income from business, situated in Japan and controlled in India (40% is received in India and balance is received outside India) Rs. 84,000
(iv) Salary received in India for services rendered outside India Rs. 92,000
(v) Interest received from Government of India (Received outside India) Rs. 1,60,000
(vi) Interest received from a foreign company outside India (On capital which is utilized outside India) Rs. 70,000
(vii) Past untaxed profit of the year 2000-01 brought into India in May, 2003 Rs. 1,10,000
(viii) Royalty received in India from a non-resident in respect of technology used by such person outside India Rs. 50,000
(ix) Pension from a former employer in India, received in Nepal Rs. 2,30,000
Q.5. Answer the following :-
  a) Find out the amount of rebate u/s 88 of the Income Tax, 1961 in the cases given below for the assessment year 2004-05.
Assessee Gross Total Income Tax on Income (other than LTCG) Investments
(1) Mr. K Rs. 1,40,000 Rs. 15,000 Rs. 59,000 in LIC and     Rs. 20,000 in PPF.
(2) Mr. J Rs. 66,000 Rs. 2,200 Rs. 20,000 in Infrastructure Bonds and Rs. 70,000 in PPF.
(3) Mr. L Rs. 1,51,000 Rs. 16,000 Rs. 30,000 in NSC and    Rs. 30,000 in Infrastructure Bonds.
(4) Mr. M Rs. 5,50,000 Rs. 1,38,000 Rs. 70,000 in PPF and      Rs. 30,000 in Infrastructure Bonds
  b) The rate of T.D.S. on payment of interest to a resident other than a company is 12%. Is it correct? Give reasons. 2
  c) Master T is the minor son of Mr. N. HE has earned Rs. 1,00,000 in the previous year 2003-04 from acting in a film. In addition to that he earned Rs. 10,000 as interest from debentures of an Indian company. (Debentures were gifted to him by his mother). Who is liable to pay tax on the above incomes? 2
  d) Mrs. X is employed with A Ltd., where her husband Mr. X and his brother are holding 15% shares each, whether the clubbing provision u/s. 64(1)(ii) will be attracted? Explain. 2
  e) Mr. R transferred Rs. 3,00,000 to his wife Mrs. R out of love and attraction. She earns interest on it of Rs. 30,000. In whose hands Rs. 30,000 is taxable? Why?  
  f) Enumerate any four payments to which TDS provisions are applicable. 4
Q.6. a) Define and explain as per Income Tax Act, 1961 (any two) : (1)         Person, (2)         Assessee, (3)          Previous Year. 8
  b) What is ‘Capital Asset’ as per Income Tax Act, 1961? Whether the following are capital Assets within the definition of sec. 2(14) :
(i) Goodwill of a business (v) Vacant Land
(ii) A House for personal use (vi) Jewelry
(iii) Personal Scooter (vii) Shares of AB Ltd.
(iv) Utensils (viii) Debentures of XY Ltd.
Q.7. a) Define and explain the term "Business" as per the provisions of the Central Sales Tax Act, 1956. 4 6
  b) State, giving reasons, whether the following activities are business activities or not as per  Central Sales Tax Act, 1956 :
(i) Sales of Machines by a Machinery Manufacturer
(ii) Purchase of a house for personal use
(iii) Sale of scrap
  Explain in details the Provisions of C.S.T. Act, 1956 regarding sale or purchase in the course of Import or Export u/s 5. 10
Q.8. Define and explain the following terms under B.S.T. Act, 1959. (Any two) :             (a)    Goods,           (b)      Business,                    (c) Purchase Price    10
  Explain when does a dealer become liable to pay sales tax under Bombay Sales Tax Act, 1959. 10
Q.9.  From the following Purchase and Sales Register of A and Co. find out from when is the Co. liable for registration, under B.S.T. Act, 1959.
Purchase Register
Date Inv. No. Name of Party Place Amount (Rs.) Remarks
1-1-04 101 Shetty, N. M. Mumbai 50,000 Machinery Purchase – Taxable
3-1-04 201 V. N. Kamat Nasik 5,000 Raw Materials – Taxable
8-1-04 301 A. N. Reddy Ratnagiri 30,000 Raw Materials – Taxfree
11-1-04 401 V. T. Shetti Vashi 40,000 Raw Materials – Taxable
15-1-04 501 H. N. Maniar Mumbai 9,000 Labour Charges
25-1-04 601 G. N. Ravi Valsad 7,000 Raw Materials – Taxable
Sales Register
Date Inv. No. Name of Party Amount (Rs.) Remarks
8-1-04 01 Sneha T. 15,000 Taxable
13-1-04 02 Vicky 20,000 Taxfree
22-1-04 03 Avinash 60,000 Taxable
24-1-04 04 Genu 30,000 Taxable
28-1-04 05 Anna 10,000 Labour Charges
30-1-04 06 Aparna 30,000 Taxable
Taxable goods are manufactured within the factory and delivered on the date of production.
Q.9. M/s. Patel & Co. provides you with the following information regarding Sales Tax Liability for the month of January, 04.
Particulars Rs.
Sale of Schedule "A" goods 33,00,000
­Sale of Schedule "B" goods 18,00,000
Sale of Schedule "B" goods @ 8% (inclusive of Sales Tax Surcharge and Turnover Tax) 21,96,000
Sale of Schedule "c" goods @ 13% (exclusive of taxes) 36,00,000
Cost of Installation 4,00,000
Labour charges recovered 8,00,000
Sale against Form 14 1,00,000
OMS Sales 6,40,000
Sales Return of Schedule ‘A’ Goods 3,00,000
Sales Return of Schedule ‘B’ Goods 5,00,000
Sale Return against Form 14 (including previous month) 2,00,000
The Company is also liable to Pay Purchase Tax of Rs. 1,02,000. They are also entitled to set-off of Rs 2,70,000. They are also liable for Surcharge and Turnover Tax.
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