pcc-2011_tax

8/6/2019 pcc-2011_tax

1/19

ci

Question No. 1

(a) Mr. Praveen engaged in retail trade, reports a turnover of Rs.58,50,000 for the financial

year 2010-11. His income from the said business as per book of account is computed at

Rs.2,90,000. Retail trade is the only source of income for Mr. Praveen.

(i) Is Mr. Praveen eligible to opt for presumptive determination of his income chargeableto tax for the assessment year 2011-12 ?

(ii) If so, determine his income from retail trade as per the applicable presumptiveprovision.

(iii) In case, Mr. Praveen does not opt for presumptive taxation of income from retail trade,what are his obligations under t he Income-tax Act, 1961?

(iv) What is the due date for fil ing his return of income, under both the options?Solution:

( i) Mr. Praveen is eligible to opt for Presumptive taxation u/ s 44AD of the Income Tax Act,1961 in respect of the business of retail trade carried on by him, since the total turnover does

not exceed Rs. 60,00,000 in the previous year.(ii) As per Section 44AD, the presumptive income shall be 8% of the gross receipts or suchhigher income as may be declared by the assessee. In this case, 8% of the gross receipts is Rs.

4,68,000 ( 58,50,000 x 8% ). Since this sum is higher than the income declared by the assessee,

Rs. 4,68,000 shall be offered as income from retail tr ade.

(iii) In case Mr. Praveen does not opt for presumptive taxation, he shall maintain books asprescribed u/ s 44AA and get the books audited u/ s 44AB since the income computed on the

basis of books of account is less than presumptive income u/ s 44AD.

(iv) Where the presumptive income taxation is opted for u/ s. 44AD, the due date for fil ingreturn of income shall be on or before 31st of July, 2011. On the other hand where books of

account are subject to audit u/ s. 44AB, the return of income shall be furnished on or before

30th Sep, 2011.

(b) Rahul holding 28% of equity shares in a company took a loan of Rs. 5,00,000 from the

same company. On the date of granting the loan, the company had accumulated profit of Rs.

4,00,000. The company is engaged in some manufactur ing activity.

(i ) Is the amount of loan taxable as deemed dividend in the hands of Rahul, if thecompany is a company in which the public are substantially interested?

APPENDIX TO

SSTTUUDDEENNTTSSHHAANNDD BBOOOOKK OONN TTAAXXAATTIIOONN

SUGGESTED ANSWERS - C.A. PCC May 2011, EXAMINATION

8/6/2019 pcc-2011_tax

2/19

cii Suggested Answers for CA PCC May 2011 Examination(ii) What would be your answer, if the lending company is a private limited company(i .e.) a company in which the public are not substantially interested?

Solution: Refer to caption Dividend in chapter 8 Income from Other Sources.

(i) Since the company is a company in which the publi c are substantially interested, deemeddividend as defined under section 2(22)(e) is not applicable and accordingly, the same is not

taxable in the hands of the recipient.

(ii) Since the company is a company in which the public are not substantially not interested,Section 2(22)(e) is applicable and accordingly, the loan taken is taxable as deemed dividend.

However, the dividend so taxable shall be restricted to Rs. 4,00,000, being the amount of

accumulated profits of the company.

(c) Mr. Chandru transferred a vacant site on 28-10-2010 for Rs. 100 lakhs. The site was

acquired for Rs. 9,99,300 on 30-06-2000. He deposited Rs. 50 lakhs in eligible bonds issued by

Rural Electrification Corporation Ltd. (REC) on 20-03-2011.

Again, he deposited Rs. 20 lakhs in eligible bonds issued by National Highways Authority of

India (NHAI) on 16-04-2011.

Compute the chargeable capital gain in the hands of Chandru for the assessment year 2011-12.

Financial Year Cost Inflation Index

2000 01 406

2010 11 711

Solution: Computation of Capital gains in the hands of Mr . Chandru for the assessment year2011-12

Particular Amount (Rs.)

Full Value of Consideration 1,00,00,000

Less:

Indexed cost of acquisition

[9,99,300 X 711/ 406] 17,50,006

82,49,994

Less: Exemptions u/ s 54EC

Investment in REC Bonds on 20/ 03/ 2011 50,00,000

Investment in NHAI Bonds on 16/ 04/ 2011 20,00,000 70,00,000

Long Term Capital Gain chargeable to tax 12,49,994

8/6/2019 pcc-2011_tax

3/19

Students Handbook on Taxation ciii

Notes:

1. U/ s 54EC of the Income Tax Act, 1961, exemption fr om long term capit al gains shall beclaimed if investment is made in specified bonds within 6 months from the date of transfer.Such exemption shall be restr icted to the investment made in bonds. Also, investment made insuch bonds shall be subject to a limit of Rs. 50,00,000 per fi nancial year.

2. Since Chandru has invested in REC Bonds for Rs. 50,00,000 and in NHAI Bonds forRs.20,00,000 in 2 financial years, and also such investments are made within 6 months oftransfer, the investments are eligible for exemption U/ S 54EC.

(d)ABC & Co. furnishes the following information for the half-year ended 31-03-2011.

(i) Amount received for services provided to UNICEF, (an international organization) Rs.2,00,000.

(ii) Advance money received from customers Rs. 4,00,600 in r espect of which services werenot r endered ti ll 31-03-2011.

(iii) Services billed during the half-year excluding item (i) and (ii) above, wasRs. 15,00,000 plus service tax and cess @ 10.3 %.

It consists of the following:

a) One customer X to whom a bill of Rs. 2,20,600 plus service tax and cess @ 10.3%raised, did not pay service tax and cess.

b)Customer Y to whom a bil l was raised for Rs. 1,00,000 plus service tax and cess hasnot paid the amount t il l 31.03.2011.

c) The balance amounts billed during the year were realized fully.Compute the value of taxable service on which service tax is payable.

Solution:

Computation of Taxable Service value for the half year ended 31st March, 2011

Particulars Amount (Rs.)

i. Services Rendered to UNICEF- exempt Nilii . Advance received for which service is not yet

rendered:

(4,00,600 x 100/ 110.3)

3,63,191

iii. On services billed dur ing the FY ending 31-03-2011

Gross Billing 16,54,500

Less: Amount Unrealised

From X (2,20,600 X 10.3%) 22,722

8/6/2019 pcc-2011_tax

4/19

civ Suggested Answers for CA PCC May 2011 ExaminationFrom Y (1,00,000 + Service tax & Cess @

10.3%)

1,10,300

15,21,478

(15,21,478 X 100/ 110.3) 13,79,400

Value of Taxable Service 17,42,591

Notes:

(i) Services rendered to UNICEF are exempt vide Notif ication No.16/ 2002-ST dated02/ 08/ 2002 .

(ii) Service tax is payable on advance moneys collected also.Question No: 2(a) Mr. Rajiv (aged 50 years) a resident individual and practicing Chartered Accountant

furnishes you the receipts and payments account for the financial year 2010 11.

Receipts and Payments Account

Receipts Rs. Payments Rs.

Opening balance(01.04.2010)

Cash on hand and at Bank12,000

Staff salary, bonus and stipend

to articled clerks1,50,000

Fee from professional

services9,38,000 Other administrative expenses 48,000

Rent 50,000 Office rent 30,000Motor car loan from Canara

Bank ( @9% per annum)2,50,000

Housing loan repaid to SBI

(includes interest of Rs. 88,0001,88,000

Life insurance premium 24,000

Motor car (acquired in Jan.

2011)4,25,000

Medical insurance premium

(for self and wife)18,000

Books bought of annual

publications20,000

Computer acquired on

01.11.2010 (for professional

use)

30,000

Domestic drawings 2,72,000

Public provident fund

subscription20,000

Motor car maintenance 10,000

Closing balance (31.03.2011) 15,000

8/6/2019 pcc-2011_tax

5/19

Students Handbook on Taxation cv

Cash on hand and at Bank

12,50,000 12,50,000

Following further information is given to you :

(1) He occupies 50% of the building for own residence and let out the balance forresidential use at a monthly rent of Rs. 5,000. The building was constructed during the year1997 98.

(2) Motor car was put to use both for official and personal purpose, One fifth of themotor car use is for personal purpose. No car loan interest was paid dur ing the year.

(3) The writ ten down value of assets as on 01.04.2010 are given below :Particulars Amount (Rs.)

Furnit ure & Fitt ings 60,000

Plant & Machinery (Air -condit ioners, Photocopiers, etc.) 80,000

Computers 50,000

Note: Mr. Rajiv fol lows regularly the cash system of account ing.

Compute the total income of Mr. Rajiv for the assessment year 2011 12.

Solution:

Computation of Total Income of Mr. Rajiv for AY 2011-12


Income from House Property (W.N-1) (32,000)

Profits & Gains from Business/ Profession (W.N-2) 5,99,500

Gross Total Income (W.N-3) 5,67,500

Chapter VI-A deductions (W.N-4) 1,15,000

Total Income 4,52,500

Working Note-1: Income from House Property

Particulars Self Occupied

(50%)

Let Out (50%)

Gross Annual Value Nil 60,000

Less: Municipal Taxes - -

NAV - 60,000

8/6/2019 pcc-2011_tax

6/19

cvi Suggested Answers for CA PCC May 2011 ExaminationLess: Deductions u/ s 24

i) Standard Deduction-30% ofNet Annual Value

Nil 18,000

ii ) Interest on borrowed capital (refer note) 30,000 44,000Income from House Property (30,000) (2,000)

Taxable Income from House Property (32,000)

Note: In a Case where property is constructed out of loan borrowed before 1st April 1999,interest u/ s. 24 shall be restr icted to Rs. 30,000. In the present case, since the propert y wasconstructed during the year 1997-98 (i.e. before 1st April 1999), interest shall be restricted toRs. 30,000.

Working Note-2: Profits & Gains for Business/ Profession:


Professional Fees 9,38,000

Less: Admissible Expenses

i. Salary, bonus & stipend 1,50,000ii . Administration Expenses 48,000iii. Office Rent 30,000iv. Car Maintenance (10000 X 4/ 5) 8,000v. Depreciation (W.N 3) 1,02,500

3,38,500

Income from business income 5,99,500

Working Note 3 Depreciation

Particular I II III IV V

CarPlant &

machineryFurni ture &

FittingsComputers Books

15% 15% 10% 60% 100%

Opening WDV as on1-04-2010 - 80,000 60,000 50,000

Additions - - -

More than 180 days 20,000

8/6/2019 pcc-2011_tax

7/19

Students Handbook on Taxation cvii

Less than 180 days 425,000 30,000 -

Total 425,000 80,000 60,000 80,000 20,000

Less: Depreciation 25,500 12,000 6,000 39,000 20,000

Closing WDV as on31-03-2011 399,500 68,000 54,000 41,000 Nil

Note: It is assumed that t he addition made in books is more than 180 days.

Working Note-4: Chapter VI A Deductions:

1. U/s 80C:

1. Housing loan repayment 1,00,0002. LIC Premium 24,0003. PPF Contribution 20,000

(Deduction Limited to) 1,44,000 1,00,000

2. U/ s 80 D 18000Deduction Limited to 15,000

1,15,000

(b) Ahmed & Co. of Srinagar rendered taxable services both wit hin and outside the State of

Jammu & Kashmir. It received Rs. 26,12,000 for the services rendered inside the State of

Jammu & Kashmir and Rs. 18,00,000 for the services rendered outside the State of Jammu &

Kashmir.

Compute its taxable service value and service tax liabil it y.

In case, Ahmed & CO. was situated in Mumbai what would be value of its taxable service and

service tax liabilit y?

Solution: Computation of Value of Taxable Services & ST Liability of Ahmed & Co.

Chapter V of Finance Act, 1994, which deals with Service Tax, is applicable to the whole ofIndia except the state of Jammu & Kashmir. Accordingly, services rendered within the state ofJammu & Kashmir are not taxable i.e. where the service receiver is inside Jammu & Kashmir.

(i) In the present case, Ahmed & Co. situated in Jammu & Kashmir has rendered taxableservices both within and outside the state. As discussed above, only services rendered outside

the state of Jammu & Kashmir are taxable. The total amount received from such taxable

8/6/2019 pcc-2011_tax

8/19

cviii Suggested Answers for CA PCC May 2011 Examinationservices is Rs. 18 Lakhs. Hence the amount of taxable services works out to Rs. 16,31,913(18,00,000 x 100/ 110.3) and the Service Tax liabil it y is

Rs. 1,68,087.039 (16,31,913 x 10.3%)

(ii) Incase Ahmed & Co was situated in Mumbai, the taxable value would have been the same,as charge of service tax depends on the place of rendering service and not place of the service

provider.

Question No: 3

(a)Shri Bala employed in ABC Co. Ltd. as Finance Manager gives you the list of perquisites

provided by the company to him for the entire financial year 2010 11 :

(i) Medical facility given to his family in a hospital maintained by the company. Theestimated value of benefit because of such facil ity is Rs. 40,000.

(ii) Domestic servant was provided at the residence of Bala. Salary of domestic servant is Rs.1,500 per month. The servant was engaged by him and the salary is reimbursed by the

company (employer).

In case, the company has employed the domestic servant, what is the value of perquisite?

(iii) Free education was provided to his two children Arty and Ashok in a school maintainedand owned by the company. The cost of such education for Arthy is computed at Rs. 900 per

month and for Ashok at Rs. 1,200 per month. No amount was recovered by the company for

such education facility from Bala.

(iv) The employer has provided movable assets such as television, refrigerator and air-condit ioner at the residence of Bala. The actual cost of such assets provided to the employee is

Rs. 1,10,000.

(v) A gift voucher wor th Rs. 10,000 was given on the occasion of his marriage anniversary. Itis given by the company to all employees above certain grade.

State the taxability or otherwise of the above said perquisites and compute the total value of

taxable perquisites.

Solution:

Computation of Taxable Perquisites for the FY 2010-11


i. Medical FacilityMedical facil it y provided in a hospital belonging to the employer isnot a perquisite.

Nil

ii . Domestic servant salary:Reimbursement of domesti c servants salary is taxable as a perquisitein Balas hands. The posit ion is not altered even i f the company hasemployed the domestic servant.

18,000

8/6/2019 pcc-2011_tax

9/19

Students Handbook on Taxation cix

iii. Free use of educational facilit y:Arthy-Nil(not taxable as cost does not exceed Rs.1,000 p.m)

Ashok-Rs.1,200 p.m (entire amount is taxable as cost exceeds

Rs.1,000 p.m)

(Where educational institution is maintained & owned by the

employer, the value of perquisites shall be determined w/ f to the

reasonable cost of such education in a similar institution in or near

the locali ty. However, if the cost of such education or value of such

benefit per child does not exceed Rs.1,000 per month, nothing shall

be taxed)

14,400

iv. Use of Movable assets:(Use of movable assets is chargeable to tax as perquisite @ 10% of

actual cost of such assets)

11,000

v. Gift voucher (Gift is exempt only where the aggregate value is lessthan Rs. 5,000 in a year) 10,000

Total taxable perquisite 53,400

(b)

State whether filing of income-tax return is mandatory for the assessment year 2011-12

In respect of the following cases:


(i) Research association eligible for exemption under section10(21) having total income

2,10,000

(ii) Registered trade union eligible for exemption under section10(24) having following incomes:

Income from house property (computed) 60,000

Income from other sources (computed) 40,000

(iii)A charitable tr ust registered under section 12AA, having totalincome or

1,90,000

(iv) A Limited Liabilit y Partnership (LLP) wi th business loss of 1,30,000

8/6/2019 pcc-2011_tax

10/19

cx Suggested Answers for CA PCC May 2011 ExaminationSolution:( i) As per Section 139( 4c), a research association eligible for exemption u/ s. 10(21), whosetotal income before giving effect to exemption u/ s 10 exceeds Rs. 1,60,000 has to mandator il yfile its Return of Income. In the present case, the research association has to file the return ofincome as it s total income exceeds the basic exemption l imi t.

(ii) As per Section 139(4c), a registered tr ade union availing exemption u/ s 10(24) shall fileits return of income u/ s. 139(1) if it s total income is in excess of Rs. 1,60,000. In the presentcase, the registered trade union need not file Return of Income since its total income is lessthan the basic exemption limit .

(iii) A charitable trust registered u/ s. 12AA, shall fi le Return of Income if i ts income exceedsthe maximum amount not chargeable to tax i.e. Rs. 1,60,000. In the present case, the trust hasto file Return of Income as its income exceeds Rs. 1,60,000.

(iv) A firm shall file its return of income irrespective of any amount of income or loss as persection 139(1) .

(c) State wi th r easons whether the following are li able for service tax :

(i) Services rendered to Reserve Bank of India.(ii) Services rendered by a sub-contr actor .(iii) Services provided to developed of special economic zone.(iv) Services rendered to associated enterprise.Solution:

( i) Services rendered to Reserve Bank of India Not liable(ii) Services rendered by a sub-contr actor - Liable(iii) Services provided to developed of special economic zone Not l iable(iv) Services rendered to associated enterprise Liable.Refer to caption Exemptions Sec.93 in the chapter Service tax Miscellaneous.

Question No: 4

(a) Decide the following transactions in the context of Income-tax Act, 1961:

(i) Mr. B transferred 500 shares of Reliance Industr ies Ltd. to M/ s B Co. (P) Ltd. on10.10.2010 for Rs. 3,00,000 when the market price was Rs. 5,00,000. The indexed cost ofacquisit ion of shares for Mr. B was computed at Rs. 4,45,000. The transfer w as not subjected tosecurities transaction tax.

Determine the income chargeable to tax in the hands of Mr . B and M/ s B Co (P) Ltd. because of

the above said transaction.Solution: Computation of Taxable Income in the hands of Mr. B


Full Value of consideration (Refer Note 1) 3,00,000

Less: Indexed Cost of acquisit ion 4,45,000

Long Term Capital loss to be carried forward (Refer Note 2) 1,45,000

8/6/2019 pcc-2011_tax

11/19

Students Handbook on Taxation cxi

Notes:i. See 56(2)(viia) is applicable only when the transferee and the shares transferred are of aclosely held company. In the given case, as the shares are that of Reliance Ltd, a company inwhich the public are substantially interested, this clause is not applicable.

ii . Since the transfer is not subject to STT, any gains would not have been exemptu/ s. 10(38). Hence, the loss is available for set-off against income in future years.

(ii) Ms. Chhaya transferred a vacant site to Ms. Dayama for Rs. 4,25,000. The stamp

valuation authority fixed the value of vacant site for stamp duty purpose at Rs. 6,00,000. The

total income of Chhaya and Dayama before considering the transfer of vacant site are Rs.

50,000 and Rs. 2,05,000 respectively. The indexed cost of acquisition of Ms. Chhaya in respect

of vacant site is Rs. 4,00,000 ( computed).Determine the total income of both Ms. Chhaya and Ms. Dayama taking into account the above

said transaction.

Solution: Computation of Total Income of Ms. Chhaya


Full Value of consideration u/ s 50C 6,00,000

Less: Indexed cost of acquisition (given) 4,00,000

2,00,000

Other Income(given) 50,000

Total 2,50,000

Computation of total income of Ms. Dayama


Income from other sources (refer note) Nil

Other Income 2,05,000

2,05,000

Note: As per Section 56(2)(vii)(b), where any immovable property is received without

consideration and the sale value exceeds Rs. 50,000 then the entire sale value shall bechargeable to tax. In the present case, since there is a consideration involved in thetransaction, this clause does not apply.

8/6/2019 pcc-2011_tax

12/19

cxii Suggested Answers for CA PCC May 2011 Examination(iii) Mr. Chezian is employed in a company with taxable salary income of Rs. 5,00,000. Hereceived a cash gift of Rs. 1,00,000 from Atma Charitable Trust (registered under section

12AA) in December 2010 for meeting his medical expenses.

Is the cash gift so received from the trust chargeable to tax in t he hands of Mr. Chezian?

Solution: Any amount of money received without consideration in aggregate ofRs. 50,000 is chargeable as gift u/ s 56(2). However, where such sum is received from acharitable trust registered u/ s 12AA, the same shall not be chargeable to tax. Hence, the Rs.1,00,000 wil l be exempt in the hands of Mr. Chezian.

(b) Balamurugan furnishes the following information for the year ended 31.03.2011:


Income from business

Income from house property

Lottery winning (Gross)

Speculation business income

Income by way of Salary

Long term capital gain

(1,35,000)

(15,000)

3,00,000

1,00,000

60,000

70,000

Compute his total income, tax liabilit y and advance tax obligations.

Solution:

Computation of Total income of Mr. Balamurugan for AY 2011-12

Particular Amount (Rs.) Amount (Rs.)

Income from Salaries 60,000

Income from House Property (15,000)

Income from Business (Speculative) 1,00,000

Less: Income from non-speculative business Rs.1,35,000

restricted to Rs. 1,00,000

(1,00,000) Nil

Loss to be carried forward -

Income from Capital Gain 70,000

Less: remaining loss set off against LTCG

[1,35,000-1,00,000]

(35,000) 35,000

Lottery winning 3,00,000

Total 3,80,000

8/6/2019 pcc-2011_tax

13/19

Students Handbook on Taxation cxiii

(c) A manufacturer sold goods to distr ibutor for Rs. 20,000. The distr ibutors sold the goods

to the wholesaler for Rs. 24,000. The wholesaler sold the goods to the retailer for Rs. 30,000.

The retailer sold the goods to the final consumer for Rs. 40,000. The VAT rate is 12.5% which

is charged separately.

Compute VAT liabilit y under Invoice method. State why this method is preferable?

Solution:

Computation of VAT Liabili ty:

Stage Particulars Debit (VAT

Payable)

Credit

(Set- Off)

Net (Balance

to Govt)

1. Manufacturers(first seller)sale priceto distr ibutor= Rs.20,000/ - No local

purchases. Therefore no credit .

2,500 Nil 2,500

2. Distr ibutor to Wholesaler = Rs.24,000 3,000 2,500 500

3. Wholesaler to Retailer= Rs.30,000 3,750 3,000 750

4. Retailer to consumer= Rs.40,000 5,000 3,750 1,250

Total 14,250 9,250 5,000

Refer to caption Invoice Method in chapter no.22 VAT Basic Concepts & Principles.

Question No: 5

(a) Mr. Chaturvedi having gross total income of Rs.6,35,000 for the financial year 2010

11 furnishes you the following information :

(i) Deposited Rs. 50,000 in tax saver deposit in the name of major son in a nationalizedbank.

(ii) Paid Rs. 25,000 towards premium on life insurance policy of his marr ied daughter.(iii)Purchased approved long-term infrastructure bonds for Rs. 25,000 in January 2011.(iv) Contributed Rs. 10,000 to Prime Ministers National Relief Fund.(v) Donated Rs. 20,000 to a Government recognized insti tut ion for scientific research.

Note: Assume that the gross total income of Mr. Chaturvedi does not include any income under

the head profit s and gains of business or profession.

Compute the total income of Mr. Chaturvedi for the assessment year 2011 12.

Solution:

Computation of Total Income of Mr. Chaturvedi for the AY 2011-12

8/6/2019 pcc-2011_tax

14/19

cxiv Suggested Answers for CA PCC May 2011 ExaminationParticular Amount(Rs.) Amount(Rs.)

Gross Total Income 6,35,000

Less: Deductions u/ s VI A

U/ s 80C

LIC premium paid of married daughter-Eligible 25,000

U/ s 80CCF Long term infra bonds of Rs.25,000

restr icted to

20,000

U/ s 80G - Prime Ministers National Relief Fund-100%

eligible for deducti on

10,000

U/ s 80GGA Donation to Scient ific researchinstitutions-100% eligible for deduction

20,000 75,000

Total Income 5,60,000

(b) List any 5 instances where the tax deductible at source in terms of section 194A will not

apply.

Solution: Refer to caption Interest other than Interest on Securities in chapter 14 - Taxdeduction at Source.

(c) When does e-payment and e-fi ling of service tax return become mandatory ? Explain.

Solution: Refer to caption Payment of ST and Assessment and Returns in chapter 20 -

Registration, Payment of Service Tax and Filing of Return.Question No: 6

(a) X Co. (P) Ltd., converted into a Limited Liability Partnership (LLP) by name All Trade

LLP, wi th effect from 01.04.2010.

The following details are given to you:


Asst. year 2003 04: Business loss brought forward

Asst. year 2010 11: Business loss brought forward

(These are related to erstwhile X Co. (P) Ltd.)

Total income of All Trade LLP, for the financial year 2010 11

(Before set off of brought forward business losses of erstwhile

company i.e. A Co. Ltd.)

2,00,000

5,00,000

6,00,000

Assume that all the conditions prescribed in section 47 (xii ib) were satisfied by X Co. (P) Ltd.

at the time of conversion in to LLP.

8/6/2019 pcc-2011_tax

15/19

Students Handbook on Taxation cxv

(i) Explain whether All Trade LLP can set off and carry forward the business loss of itspredecessor i .e. A Co. (P) Ltd.?

(ii) State whether any change in partners of All Trade LLP, at a later date would have anytax consequence?

Solution:

(i) Yes. U/ s 72(6A), any brought forward loss of predecessor company shall deemed to bethe loss of the successor LLP for the year in which the conversion took place. Hence, the

business loss pertaining to AY 03-04 & 10-11 can be carried forward for a fresh period of 8

years.

(ii) Refer to caption Change in Constitution and Succession in chapter 10- Aggregation ofIncome & Set Off or Carry Forward of Losses.

(b) Ramamurthy had 4 heavy goods vehicles as on 01.04.2010. He acquired 7 heavy goods

vehicles on 27.06.2010. He sold 2 heavy goods vehicles on 31.05.2010.

He has brought forward business loss of Rs. 50,000 r elating to assessment year 2007 08 of a

discontinued business. Assuming that he opts for presumptive taxation of income as per

section 44AE, compute his total income chargeable to tax for the assessment year 2011 12.

Solution:

Computation of Total Income of Mr. Ramamurthy for the AY 2011-12

Particulars Amount(Rs.)

Presumptive Income u/ s. 44AE

April -May : (4 x 5000 x 2 months) 40,000

June-March : (9 x 5000 x 10 months) 4,50,000

4,90,000

Less: loss brought forward (50,000)

Total Income 15,000

(c) Win Limi ted commenced the business of operating a three star hotel in Tirupati on 01-

04-2011.

It furnishes you the following information:


(i) Cost of land (acquired in June 2008) 60 lakhs(ii) Cost of construction of hotel buildingFinancial year 2008 09 30 lakhs

Financial year 2009 10 150 lakhs

8/6/2019 pcc-2011_tax

16/19

cxvi Suggested Answers for CA PCC May 2011 Examination(iii) Plant and Machineries (all new)Acquired during financial year 2009 10

[All the above expenditures were capitalized in the books of the

company]

30 lakhs

(iv) Net profi t before depreciation for the financial year 2010 11 80 lakhsDetermine the amount eligible for deduction under section 35AD of the Income-tax Act, 1961,

for the assessment year 2011 12.

Solution: Computation of eligible deduction u/ s. 35AD of Win Ltd. for AY 2011-12

Particular Amount

(Rs.inLakhs)Cost of Land- Refer Note 1 Nil

Cost of Construction- Refer Note 2 180

Plant & Machinery (all new) 30

Deduction u/ s. 35AD 210

Notes:

(i) As per Section 35AD, 100% deduction is allowed in respect of any capital expenditureother than acquisit ion of land, goodwil l and financial instruments, incurred by an assessee.

(ii) Where the expenditure was incurred prior to to commencement of operation of thespecified business, then deduction shall be allowed in the year of commencement of suchbusiness.

(d) How excess payment of service tax would be adjusted against service tax liability ofsubsequent periods ? State the applicable condit ions.

Solution: Refer Caption Excess Payment of Service Tax under Registration, Payment of

Service Tax and Filing of Returns.

Question No: 7

(a) ( i) What are the conditions to be satisfied for the allowability of expenditure under

section 37 of the Income-tax Act, 1961?

Solution: Refer to caption General-Section 37 in chapter Profits & Gains of Business or

Profession

(ii) Answer the following with reference to the provisions of the Income-tax Act, 1961 :

(a) Bad debt claim disallowed in an earlier assessment year, recovered subsequently.Is the sum recovered, chargeable to tax?

(b) Return of income of a company was signed, by the Company Secretary. Is thereturn a valid return?

8/6/2019 pcc-2011_tax

17/19

Students Handbook on Taxation cxvii

(c) Tax deducted at source on salary paid to employees not remitted till the duedate for fi ling the return prescribed in section 139. Is the expenditure to be disallowed

under section 40a(ia) ?

(d) X Co. Ltd. paid Rs. 120 lakhs as compensation as per approved VoluntaryRetirement Scheme (VRS) during the financial year 2010 11.

How much is deductible under section 35 DDA for the assessment year 2011 12 ?

Solution:

(a) No, As per Section 41(4), any amount recovered by the assessee against bad debts earlierallowed as deduction shall be taxed as income in the year in which it is recovered. Since in thegiven case the deduction was not allowed in the earlier assessment year the same shall not bechargeable to tax at the time of receipt.

(b) No, As per Section 140, Return of Income of the Company has to be signed by:a) Managing Directorb)any other director incase MD is not availablec) liquidator if company is in liquidation.

(c) No, Section 40(a)( ia) does not di sallow salary for non remittance of TDS u/ s 192.(d) As per Section 35DDA, 1/ 5th of amount paid under a VRS scheme is all owed as eligibleexpendit ure.. Therefore, the amount allowed wil l be 24 lakhs, being 1/ 5th of Rs.120 lakhs.

(iii) Ashwin doing manufacture and wholesale trade furnishes you the following

information :

Total turnover for t he financial year

2009 10 Rs. 45,00,000

2010 11 Rs. 55,00,000

State whether tax deduction at source provisions are attracted for the below said expenses

incurred during the financial year 2010 11:


Interest paid to UCO Bank

Contract payment to Raj (2 contracts of Rs.12,000 each)

Shop rent paid (one payee)Commission paid to Balu

41,000

24,000

1,90,0007,000

Solution:

8/6/2019 pcc-2011_tax

18/19

cxviii Suggested Answers for CA PCC May 2011 Examination(i) As the turnover of Mr. Ashwin during the previous Financial Year 2009-10 (Rs.45 lakhs)exceeds the limit specified in Section 44AB (Rs. 40 Lakhs for AY 2010-11) , deduction of tax atsource shall be applicable.(ii) Applicabili ty of TDS provisions for the FY 2010-11 in each of the given cases:

Particulars ( remarks)Applicability

Interest Paid to UCO Bank N.A as per Section 194A

Contract Payment to Raj N.A as the expenditure incurred is wi thinthe limits of Section 194C

Shop Rent Applicable as the expenditure incurred

exceeds the limit of Rs.1,80,000/ - specifiedU/ S 194I

Commission to Balu Applicable as the expenditure incurredexceeds the limit of Rs.5,000/ - specifiedU/ S 194H

(iv) Y Co. Ltd. furnishes you the following information for the year ended 31.03.2011.


Total turnover of Unit A located in Special Economic Zone

Profit of the business of Unit AExport turnover of Unit A

Total tur nover of Unit B located in Domestic

Tariff Area (DTA)

Profit of the business of Unit B

100 lakhs

30 lakhs50 lakhs

200 lakhs

20 lakhs

Compute deduction under section 10AA for the assessment year 2011 12.

Solution:

Computation of deductions u/ s. 10AA of Y Co.Ltd for the AY 2011-12:


Profit of Chit A (SEZ) 30

Less: Exempt u/ s 10AA

Export Turnover of Unit X Profit of the Unit/ Total Turnover of Unit

50 X 30 / 100 15

8/6/2019 pcc-2011_tax

19/19

Students Handbook on Taxation cxix

(b) Briefly state the contents of VAT invoice (any 8 items).

Solution: Refer to caption VAT Invoice in chapter Input Tax Credit, Composition Scheme &Procedures

pcc-2011_tax

Documents

Transcript of pcc-2011_tax