tax planning cases

QUESTION BANKTAX PLANNING

UNIT - I

I Test Your Skills:

(a) State Whether the Following Statements are True or False:

Introduction1 A person may not have assessable income but may still be assessee.2 In some cases assessment year and previous year can be same financial year.3 SHEC is half of the education cess.

Residential status4 A resident in India cannot become resident in any other country for the same assessment

year.5 A foreign company is always non-resident in India.

Heads of Income6 Salary received by the partner from the firm in which he is a partner is taxable under the

head salary.7 Municipal tax is a deduction from net annual value.8 Cost of acquisition is always indexed if there is any long term capital gain. 9 Interest on securities is always taxable under the head Income from Other Sources.

(b) Multiple Choice Questions:

Introduction1 Income tax extends to:

(a) Whole of India(b) Whole of India except Jammu and Kashmir(c) Whole of India except Sikkim(d) Whole of India except Jammu and Kashmir and Sikkim

2 A.O.P should consist of:(a) Individuals only(b) Persons other than individuals only(c) Both the above

3 Education cess is leviable on:(a) Income tax(b) Income tax + surcharge(c) Surcharge

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Residential status4 Residential status is to be determined for:

(a) Previous year(b) Assessment year(c) Accounting year

5 Total income of a person is determined on the basis of his:(a) Residential status in India(b) Citizenship in India(c) None of the above(d) Both of the above

Heads of income6 Gratuity shall be fully exempt in the case of:

(a) Central and State Govt. employee(b) Central and State Govt. employees and employees of local authorities(c) Central and State Govt. employees and employees of local authorities and

employee of statutory corporation.7 X has two house properties. Both are self-occupied. The annual value:

(a) of both house shall be nil(b) one house shall be nil(c) of no house shall be nil

8 Where a company purchases its own shares there will be capital gain to the:(a) Company(b) Shareholder(c) Neither to the company nor to the shareholder(d) Both to the company and the shareholder

9 Preliminary expenses incurred are allowed deduction in(a) 10 equal instalments(b) 5 equal instalments(c) full

10 Brought forward unabsorbed capital expenditure on scientific research can be carried forward :(a) for any number of years(b) 8 years(c) 10 years

(c) Fill in the Blanks:

Introduction1 Previous year means the __________ ___________ immediately proceeding the

assessment year.2 A person leaves India permanently on 15-7-2010. The assessment year for income earned

till 15-7-2010 in this case shall be __________.

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Residential status3 Income which accrue or arise outside India from a business controlled from India is

taxable in case of ______________.4 A Ltd. is a foreign company whose part of control and management of its affairs is

situated outside India. A Ltd. shall be ____________.Heads of Income5 Monthly pension received by a govt. employee is _____________. 6 Interest on capital borrowed for repairs of self-occupied house property is deductible to

the maximum extent of __________.7 Total income for A.Y. 2011-12 of an individual including long term capital gain of Rs.

60,000 is Rs. 1,90,000. The tax on total income shall be _________. 8 Salary, bonus, commission or remuneration due to or received by a working partner from

the firm is taxable under he head _____________.9 A firm’s business income is nil/negative. It shall still be allowed a deduction on account

of remuneration to working partner to the extent of _____________.10 The lottery, cross word puzzle, races, card games income, etc. are taxable at the rate of

________.

II Short Answer Type Questions:

Introduction1 Define the term ‘Income.2 Write short note on person as defined in the Income Tax Act.3 Define assessee.4 State with reasons whether the following companies are those in which public are

substantially interested:

(i) X Ltd. is a public company with a share capital of Rs. 3,00,000. It consists of 20,000 equity shares of Rs. 10 each and 1,000 - 8% Preference Shares of Rs. 100 each. Of this 5,000 equity shares and 900 preference shares are held by Govt. of India.

(ii) A Ltd., a private company, has issued 15,000 equity shares of which 4,000 are held by 2 directors, 500 by another director, 2,500 by two public men and balance 8,000 by forty persons equally.

(iii) B & Co. Ltd., whose shares are listed on Mumbai Stock Exchange.

(iv) Z & Co. Ltd. is registered u/s 25 of the Indian Companies Act, 1956 for promotion of commerce. It has been detected that it distributes a part of its profits to its members.

Residential Status5 Write short note on income received in India.6 ‘A’ was born in Dhaka in 1945. He has been staying in Canada since 1974. he comes to

visit India on 13-10-2009 and returns on 29-3-2010. Determine his residential status for assessment year 2011-12.

Heads of Income7 “Salary is taxable either on due basis or on receipt basis.” Discuss.8 Distinguish between a recognized provident fund and unrecognized provident fund.

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9 Write short note on unrealized rent.10 Define annual value.11 Write short note on capital asset.12 Distinguish between short term capital gain and long term capital gain.13 List some incomes to be included under the head ‘Income from other sources’.14 Explain the concept of grossing up.

III Long Answer Type Questions:

Introduction1 “Income tax is charged on income of the previous year.” Do you fully agree with this

statement? If not, what are the exceptions?

Residential Status2 The residential status is determined for each category of persons separately. Discuss in

detail how would you determine the residential status for each category.3 How does the tax liability of a not ordinarily resident person differ from that of a resident

and ordinarily resident person under the Income Tax Act? Explain.

Heads of Income4 What is “transferred balance” when unrecognized provident fund is recognized. Discuss

the tax treatment with the help of a simple illustration.5 Ownership itself is the criterion for assessment under the head ‘Income from House

Property’.6 Discuss the tax treatment, with the help of examples, when a house property is owned by

two or more persons.7 Indexed cost of acquisition is not required for computation of long term capital gain.

Discuss.8 Although there is a transfer of capital asset and there are capital gains, but they are

exempt from tax. Discuss.9 What do you understand by ‘Income from other sources’. State the main incomes which

are included under this head.10 Explain the provisions relating to taxation of winning from lotteries and horse races.

Computation of taxable income11 Explain in detail the procedure for computation of income of an individual.

IV Practical Questions:

Residential Status

1 During the previous year 2010-11, X, a foreign citizen, stayed in India for just 69 days. Determine his residential status for the A.Y. 2011-12 on the basis of the following information:

(i) During 2007-08, X was present in India for 365 days.(ii) Mrs. X is resident in India for A.Y. 2011-12.(iii) During 2004-05 and 2003-04, X was in Japan for 359 and 348 days respectively and for

the balance period in India.

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2 A Ltd. is an Indian company. It carries on business in New Delhi and London. The entire control and management of A Ltd. is situated outside India. 80% of the total income of the company is from the business in London. What is the residential status of A Ltd.

3 During the previous year 2010-11, X, a foreign citizen, stayed in India for just 69 days. Determine his residential status for the A.Y. 2011-12 on the basis of the following information:

(i) During 2009-10, he was not present in India but during 2008-09 he came to India for 276 days.

(ii) During 2007-08, X was present in India for 90 days.(iii) During 2004-05 and 2003-04, X was in India for 359 and 348 days respectively.(iv) Earlier to 2003-04, he had been regularly coming to India for 100 days every year.

4 From the following incomes earned by Mr. X during the financial year 2010-11, determine his total income for the assessment year 2011-12 if he is (1) resident and ordinarily resident; (2) not ordinarily resident; (3) non-resident.

S. No. Detail Rs.a) Profits from a business in Bombay managed from London 1,60,000b) Pension for services rendered in India but received in Burma 15,000c) Interest on U.K. Government bonds half of which is received

in India4,000

d) Income from property situated in Pakistan received there 20,000e) Past foreign untaxed income brought to India during the

previous year7,000

f) Income from agricultural land in Nepal received there and then brought to India

30,000

g) Income from profession in Kenya which was set up in India, received there

12,000

5 The following are the particulars of income of X for the previous year 2010-11. Determine his total income for the assessment year 2011-12 if he is (1) resident and ordinarily resident; (2) not ordinarily resident; (3) non-resident.

S. No. Detail Rs.a) Capital gain on sale of property in Delhi received in USA 1,80,000b) Income from a business in USA controlled from Delhi 2,20,000c) Income from a business in Bangalore controlled from USA 3,80,000d) Rent from property in USA received there but subsequently

remitted to India6,00,000

e) Interest from deposits with an Indian company received in USA

40,000

f) Profits for the year 2008-09 of a business in USA remitted to India during the previous year 2009-10 (Not taxed earlier)

1,75,000

g) Gifts received from his parents 4,45,000h) Interest payable by Punjab Government, received in USA 1,00,000

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Heads of Income6 X is employed with ABC Ltd. on a basic salary of Rs. 5,000 per month. He is also

entitled to dearness allowance @100% of basic salary, 50% of which is included in salary for as per terms of employment. The company gives him HRA of Rs. 3,000 per month which was increased to Rs. 3,500 per month w.e.f. 1-1-2011. He also got an increment of Rs. 500 in his basic salary w.e.f. 1-2-2011. Rent paid by him during the previous year 2010-11 is as under:April and May, 2010 – Nil, as he stayed with his parentsJune to October, 2010 – Rs. 3,000 per month for an accommodation in GhaziabadNovember, 2009 to March, 2011 – Rs. 4,000 per month for an accommodation in Delhi.Compute his gross salary for A.Y. 2011-12.

7 A is Dy. General Manager in a Private Ltd. company at Jabalpur. He was appointed in the grade of Rs. 6,500 – 250 – 9,500 on 1-1-2004. he gets 30% Dearness Allowance and 10% City Compensatory Allowance of his basic salary. He contributes 11% of basic salary and dearness allowance to recognized provident fund and his employer also contributes the same amount. The following facilities have also been provided by the company:

(i) A furnished house, owned by the employer, is provided to him for residence. The monthly fair rent of the house is Rs. 3,100, and the cost of furniture was Rs. 50,000.

(ii) He has also been provided a motor car of 1.4 litre capacity which is used for official and his private purposes both. The driver’s salary and all the xexpenses relating to official use of car are borne by his employer.

(iii) He is given a facility of a watchman and a cook. They are paid Rs. 650 and Rs. 800 per month respectively.As per the contract, the salary becomes due on the last day of every month. Compute his salary income for the A.Y. 2011-12. The professional tax Rs. 2,000 was deducted from his salary. Assume population of Jabalpur is less than 25 lakhs but more than 10 lakhs.

8 Z owns a house at Delhi of the fair rent of Rs. 3,600 p.m. (Municipal value Rs. 30,000). During the previous year 2010-11, the house is let out for residential purpose on a monthly rent of Rs. 4,000 from 1-4-2010 to 30-6-2010 and self-occupied fro residential purpose for the remaining part of the year. Municipal taxes Rs.6,000, fire insurance premium Rs. 3,000, Land revenue Rs. 2,000. Ground rent Rs. 1,000 and collection charges Rs. 600 were paid during the year. A loan of Rs. 50,000 was taken on 1-4-2005 @10% p.a. for the construction of the house which was completed on 1-1-2008. Rs. 10,000 was paid towards the loan account on 1-4-2007. Find out his taxable income from house property for the A.Y. 2011-12.

9 X gifted diamonds worth Rs. 2,00,000 to his wife Mrs. X on 1-11-1995. These were acquired by him on 1-4-1981 for Rs. 1,00,000. On 1-4-2010, Mrs. X sold these diamonds for Rs. 4,00,000 and invested the same in a plot for Rs. 6,00,000. The remaining amount was paid by her out of her own funds. The plot was sold for Rs. 7,00,000 on 28-12-2010. Compute the income chargeable to tax in the hands of Mr. X and Mrs. X on the sale of diamonds as well as plot if C.I.I. for 1995-96 is 281.

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10 Mr. A lives in Bangalore. He owns not only house properties in Bangalore but cultivable land near Mangalore. He lives in a house which had been bought by him in January, 1986 for Rs. 2,31,000. The agricultural land measuring 10 hectares is being cultivated by his father for over 15 years. Its fair market value as on 1-4-1981 was Rs. 8,00,000. The residential house is sold by him for Rs. 14,00,000 in December, 2010 and another house bought within three months at a price of Rs. 3,00,000 to be used for residential purposes. Agricultural land is also sold for Rs. 55,00,000 in January 2011. on 30-6-2011, he bought another agricultural farm for Rs. 5,00,000 which will be cultivated by him. Gold ornaments were also sold by him in November, 2010 for Rs. 3,00,000 the fair market price thereof as on 1-4-1981 being Rs. 30,000. He bought fresh jewellery for Rs. 80,000 within six months of sales. You are required to compute taxable capital gains of Mr. A for A.Y. 2011-12. CII of financial year 1985-86 and 2009-10 is 133 and 632 respectively.

Computation of taxable income

11 XYZ Ltd., a domestic company manufactures textiles. For the year ending 31st March, 2011, Profit and Loss Account showed a net profit of Rs. 9.5 lakh. This included the following debits to the Profit and Loss Account:

(a) Dividends amounting to Rs. 2 lakh paid to the shareholders. (b) Interest amounting to Rs. 10,000 paid on the loan taken for the payment of company's

income-tax liability. .(c) Interest amounting to Rs. 15,000 paid on the loan taken to make donation to an approved charitable institution.(d) Rs. 1,20,000 spent by the managing director on his visit to :

(i) Canada to buy machinery and finalise a collaboration agreement for a new independent undertaking proposed to be set-up (cement factory) Rs. 70,000.

(ii) U.S.A. to study export market for textiles: Rs. 50,000. (e) Company sold a block of assets at a loss of Rs. 50,000. (f) Company incurred expenditure of Rs. 2,00,000 as' follows :

(i) advertisement in newspaper: Rs. 50,000. (ii) advertisement in Souvenir of a political party: Rs. 25,000. (iii) capital expenses on scientific research related to business Rs. 1,25,000.

(g) Rs. 10,000 paid to legal advisers in respect of proceedings before income-tax authorities.(h) Penalty of Rs. 24,000 for importing yarn in contravention of import regulations.(i) The company has paid during the year a lumpsum amount of Rs. 30 lakh to acquire technical know-how from a laboratory owned by the government. This is being treated as a deferred revenue expenditure and a sum of Rs. 5 lakh has been charged off to P&L A/C.

Compute the total income and tax liability of the company.

12 X Ltd. is a public company engaged in the business of printing and publication of books. Its profit and loss account for the year ended 31-3-2010 disclosed a net profit of Rs. 8,00,000. Particulars noted from the company’s accounts and obtained on enquiry from the company are given below:

(i) The head office of the company is situated in a building taken on lease. During the year, the company incurred an expenditure of Rs. 1,00,000 on extension of and improvements to this building. The sum of Rs. 1,00,000 was debited by the company to its P&L A/C.

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(ii) In the past, the company used to value its closing stock at cost. This year the closing stock was valued at 105 below the cost at Rs. 90,000. The company has resolved that it will henceforth adopt this method of valuation, consistently from year to year.

(iii) A motor car purchased by the company in the past for Rs. 25,000 was sold to an employee of the company for Rs. 16,000 which was also the written down value of the car at the beginning of the year. The market value of the car on the date of sale was Rs. 24,000.

(iv) Credits to the P&L A/C included dividend of Rs. 80,000 received from an Indian company.

(v) Debits to the P&L A/C included the following:(a) Rs. 10,000 regarding expenditure incurred for printing invitation cards and hiring and

transport charges of furniture and shamiana in connection with the inauguration of a new branch opened for expanding the business.

(b) Rs. 20,000 paid as penalty to government for the company’s failure to perform the job of printing and supply of text books within the stipulated time. Company had to pay penalty for 4 months delay @ Rs. 5,000 per month as per agreement with the government.

(c) Rs. 8,000 deposit made under own telephone scheme.(d) Rs. 5,000 being interest paid to bank on monies borrowed to pay income-tax Rs. 4,000

and wealth tax Rs. 1,000.(e) Rs. 12,000 paid fro shifting of business premises from the original site to the present site

which is more advantageously located.Compute the total income of the company for the A.Y. 2011-12. Give reasons for additions made or deductions allowed in respect of the various items.

UNIT - II

I Test Your Skills:


Deductions from Gross Total Income1 Deduction u/s 80E for payment by way of interest on loan is allowed for 10 years.2 Deduction u/s 80U shall be allowed only when the assessee is suffering from a permanent

disability at the beginning of the previous year.3 Deductions u/s 80C to 80U are not available for a long-term capital gain but the same is

available from short term capital gain other than STCG on shares sold through recognized stock exchange.

4 There is no sectorial cap in case of payment/investment made for claiming deduction u/s 80C.

Dividend Policy5 At the time of payment of dividend, the shareholders have to pay tax.


Deductions from Gross Total Income1 Deduction u/s 80C in respect of LIP, contribution to PF, etc. is allowed to:

(a) Any assessee

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(b) Individual assessee only(c) Individual or HUF(d) Individual or HUF who is resident in India

2 For claiming deduction u/s 80C In respect of life insurance premium can be paid by assessee for:(a) Himself only(b) Himself or the spouse(c) Himself, spouse and minor children(d) Himself, spouse and dependent children(e) Himself, spouse and any child

3 An assessee has paid life insurance premium of Rs. 25,000 during the previous year for a policy of Rs. 1,00,000. He shall:(a) Not be allowed any deduction under Sec 80C(b) Be allowed deduction under Sec 80C to the extent of 20% of the capital sum

assured i.e. Rs. 20,000(c) Be allowed deduction for the entire premium as per the provisions of Sec 80C

4 Deduction in respect of contribution for annuity plan to certain pension fund u/s 80CCC is allowed to:(a) Any assessee(b) Individual assessee only(c) Individual or HUF(d) Individual who is resident in India

5 As per Sec 80CCE deduction u/s 80C, 80CCC and 80CCD cannot exceed:(a) Rs. 1,00,000(b) Rs. 1,10,000(c) Rs. 1,50,000

6 Deduction u/s 80D in respect of medical insurance premia is allowed to:(a) any assessee(b) an individual or HUF(c) individual or HUF who is resident in India(d) individual only

7 The overall limit in case of deduction under Sec 80G is:(a) 10% of gross total income(b) 10% of total income(c) 10% of gross total income as reduced any portion thereof on which income tax is

not payable under any provisions of the Act and by any amount in respect of which the assessee is entitled to as a deduction under Chapter VIA except deduction u/s 80G.

8 Deduction u/s 80IA in respect of an undertaking which is engaged in providing telecommunication service, etc. is allowed if it is owned by:(a) an Indian company

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(b) any assessee(c) an Indian company or consortium of such companies

9 Deduction to undertaking which develops, maintains, etc. any industrial park allowed if such undertaking is owned by:(a) an Indian company(b) an Indian company or a consortium of such companies(c) any assessee

10 Where the return of income is filed after the due date specified u/s 139(1):(a) all deductions under Chapter VIA i.e. 80C to 80U will be allowable(b) all deductions under Chapter VIA i.e. 80C to 80U will not be allowable(c) all deductions under Chapter VIA i.e. 80C to 80U excepting 80-IA, 80-IAB, 80-

IB, 80-IC, 80-ID, 80-IE will be allowable(d) all deductions under Chapter VIA i.e. 80C to 80U except 80-IA will be allowable


Deductions from Gross Total Income1 The deduction u/s 80E is allowed for payment by way of interest on loan to the extent of

________ _________. 2 Deduction in respect of rent paid u/s 80GG shall be allowed to ______ _________.

Dividend Policy3 Tax on distributed profits under the Income Tax Act is covered u/s ________.

Amalgamation and mergers of companies4 Amalgamation has been defined under the Income Tax Act u/s ______.


Deductions from Gross Total Income1 Discuss the provisions relating to Sec 80CC and 80U.

2 X, aged 66 years a resident in India has GTI of Rs. 2,90,000. This includes long-term capital gains of Rs. 95,000 and interest on govt. securities amounting to Rs. 20,000. He deposited Rs. 15,000 in PPF account during the previous year. Compute his tax liability for the A.Y. 2010-11.

Minimum Alternate Tax on companies3 For the assessment year 2011-12, a company has correctly worked out its book profit as

per section 115JB as Rs. 12,45,600. The total income computed as per the provisions of Income Tax Act is Rs. 2,87,450. It desires to know the amount to be shown in the final accounts as ‘provision for taxation’.

4 Explain the evolution of the concept of MAT.

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Dividend Policy5 R holds shares in a domestic company in which public are not substantially interested On

1.8.2004, he obtained a loan of Rs. 5,00,000 @ 14% interest per annum from the company. As on that, the company had accumulated profits of Rs. 4,00,000. Explain the tax implications of the transaction on R and also the company.

6 Discuss the applicability of tax on dividend distributed by a company for the shareholder and company.

Amalgamation and mergers of companies7 Explain the meaning of the term amalgamation as per Income Tax Act.8 Define demerger.9 Discuss the term slump sale. 10 Explain the provisions relating to computation of capital gains in case of slump sale.11 What are the conditions to be satisfied for a merger to qualify as ‘amalgamation’ for the

purpose of Income Tax Act.


Deductions from Gross Total Income1 Explain the provisions relating to deductions from Gross Total Income in respect of 80C

of Income Tax Act.2 What are the provisions relating to deductions from GTI in respect of donations to certain

funds, charitable institutions, etc. under Sec. 80G of Income Tax Act?3 Discuss the conditions to be fulfilled for allowability of deductions u/s 80-IB in respect of

profits and gains from newly established industrial undertakings set up in India.

Minimum Alternate Tax on companies4 Discuss the provisions regarding Minimum Alternate Tax. Also, explain the necessary

adjustments to be made to net profit of the company to convert it to book profit for computation of Minimum Alternate Tax.

Dividend Policy5 Explain the provisions relating to deemed dividend as per Sec. 2(22).6 Discuss the provisions relating to tax on distributed profits of domestic companies.

Amalgamation and mergers of companies7 Explain the consequences of amalgamation for :

(a) Shareholders of amalgamating company(b) Amalgamating company(c) Amalgamated company(d) Banking company


Deductions from Gross Total Income

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1 X, who is working in Delhi as a manager of A Ltd. furnishes the following particulars of his income for the previous year 2010-11:

a. Basic Salary Rs. 10,000 per monthb. DA (forming part of salary for retirement benefits) 30% of basic salaryHe has been provided with a motor car of 1.8 ltr. engine capacity which he uses partly for official purposes and partly for his personal use. The running and maintenance expenses of the motor car are met by the employer. However, the employer recovers Rs. 500 per month from the employee for use of such motor car.He is also provided with a furnished accommodation in Delhi. The house has been taken on rent by the company at Rs. 7,000 p.m. The cost of furniture provided is Rs. 90,000.Besides salary, he has earned the following income:i) Interest on bank deposits Rs. 14,000ii) Winnings from card games Rs. 12,000Compute the total income of X for A.Y. 2011-12 assuming that he donates Rs. 10,000 to National Children Fund.

2 X, who is resident in India, is a person of disability. He provides the following particulars of his income for the year ending 31-3-2011.

a) Salary for working as a telephone operator in a company 17,500 p.m.b) Honorarium from school of blind for giving his service 47,000c) Interest on government securities (gross) 44,000d) Income from unit trust of India (gross) 5,000He has contributed Rs. 2,000 to Prime Minister National Relief Fund and donated Rs. 20,000 to the school for blind which is approved as a charitable institution. He has also paid Rs. 3,000 by cheque as premium of medi-claim policy. His father is also a person with disability and is dependent on him for medical treatment and rehabilitation. X spends Rs. 8,000 during the year on him.Compute his total income for the A.Y. 2011-12, assuming he has deposited Rs. 20,000 in Public Provident Fund.

Minimum Alternate Tax on companies3 R (P) Ltd. gives you a draft of its Profit and Loss Account for the year ended 31-3-2011

showing a net profit of Rs. 9 lakhs. The following further information is also given:(a) The company had imported machinery at a cost of Rs. 50 lakhs in 2008-09. Depreciation

on the original cost at 10 per cent on the straight-line basis is provided in the accounts (Rs. 5 lakhs). The company obtained from the foreign supplier Rs. 50,000 in 2008-09 by way of compensation for the defective machinery supplied. This has been credited to a reserve account. Provision for depreciation on other assets in the books is on the same basis as provided in the Income-tax Act.

(b) The Enforcement Directorate had detected that the company had over invoiced imports of raw materials to the extent of Rs. 90,000. This sum had been spent by the Managing Director during his business visit to the foreign country for personal purposes.

(c) Professional charges included:(i) Rs. 2,000 being legal expenses incurred in connection with criminal proceedings

launched by the Income Tax Department against the Managing Director for fabrication of accounts in the case of a firm in which he is a partner.

(ii) Rs. 7,500 paid to solicitors for attending income-tax appeals for 3 years before Income-tax Appellate Tribunal.

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(d) Advertisement expenses included (incurred on January, 2010):(i) Advertisement in Malaysia for exploring the possibilities of export to that country, Rs.

9,000.(ii) Payment to an advertising agent Rs. 4,000 in cash. The payment is supported by

proper voucher.(e) Interest payment included the following:

(i) Rs. 1 lakh paid to depositors all of whom were shareholders of the company, on fixed deposits and Rs. 2 lakhs to a bank on overdraft account.

(ii) Rs. 3,000 paid by way of interest to a non-resident and Rs. 10,000 paid as interest on fixed deposits from a relative of the Managing Director without deduction of tax at source.

(iii) Rs. 5,000 paid to bank on loan taken for meeting income-tax liabilities. (f) As per the Payment of Bonus Act, the bonus liability worked out to Rs. 3 lakhs.

However, following past practice, the company paid Rs. 4 lakhs, which worked out to 20 per cent of salaries of staff.

(g) The Profit and Loss Account shows a credit of Rs. 5,000 for dividend on 1-6-2010 from a company engaged in the manufacture of cement. Dividend distributed by R (P) Ltd. for the financial year 2010-2011 on 1-10-2011 is Rs. 1,50,000

Compute the total income of the company. Please indicate, in brief, the reasons for any adjustments that you make in support of your computation.

4 ABC Ltd., a closely held Indian company, is engaged in the business of manufacture of paints in India. A profit and loss account for the year ending 31-3-2011 is given below:

PROFIT AND LOSS ACCOUNTRs. Rs.

Salary and wages 7.5 Sales 48.00Postage and telegram 0.40 Amount withdrawn from

general reserve3.00

Traveling and conveyance 0.50Depreciation 5.00Income tax 4.00Wealth tax 0.10Excise duty due 1.00Provision for future losses 0.60Proposed dividend 0.80Loss of subsidiary company 0.50Audit fee 0.25Director remuneration 8.00Deferred tax liability 1.35Net profit 21.00Total 51.00 Total 51.00

Additional information:1. The excise duty due on 31-3-2011 was paid on 2-12-2011.2. Custom duty of Rs. 1,20,000 which was due on 31-3-2008 was paid during the financial

year 2010-11.3. Depreciation as per income tax is Rs. 11.43 lakhs.4. The company wants to set off the following losses/allowances:

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For tax purposes For accounting purposes

Brought forward loss of assessment year 2009-10 12,00,000 10,00,000Unabsorbed depreciation 3,00,000 3,00,000Compute the total income of the assessee and the tax liability for the assessment year 2011-12.

5 The business income of the assessee before claiming depreciation, for the financial year 2010-11 is Rs. 15,00,000. The book profit of the company as per the provisions of Sec 115JB is Rs. 8,00,000. the other details are as under:1) Current year depreciation 2,80,0002) Brought forward business loss 8,00,0003) Brought forward unabsorbed depreciation 5,20,000Compute the tax liability of the company fro the A.Y. 2011-12.

6 From the following information compute the total income of X Ltd. and the tax liability for A. Y. 2011-12 :

Profit and Loss AccountTo Expenses relating to business

4,50,000 By long term capital gain 1,00,000

To Income tax paid 20,000 By sale 7,00,000To General Reserve 40,000 By deferred tax 1,00,000To provision for contingent liability

40,000

To Provision for diminution in value of an asset

50,000

To proposed Dividend 50,000To Balance c/d 2,50,000

9,00,000 9,00,000Additional information:

(i) Brought forward loss as per books of account Rs. 1,00,000(ii) Brought forward unabsorbed depreciation as per income tax Rs. 3,00,000(iii) Brought forward depreciation as per books of account Rs. 80,000(iv) Brought forward loss under the head capital gains (computed as per Incoem Tax Act)

Rs. 60,000.

7 A domestic company, R Ltd., has an undertaking newly established for export of Computer Software in a free trade zone, the profits of which have been merged in the net profit of the company as per Profit and Loss Account prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act. It furnishes the following particulars in respect of assessment year 2011-12 and seeks your opinion on the application of section 115JB. You are also required to compute the total income and tax payable

Net profits as per Profit and Loss Account as per Schedule VI 2,00,00,000

14

Profit and Loss Account includes:(a) Credits: Dividend income Excess realized on sale of land held as investment

Net profit of the undertaking for export of computer software

20,00,00030,00,000

1,00,00,000(b) Debits; Depreciation on straight line method basis Provision of losses of subsidiary company

1,00,00,00060,00,000

(3) Depreciation allowable as per Income-tax Act and Rules 1,50,00,000(4) Capital gains as computed under Income-tax Act 40,00,000(5) Losses brought forward as per books of account Business loss Unabsorbed depreciation

50,00,00060,00,000

The company has represented to you that the excess realized on sale of land cannot form part of the book profit for purpose of section 115JB. You will have to deal with this issue.

Dividend Policy

8 An Indian company with a paid-up (for cash) share capital of Rs 10,00,000 divided into 10,000 equity shares of Rs. 100 each went into liquidation on 30th June, 2010. On that date its reserves created out of profits amounted to Rs. 7,00,000 and the balance to the credit of its' profit and loss account was Rs. 50,000. The liquidator realised the assets at prices considerably in excess of their book values and after meeting and providing for all liabilities including the liability for taxation had a distributable sum of Rs. 26,50,000 which he duly distributed to shareholders on 1st March, 2011.

Company S, a holder of 500 shares acquired by it on 1st July, 1976 at a cost of Rs. 10,000 approaches you for advice as to the treatment for income tax purposes for the amount received by it from the liquidator. The fair market value of shares of Company S on 1.4.1981 was Rs. 20,000. The cost inflation index for 1981-82 was 100 and for 2009-10 was 632.

9 Out of Rs. 30,00,000 share capital of Rs. 100 per share, the company reduces Rs. 3,00,000 share capital at Rs.10 per share. The accumulated profits of the company were Rs. 1,50,000. .Mr. Ramesh holds 500 shares of the company.Compute the amount of deemed dividend u/s 2(22)(d).

10 Mr. Ram took a loan of Rs. 1,00,000 on 10.9.2010 from a company in which the public are not substantially interested. The company also paid insurance premium Rs. 5,000 on his behalf. He holds 25% equity shares of the company. On the date of loan and paying the premium, the accumulated profits of the company were Rs. 80,000. Subsequently in the same year, the company declared dividends to its shareholders. The dividends on the shareholding of Mr. Ram amounting Rs. 15,000 was set-off against the amount of loan etc. Compute the amount that should be included in the income of Mr. Ram.

11 R Ltd. has accumulated profits of Rs. 3,00,000 excluding capitalized profits i.e. bonus shares of Rs. 1,00,000 issued in the past. The company distributed assets of Rs. 2.50,000 to the shareholders. Compute the amount taxable as dividend if the market value of the asset on the date of the distribution is:(a) Rs. 2,00,000.

15

(b) Rs.3,50,000.(c) Rs. 4,50,000.

16

Amalgamation and mergers of companies12 XY Ltd. (an industrial undertaking) wants to amalgamate with PQ Ltd. (an Indian

Company) on June 30, 2010. You are required to find out the tax implications in respect of the following losses/allowances of XY Ltd. in the assessment of PQ Ltd. (i.e., amalgamated company). Unabsorbed depreciation allowance of the previous year 2009-10 : Rs. 86,000; brought forward business loss of the previous year 2009-10 : Rs. 10,00,000. Expected bad debts: Rs. 15,000; brought forward capital loss: Rs. 40,000 of the previous year 2009-10; brought forward speculative loss: Rs. 50,000 of the previous year 2008-09.XY Ltd. incurred capital expenses Rs. 2,00,000 in 2008-09 for promoting family planning amongst its employees. The company could not claim deduction in respect of such expenses in previous years 2009-10 and 2010-11.

UNIT - III

I Test Your Skills:


Tax Planning, Tax avoidance, Tax evasion and Tax Management1 Tax avoidance is legitimate arrangement of affairs in such a way so as to minimize tax

liability. 2 There is element of malafide intention involved in tax avoidance.3 Tax planning and tax avoidance are synonymous.

Tax Planning with reference to location of undertaking, Type of activity and ownership pattern

4 Aggregate amount of tax liability of a firm and partners is generally higher than that in case of same income generated in sole proprietorship.

5 To decide about the form of organization tax liability under different organization forms must be compared.

Bonus shares6 At the time of sale of bonus shares by the shareholder, the company issuing bonus shares

has to pay tax.

Tax Consideration in respect of specific managerial decisions like Make or buy, own or lease

7 In case of purchase of asset out of borrowed funds, the assessee can claim only depreciation as deduction.

8 Lease rentals can be claimed as admissible expenditure against the business income.

Managerial Remuneration9 The tax planning in case of employees’ remuneration requires the study from employee’s

point of view only.10 The Act, for valuation of ESOPs, provides that the fair market value of the specified

security or sweat equity shares, on the date on which the option vests with the employee

17

as reduced by the amount actually paid by, or recovered from the employee in respect of such security or shares, shall be the value of fringe benefits.


Tax Planning, Tax avoidance, Tax evasion and Tax Management1 A company wants to reduce the tax liability by making incorrect statement about the

location of manufacturing process, it is ____(a) Tax Planning(b) Tax Avoidance(c) Tax Evasion

2 Tax evasion is ____(a) legal(b) illegal

Tax Planning with reference to location of undertaking, Type of activity and ownership pattern3 Remuneration should be paid to ____

(a) working partner only(b) dormant partner only(c) both of the above

4 Considerations like _____ need to be considered while setting up a new organization.(a) Location of undertaking(b) nature of business(c) form of organization(d) all of the above

Bonus shares5 At the time of issue of bonus shares, tax liability arises in the hands of

(a) the shareholder(b) the company issuing bonus shares(c) Both of the above(d) None of the above


Tax Planning, Tax avoidance, Tax evasion and Tax Management1 The benefits arising out of tax planning are substantial particularly for the _______ run.2 The objective of tax management is to ___________.

Bonus shares3 When bonus shares are issued the tax liability in the hands of the shareholders is _____.


18

4 For determining effective tax savings in case of purchase of asset out of own funds or borrowed capital __________ and ________ have to be considered.

Managerial Remuneration5 Fringe benefit tax is paid by the __________. 6 FBT is levied @ _______ on the value of fringe benefits.


Tax Planning, Tax avoidance, Tax evasion and Tax Management1 What are the objectives of tax planning?2 Differentiate between tax avoidance and tax evasion.3 Define tax avoidance giving its essential features.

Tax Planning with reference to location of undertaking, Type of activity and ownership pattern

4 How can you reduce tax incidence on companies.5 Discuss the provisions relating to salary and interest payment to partners by a partnership

firm.

Bonus shares6 Discuss the provisions relating to capital gain on bonus shares as given under Income Tax

Act.7 What is the tax treatment in the hands of the shareholders at the time of sale of bonus

shares by the shareholder.


8 What are the considerations to be kept in mind for making a decision regarding financing of a capital asset.

9 Explain how tax planning can be done in case of make or buy decision.10 What all factors should be considered for tax planning in case of own or lease.


Tax Planning, Tax avoidance, Tax evasion and Tax Management1 Define tax planning and explain its need and benefits.2 What is ‘tax planning’? How does it differ from ‘tax management’?3 Tax management is essential for every assessee but tax planning is optional. Comment.

Tax Planning with reference to location of undertaking, Type of activity and ownership pattern5 Explain the tax considerations relating to deciding on the nature of the business to be set

up.6 Explain the provisions relating to location of undertaking for setting up a new business

organization.

Managerial Remuneration7 Under section 15, read with section 17(1), gratuity is taxable when it is due or paid,

19

whichever is earlier. Under section 10(10) gratuity is exempt from tax when it is received. If a person retires on March 14, 2007 but gratuity is received on April 4, 2008 state, as to (a) when gratuity will be taxed, (b) when exemption under section 10(10) will be allowed, and (c) when relief under section 89 could be claimed

IV Practical Questions:Tax Planning with reference to location of undertaking, Type of activity and ownership pattern1 A, B and C have decided to set-up a business. For this purpose A, B and C are having Rs.

6,00,000, Rs. 3,00,000 and Rs. 3,00,000 respectively. They wish (i) to charge interest on their capital/loan @ 12% p.a., Salary A Rs. 20,000 p. m., B: Rs. 10,000 p. m., C Rs. 10,000 p.m. and share profits in the ratio 2 : 1 .: 1, or (ii) B and C to receive half the income as salary nominating A as the sole owner of the business. They expect the income of Rs. 8,00,000 (before charging interest on capital/ loan) during the relevant year.As an income tax expert you are approached by A, B and C for considered opinion as to whether they should have a firm or a sole proprietary concern of A, while B and C becoming employees and moneylenders to the concern so that they can reduce their tax liability? What is your advice and what arguments would you give in support of your advice?

2 There are two members A and B in a joint Hindu family having a capital of Rs. 12,50,000. They can run a business as a business of an individual by joining the other as an employee and money-lender or as a H.U.F.

(i) If the business is run as of an individual, the other member will receive salary of Rs. 2 lakh and interest @ 12% on 6,25,000.(ii) If the business is run as a H. U.F. each member will be receiving salary Rs. 1,50,000.Suggest which form of business organisation should be adopted from tax point of view, if the expected business income is Rs. 5,50,000 for P.Y 2011 – 12.

3 On the basis of the following information suggest to A and B whether they should invest their funds in their own partnership firm @ 12% p.a. or invest it in the firm of C and D @ 15% p.a. (the market rate of interest) and accept deposits of C and D @ 15% p.a. for their firm :(i) Profits of firm before interest and remuneration to partners Rs. 6,00,000(ii) Remuneration to partners Rs. 10,000 p.m. each;(iii) Funds for investment Rs. 4,00,000 each;(iv) Other income of partners Rs. 3,00,000 each

Issue of bonus shares4 On 1-8-1976, Mrs. X purchased 400 shares of ABC Ltd. @ Rs. 100 per share. On 31-12-

1980, ABC Ltd. issued bonus shares; Mrs. X was allotted 600 bonus shares. The fair market value of the shares on 1-4-1981 was Rs. 150 per share. On 3-10-2010, Mrs. X sold all the 1,000 shares @ Rs. 1,100 per share and paid brokerage etc. @ 2% on sale consideration. Out of the sale consideration, she invested Rs. 3,00,000 in the construction of a residential house which was completed before 30-6-2011.

20

Compute the taxable income from capital gains of Mrs. X for the A.Y. 2011-12 assuming that he does not own any other residential house and the above shares are not sold through recognized stock exchange.

5 P purchases 500 listed equity shares of Rs. 10 each for Rs. 40 per share in 1989-90 and incurs an expenditure of Rs. 400 on brokerage. In May 1993, he receives 100 bonus shares. In September, 2010 he gets 100 right shares for Rs. 20 rach. He sold 100 bonus shares in November, 2009 at Rs. 30 per share and 100 right shares @ 30 per share in December 2010. the bonus shares as well as right shares have kept in a separate depository. Both the sales were made through the stock exchange. Rs. 15 were paid as securities transaction tax. Find out the capital gains for the assessment year 2011-12.

Tax Consideration in respect of specific managerial decisions like Make or buy, own or lease6 From the following information determine whether the assessee should purchase an asset

or take on lease:Cost of asset Rs. 1,00,000.Rate of depreciation 15%.Rate of interest 10%.Repayment of loan by the assessee Rs. 20,000 p.a.Rate of tax 30.9%.Residual value Rs. 20,000 after five years.Profit of the assessee Rs..1,00,000 before depreciation, interest and tax/before lease rent and tax.Lease rent Rs. 30,000 p.a.

7 A motor car company requires 10,000 units of a part of car engines. From the following information, suggest to the company whether it should make the part itself or buy it from the market:

Total cost of 10,000 unitsDirect material 20,000Direct labour 80,000Variable factory overhead 40,000Fixed factory overhead 80,000

Total cost 2,20,000A manufacturer offers to sell the same part @Rs. 20 per unit.If the company manufactures the part, it does not require any additional facility.

8 An asset costing Rs. 1,00,000 is to be acquired. There are two alternatives available to the entrepreneur. First one is buying the asset by taking a loan of Rs. 1,00,000 repayable in five equal installments of Rs. 20,000 each along with interest @ 14% p.a. Assuming that lease rentals processing fees, interest as well as the principal amounts are payable at the year end. The second one is leasing the asset for which annual lease rental is Rs. 30,000 up to five years. The lessor charges 1 % as processing fees in the first year. Assume the internal rate of return to be 10% and the present value factor at 10% is:Years 1 2 3 4 5PV Factor .909 .826 .751 .683 .621

21

Suggest which alternative is better in the above case. Assume the tax rate to be 33.99% and rate of depreciation @ 15%.

9 The management of X Ltd. wants to acquire a new machine. The cash price of the machine is Rs. 1,00,000. The company has enough cash reserves to finance the purchase. However, it seeks your advice, whether from the point of view of tax planning, it should buy the machine or get it on lease. On the basis of the following particulars, explain the suitability of each alternatives.

(i) Rate of Income Tax : 35%.(ii) Rate of depreciation under the Income Tax Act : 25%.(iii) Expected life of the machine: 9 years. (iv) Lease rent: Rs. 31,000 per annum for the first five years and Rs. 300 per year afterwards.(v) Present value of Re. 1 discounted at 14%; Year One-0.877; Year Two-0.769; Year Three-

0.675; Year Four-0.592; Year Five0.519; Year Six-0.456; Year Seven-O.400; Year Eighth-0.351 and Year Nine-0.308.

10 A company requires 20,000 units of a component every year for next five years. The component can either be manufactured by the company in its factory or be purchased from the market. From the following information suggest to the company whether it should make the component or buy it from the market:

1. Material cost per unit Rs. 42. Labour cost per unit Rs. 63. Variable overhead cost per unit Rs. 24. If the company manufactures the part, it has to purchase a machine by taking a loan from

the bank. The present value of net cash outflow in this regard in five years will be Rs. 1,00,000.

5. The component is available in the market at (a) Rs. 12.5 per unit, (b) Rs. 14 per unit

11 X Ltd. manufactures electric pumping sets. The company has the option to either make or buy from the market component Y used in manufacture of the sets. The following details are available:The component will be manufactured on new machine costing Rs. 1 lakh with a life of 10 years. Materials required cost Rs. 2 per kg. and wages Re. 0.30 per hour. The salary of the foreman employed is Rs. 1,500 per month and other variable overheads include Rs. 20,000 for manufacturing 25,000 components per year. Material requirement is 25,000 kgs. and requires 50,000 labour hours.The component is available in the market at Rs. 4.30 per piece.Will it be profitable to make or to buy the component? Does it make any difference if the component can be manufactured on an existing machine?

12 XYZ Ltd. needs a component in an assembly operation. It is contemplating the proposal to either make or buy the aforesaid component.

l. If the company decides to make the product itself, then it would need to buy a machine for Rs. 8 lakh which would be used for 5 years. Manufacturing costs in each of the five years would be Rs. 12 lakh. Rs. 14 lakh, Rs. 16 1akh, Rs. 20 lakh and Rs. 25 lakh respectively. The relevant depreciation rate is 15 per cent. The machine will be sold for Rs. 1 lakh at the beginning of the sixth year.

22

2. If the company decides to buy the component from a supplier the component would cost Rs. 18 lakh, Rs. 20 lakh, Rs. 22 lakh. Rs. 28 lakh and Rs. 34 lakh respectively in each of the five years.The relevant discounting rate and tax rate are 14 per cent and 33.2175 per cent respectively. Additional depreciation is not available. Should XYZ Ltd make the component or buy from outside?

13 XYZ Lt/d. is considering the purchase of a new machine costing Rs. 60,000 with an expected life of 5 years with salvage value of Rs. 3,000, in replacement of an old machine purchased 3 years ago for Rs, 30,000 with expected life of 8 years. The present market value of this old machine is Rs. 35,000. Because of the purchase of new machinery, the annual profits before depreciation are expected to increase by Rs. 12,000. The relevant depreciation rate for the machine is 15 per cent on written down value basis and the tax rate is 33. 99 per cent. Assume the after tax cost of capital (discounting rate) to be 14 per cent. Advise the company suitably.

14 The directors of a domestic company, whose existing capital is Rs. 1 crore all in equity shares, proposes to expand its business for which an additional investment of Rs. 50 lakh would be needed. The entire money can be raised either by issue of equity shares or by issue of 10% debentures. They decide in favour of issue of equity shares. As a tax consultant, do you approve the proposal? Assume that rate of return is 20% and rate of income tax is 30%.

Managerial Remuneration

15 Mrs. X is offered an employment by PQR Ltd. at a basic salary of Rs. 24,000 per month. Other allowances according to rules of the company are: dearness allowance: 18 per cent of basic pay (not forming part of salary for calculating retirement benefits), bonus: 1 month basic pay; project allowance: 6 per cent of basic pay. The company gives Mrs. X an option either to take a rent-free unfurnished accommodation at Bhopal for which the company would directly bear the rent of Rs. 15,000 per month, or to accept a house rent allowance of Rs. 15,000 per month and find out own accommodation. If Mrs. X opts for house rent allowance, she will have to pay Rs. 15,000 per month as rent. Which one of the two options should be opted by Mrs. X in order to minimise her tax bill? ( ans 49392 ).

16 Mr. A received offers from companies of Jaipur fro service as under:Offer A Offer B

Salary 6,00,000 7,50,000D.A. 1,44,000 1,60,000

23

Rent free house (Rent payable Rs. 3,00,000) 3,00,000 -House rent allowance (Rent payable Rs. 3,00,000) - 3,00,000Medical reimbursement upto 20,000 -Medical allowance - 25,000Tea and snacks during working hours 4,700 -Free food during working hours (cost Rs. 70 per day for 250 days)

17,500 -

Lunch allowance - 15,000Large car for official and private purposes (estimated expenses) 1,25,000 -Transport allowance for commuting between place of residence and the place of work and personal purposes

- 60,000

Contribution of employer to RPF 12% of salary 72,000 90,000(subscription of employee to RPF 12% of salary) - -Contribution of employer to approved superannuation fund 1,00,000 -Education allowance for two children 2,400 -Hostel allowance for two children 7,200 -Telephone including mobile phone 7,200 -

14,00,000 14,00,000 Which offer should he accept keeping in view his tax liability.

UNIT - IV

I Test Your Skills:


Return of Income and Procedure of Assessment1 Due date of filing the return of income in case of non-company assessee is 31st July of the

relevant assessment year.2 Once a return of income is revised, it cannot be revised further.

Advance Tax3 Advance tax can be paid in the assessment year before filing the return of income.

4 Advance tax is payable only when notice of demand is issued by the A.O.

TDS5 Tax deducted at source for the month of March should be deposited on or before the date

prescribed under Sec 139(1).6 The rate of tax to be deducted at source in case of fee for professional service is 10%.


Return of Income and Procedure of Assessment1 As per Sec. 139(1), a company shall have to file return of income:

(a) When its total income exceeds Rs. 1,50,000

24

(b) When its total income exceeds the maximum amount which is not chargeable to income tax

(c) In all cases irrespective of any income or loss earned by it

2 E-filing of return in case of a office of the government/company and a firm whose accounts are liable to be audited assessee is:(a) Mandatory(b) Optional

3 The filing of return of loss is:(a) Mandatory(b) Not mandatory(c) Mandatory if the assessee has to carry forward the loss which are allowed to be

carried forward and set off

4 If the assessee has to carry forward the loss, the return of loss must be submitted:(a) On or before the due date mentioned in Sec. 139(1)(b) At any time before the end of the relevant assessment year(c) At any time before the expiry of one year from the end of the relevant assessment

year5 The assessee could not file his return of income for assessment year 2007-08 within the

time allowed as per Sec. 139(1). His assessment u/s 144 was completed on 15-1-2009 and it was communicated to him on 19-1-2009. the assessee in this case could file the belated return till:(a) 14-1-2009(b) 15-1-2009(c) 18-1-2009(d) 19-1-2009(e) 31-3-2009

Penalties and Assessments6 The minimum and maximum penalty for failure to comply with a direction regarding

getting of accounts audited under Sec 142(2A) shall be:(a) Rs. 25,000(b) Rs. 10,000(c) Rs. 1,000 and Rs. 25,000 respectively.

7 The minimum and maximum period of rigorous imprisonment under Sec. 276 for removal, concealment, transfer or delivery of property to thwart tax recovery shall be:(a) Any period upto 1 year and fine(b) Any period upto 2 years and fine(c) Any period upto 3 years and fine

8 The minimum and maximum penalty under Sec 272A(1)(d) for failure to apply for allotment of PAN under Sec 139A or quote such number in challan, etc. shall be:(a) Rs. 500(b) Rs. 500 and Rs. 5,000(c) Rs. 10,000

25

Appeals and Revisions9 The first appeal against the order of the AO lies with:

(a) Deputy Commissioner (Appeals)(b) Commissioner (Appeals)(c) Appellate Tribunal

10 The first appeal can be filed by:(a) The assessee only(b) A.O. only(c) Either by the assessee or by the A.O.

11 The maximum fee for filing an appeal to Appellate Tribunal is:(a) Rs. 5,000(b) 1% of the assessed income(c) 1% of the assessed income subject to maximum of Rs. 10,000

12 The Commissioner shall not revise the order under Sec 264:(a) Where an order has been made more than one year previously(b) Where an order has been made more than 2 years previously(c) Where an order has been made more than 4 years previously

Advance Tax13 The advance tax is payable by the assessee if the advance tax payable during the financial

year:(a) Exceeds Rs. 1,500(b) Exceeds Rs. 5,000(c) Is Rs. 10,000 or more

14 A company assessee has to make the payment of advance tax:(a) In 3 instalments(b) In 4 instalments(c) Every month

TDS15 The deduction of tax at source from the salary shall be made at the time of:

(a) Accrual of salary(b) Payment of salary(c) Credit or payment of the salary, whichever is earlier

16 The liability to deduct tax at source in case of income from interest on securities arises at the time of:(a) Payment of interest(b) Accrual of interest(c) Credit of interest to the account of the payee / interest payable account or payment

thereof whichever is earlier.


26

Return of Income and Procedure of Assessment1 Loss under the head capital gain can be carried forward for a maximum of ________

assessment years.

Advance Tax2 The first instalment of advance tax in case of a company assessee is payable on or before

________. 3 The advance tax is payable in the _________ itself.

27

TDS4 Tax is to be deducted at source, if the winning from lottery exceeds Rs. _________.


Return of Income and Procedure of Assessment1 For the A.Y. 2010-11, A could not file the return within the due date. The assessing

Officer passed the order under Section 144 on 31-5-2011 which was received by the assessee on 5-6-2011. the assessee filed the return on 2-6-2011. Is the return valid?

2 X, an individual, has got his books of account for the year ending 31-3-2010 audited under Sec 44AB. His total income for the assessment year 2011-12 is Rs. 1,90,000. He desires to know if he can furnish his return of income for the assessment year 2011-12 through a Tax Return Preparer.

3 A return of income was filed within the statutory time provided under the Act, without making the payment of self-assessment tax due as per return. The same was paid before completion of assessment. The AO wants to declare the return as invalid. Is the AO justified?

4 Define self-assessment.

Advance Tax5 What are the due dates for payment of installments of advance tax?6 Write short note on payment of advance tax on income estimated by the assessee himself.7 Discuss the provisions relating to payment of advance tax as per order of the AO.

Advance Rulings8 Define advance ruling9 Explain the meaning of applicant under Sec 245N (b)

Avoidance of Double Taxation10 Explain ‘relief for double taxation’ with sections.


Return of Income and Procedure of Assessment1 What do you mean by reassessment? State the provisions under the Income Tax Act

relating to assessment.2 What is a defective return? What is the procedure to be adopted by the AO if the return is

found to be defective?3 Can a return submitted by the assessee be revised? If so, what are the circumstances

under which it can be revised? What is the time limit for submission of such revised return?

4 Discuss in detail the various types of assessments.

Appeals and Revisions6 Discuss the procedure for redressal of grievances.

28

7 Explain the procedure for filing an appeal.

Advance Tax8 What do you understand by ‘Payment of Advance Tax’ or ‘Pay as you Earn Scheme’. 10.

What happens in case of default in payment of advance tax?

TDS9 Explain the provisions relating to deduction of tax at source from salary.10 Discuss the provisions of TDS given in IT Act regarding interest other than interest on

securities.

Advance Rulings11 Discuss in detail the procedure for filing application for advance ruling .12 What is ‘Advance Ruling’? When does a ruling become void?

Avoidance of Double Taxation13 Briefly explain the provisions of Sec. 91 of the Income Tax Act relating to avoidance of

double taxation.

14 Explain unilateral relief as given u/s 91.


Penalties and Prosecution1 For the A.Y. 2010-11, A filed his return showing loss of Rs. 1,95,000. at the time of

assessment, the A.O. discovered a concealment of income of Rs. 3,10,000. during the previous year, A paid medical insurance premia Rs. 6,000 by cheque. Calculate the penalty imposable u/s 271(1)(c).

2 A notice to levy penalty under Sec 271(1)(c) was issued on 11-6-2010. The assessee in response thereto filed on 13-7-2010 a written submission requesting to decide the matter. The AO before whom this reply was filed retired on 31-7-2010 and the officer, who succeeded him passed the penalty order without providing any further opportunity, but by taking into cognizance the reply filed by the assessee. Whether the order by the AO is valid?

Avoidance of Double Taxation3 Mrs. R, an individual and citizen of India earned remuneration in foreign currency from a

University in London during her stay in that country in the previous year 2010-11. The remuneration was Rs. 4,00,000 and Rs. 30,000 was deducted at source by the University.

Other incomes of Mrs. R, in India, were Rs. 1,67,000 which includes interest on bank deposit Rs. 55,000. Compute the relief available to her under section 91 assuming that Mrs. R brings Rs. 3,00,000 in India in convertible foreign exchange by 30 – 9 – 2010.

29

4. Mr. X, a resident of India, provides you the following particulars of his income for the A.Y. 2011-12.1. Interest on government securities 25,0002. Income from house property (computed) 45,0003. Business income 3,30,0004. Income from a foreign country with which no agreement for relief or avoidance of double taxation exists

1,00,000

5. Income tax paid on income mentioned in 4 20,000Compute the amount of income tax payable in India.

5. X (28 years) is resident and ordinarily resident in India. His income is Rs. 3,46,000 from a business in India and Rs.1,92,000 from a business in a foreign from a business in India and Rs. 1,92,000 from a business in a foreign country with whom India has ADT agreement. According to ADT agreement, income is taxable in the country in which it is earned and not in the other country. However, in the other country, such income can be included for computation of tax rate. According to the tax laws of the foreign country, business income of Rs. 1,92,000 is taxable @ 23%. During the pervious year, X has deposited Rs. 42,000 in his public provident fund account (out of which Rs. 10,000 is deposited out of foreign income). He has also received an interest of Rs. 32,000 on government securities. Find out X’s liability under the Income Tax Act for the assessment year 2011-12

Cost inflation data of 20 years

Financial Year CI Index Financial Year CI index

1981-82 100 1996-97 305

1982-83 109 1997-98 331

1983-84 116 1998-99 351

1984-85 125 1999-2000 389

1985-86 133 2000-01 406

1986-87 140 2001-02 426

1987-88 150 2002-03 447

1988-89 161 2003-04 463

1989-90 172 2004-05 480

1990-91 182 2005-06 497

1991-92 199 2006-07 519

1992-93 223 2007-08 551

1993-94 244 2008-09 582

1994-95 259 2009-10 632

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Financial Year CI Index Financial Year CI index

1995-96 281 2010-11 711

References:1 Ahuja Girish, Gupta Ravi, Simplified Approach to Corporate Tax Planning and

Management, 11th Edition, 2010-11, Bharat Law House Pvt. Ltd.2 Ahuja Girish, Gupta Ravi, Systematic Approach to Income Tax, Service Tax and VAT,

24th Edition, Bharat Law House Pvt. Ltd3 Ahuja Girish, Gupta Ravi, Practical Approach to Income Tax, Service Tax, VAT, CST

and Wealth Tax, 21st Edition, 2010-11, Bharat Law House Pvt. Ltd.4 Singhania V.K., Singhania Monica, Student’s Guide to Income Tax, 43rd Edition, 2010-

11, Taxmann Publications (P) Ltd.5 Singhania V.K., Singhania Monica, Corporate Tax Planning and Business Tax

Procedures, 14th Edition, 2010, Taxmann Publications (P) Ltd.

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INCOME TAXQUESTION BANK FOR CLASS PRACTICE

(FOR PRIVATE CIRCULATION ONLY)

RESIDENTIAL STATUS

Q1. Following are the incomes of M:

(a) Received Rs. 1,000 in India, which accrued in England;

(b) Rs. 2,000 earned in India but received in England;

(c) Rs. 10,000 were earned and received in Africa but brought to India;

(d) Rs. 8,000 were earned and received in Japan from a business which was controlled and managed in Japan and this amount was not brought to India;

(e) Rs. 6,000 was untaxed foreign incomes of some earlier year, which was brought to India in previous year.

Which of the above incomes are taxable, when M is : (i) Resident, (ii) Not Ordinarily

Resident, (iii) Non-Resident?

Q2. Mr. A went to America on 1st April, 2010 for a film shooting. Due to ill health, he had to stay there just after shooting. He came back to India on 25th September, 2010. He had to go again on 8th December, 2010 and returned India on 15th February, 2011. Is Mr. A resident in India for the assessment year 2011-12 ? If not, why?

Q3. B give the following informations:

(i) He first time went to Japan on 10th January, 2000 and came back to India on 22nd June, 2000. .

(ii) On 30th September, 2003 he went to England and came back to India after 90 days.

(iii) On 16th July, 2008 he had gone to Srilanka and came back to India after staying 100 days.

(iv) On 2nd December, 2010 he had gone to Nepal for 85 days.

(v) In the Previous year 2010-11 he was out of India for 180 days.

He submits the following details of his incomes for the previous year:

(i) Salary Rs. 80,000 received in Japan for the services given in India.

(ii) Commission received in India for the services given in Srilanka Rs. 1,40,000.

(iii) House rent of the house situated in Nepal received in India Rs. 30,000.

(iv) Dividend of a England based company received in India Rs. 75,000.

(v) Profit. of the business situated in Japan brought to IndiaRs. 5,00,000.

Determine residential status of Mr. B for the previous year 2010-11 and explain that on which income he is liable to pay tax in India.

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Q4. Mr. A furnishes the following particulars of his income earned during the previous year

relevant to the assessment year 2011-12 : Rs.

(1) Interest on German Development Bonds (one-third is received in India) 51,000

(2) Income from agriculture in Bangladesh, remitted to India 31,000

(3) Income from property in Canada received in U.S.A.1,10,000

(4) Income earned from business in Kuwait, business being controlled from

Mumbai (Rs. 25,000 is received in India) 65,000

(5) Dividend from an Indian Company 15,000

(6) Royalty received in Singapore from Mr. David, a resident in India, for

technical services provided for a business carried on in Singapore 25,000

(7) Profit from a business in Chennai; this business is controlled from Singapore 1,25,000

(8) Profit on sale of a building in India, but received in Nepal 2,50,000

(9) Income from agriculture in Punjab, received in Mumbai. 30,000

(10) Profit from business in Indonesia; this business is controlled from Delhi

(60% of the profit deposited in a bank there and 40% is remitted to India) 40,000

(11) Interest received from Mr. D, a non-resident, on the loan provided to him

for a business in India28,000

Compute his Gross Total Income, if he is :

(i) Resident, (ii) Not Ordinarily Resident, (iii) Non-Resident.

Q5. Determine the residential status of Mr. R for the previous year 2010-11 who left India for the first time on 15-9-2006 and came back on 1-9-2009. He again left for Dubai on 15-6-2010 and came back on 14-2-2011 to settle in India.

Q6. Particulars of income of Shri A who is resident but not ordinarily resident for the

Assessment Year 2011-12 are given below:

(a) Profit from business in U.S.A. received in India, Rs. 1,00,000.

(b) Share of profit from a firm in India, Rs. 50,000.

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(c) Income from house property in U.S.A. deposited there, Rs. 60,000

(d) Income from agriculture in Srilanka received in India, Rs. 40,000.

(e) Past untaxed foreign income brought to India during 2010-11, Rs. 1,20,000.

(f) Profit from business in U. K. which is controlled from India but deposited in a Bank

Account in U.K.,Rs. 70,000.

Calculate Gross Total Income of Shri A for the assessment year 2011-12.

Q7. Mr. D earns the following incomes during the financial year 2010-11 :

(i) Profits earned from business in Paris which is controlled from India, half of the profits

being received in India-Rs. 1,60,000.

(ii) Pension from former employer in India, received in U.S.A.-Rs; 32,000.

(iii) Income from agriculture in Pakistan and brought to India-Rs. 40,000.

(iv) Income from property in U.K. and received there-Rs. 32,000.

(v) Past untaxed foreign income brought into India during the previous year-Rs. 40,000.

(vi) Gift in foreign currency from a relative received in India-Rs. 80,000.

Determine the Gross Total Income of Mr. D for the A.Y. 2011-12, if he is

(A) Resident, (B) Not Ordinarily Resident, and (C) Non-Resident

Q 8. X a foreign national(not being a person of Indian origin) came to India for the first time on November 15,2010 for a visit of 200 days . X had the following incomes during the previous year ended March 31,2011,Salary before standard deduction received in India for three months Rs. 87,000Interest on saving bank deposit in American Express Bank, New Delhi Rs. 50,000Income from Business in Bhutan being controlled from India Rs.1,00,000Income from Agriculture in Indonesia being invested there Rs. 50,000Income from house property in Paris received there Rs. 1,00,000

You are required to compute his total income for the assessment year 2011-12.

INCOME FROM SALARIES

Q1. Mr. K furnishes the following particulars of his income for the financial year 2010-11 : Net salary received Rs. 45,000 after deducting contribution to RP.F. Rs. 5,000; Employer's contribution to R.:P.F. Rs. 5000; Interest on P.F. Account [email protected]% p.a. Rs. 6,000; Travelling allowance for tour Rs. 2,400; City Compensatory allowance Rs. 8,000; Bonus Rs. 7,500; Entertainment Allowance Rs. 5,000. Unfurnished house at Dharwar for which the employer pays Rs. 1,500 p.m. as rent, but deducts only Rs. 150 p.m. from his salary.

Free gas and electricity provided by the employer at a cost of Rs. 500 p.m. The employer has provided a small car but expenses are met by Kishore.

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Compute his taxable Salary for the assessment year 2011-12.

Q2. Mr. X, an employee with a Furniture dealer, submits the following particulars of his income for the Assessment Year 2011-12 and you are required to compute his gross income from salary :

(1) Basic salary on 1.4.2009 Rs. 12,000 p.m.

(2) Dearness allowance at Rs. 1,000 p.m., which is taken into account for retirement benefits.

(3) Free unfurnished accommodation in Mumbai. The rent paid by the employer is Rs. 5,000 p.m.

On 1st September, 2010 his employer requested him to revise terms of

employment due to the bad financial position of the company. The revised terms

were:

(1) Basic Salary Rs. 9,000 p.m. from 1.9.2010.

(2) Dearness Allowance Rs.. 700 p.m.

(3) No accommodation to be provided.

For this revision in his terms, his employer paid him a lump-sum of Rs. 20,000, when he agreed to such revision. His employer also sold him on 1.6.2010 old furniture for Rs. 3,000. The cost of furniture on 1.4.2007 was Rs. 10,000. Assume that salary is due on the last day of the month.

Q3. Mr. X has furnished the following details with regard to his salary income for the year ended 31st March, 2011 : Compute his taxable salary.

(i) Salary at Rs. 6,000 per month.

(ii) Bonus at six months' salary.

(iii) Travelling allowance for tour at Rs. 300 per month.

(iv) Entertainment allowance ofRs. 250 per month.

(v) Commission equal to four months' pay.

(a) He is also provided with free furnished quarters at Kota valued at Rs. 3,000 per month and furniture and fittings of the value of Rs. 10,000. He is also provided with free lunch at the company valued at Rs. 40 per meal for 300 working days.

(b) He claims: (i) Electricity and water charges incurred by him for his residence Rs. 1,600 per annum. (ii) Entertainment and travelling allowance in full.

(c) His contribution to company's Recognised Provident Fund is at Rs. 1,000 per month and the employer contributes an equal sum. The interest credited to the Provident Fund Account is Rs. 12,000 at 9.5%.

Q4. Shri P is employed in Mumbai in the grade of Rs. 4,400-100-5,400 since 1st

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January, 2007. He gets Rs. 5,000 p.m. dearness allowance and Rs. 15,000 as medical allowance. He has been provided with a furnished accommodation by the employer owned by it of the estimated rental value of Rs. 2,000 p.m. Furniture costing Rs. 13,000 has also been provided by the employer. He has been given a small car, which is used by him for his personal purpose also. The driver's remuneration and all the expenses relating to the official use of the car are borne by the employer. He has been provided with the facility of a gardener, a watchman and a servant who are paid by the employer @ Rs. 200 p.m., Rs. 1,000 p.m. and Rs. 600 p.m. respectively.

He contributes 15% of his pay and dearness allowance to the Recognised Provident Fund towards which the employer contributes Rs. 1,200 p.m. Interest amounting to Rs. 1,980 has been credited on the balance ofRs. 22,000 standing to the credit of his Provident Fund Account. Assuming that the salary becomes due on .the first day of the next month, determine his salary income for the assessment year 2011-12.

Q5.Sri R furnished the following particulars of his income for the financial year 2010-11: Rs.

(a) Salary 5,000 p.m

(b) Dearness Allowance 250 p.m

(c) Entertainment Allowance 100 p.m

(d) Employer's and employee's contribution to a recognised provident fund Rs. 7,900 each.

(e) Interest from provident fund @ 9.5% p.a. 4,000

(f) City Compensatory Allowance 60 p.m.

(g)Medical Allowance 1,000

(h) He has been provided by his employer a large car. Except the driver's salary, the expenses for private use are borne by himself. The car is used for both official and personal purposes.

(i) He has been provided with the facility of an unfurnished house by the employer in a small town for which the employer charges Rs. 200 p.m. The fair rent of the house is Rs. 9,000 per annum. The house is owned by the employer.

(j) The employer has employed for him a sweeper @ Rs. 200 p.m., and a servant @ Rs. 750 p.m.

Compute the taxable income under the head salary for the assessment year 2011-12.

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Q6. Sri S, who is a retired employee of the Nepal Government, started service in a

private firm at Meerut. He furnished the following particulars of his income for the

financial year 2010-11 : Rs.

(i) Salary 1,500 p.m.

(He received one month's salary in Nepal while on leave)

(ii) Planning Allowance 100 p.m.

(iii) Medical Allowance 100 p.m.

(iv) Entertainment Allowance 250 p.m.

(v) Travelling Allowance for tour 700 p.m.

(vi) Pension from Nepal Government 600 p.m.

(He received the pension in Nepal and deposited in a bank there)

(vii) He has been provided with a furnished house for which the employer pays Rs. 1,200 p.m., but deducts only Rs. 300 per month from his salary. The furniture provided to him costs Rs. 10,000.

(viii) His own contribution to Unrecognised Provident Fund is Rs. 300 p.m. and the employer also contributes an equal amount.

Compute the salary income of Sri Sultan Chand for the Assessment Year 2011-12. He was not ordinary resident during the previous year.

Q7. Smt. R is the manager of the Delhi Cloth Mill, Delhi. She receives every month Rs. 9,000 as basic pay, Rs. 500 as entertainment allowance and Rs. 2,000 as dearness allowance.

(a) She owns a house, but the company has provided her the following amenities:

(1) A gardener, a sweeper and a servant who are each paid Rs. 300 per month.

(2) Free use of the refrigerator costing Rs. 5,000.

(b) The following obligations of her were paid by the company:

(1) Gas, electricity and water bills amounting to Rs. 2,000.

(2) Annual membership fee of Rotary Club Rs. 2,400.(c) The company has provided the facility of a small car. The car is used for- private purposes also besides official purposes and all the expenses including the driver's salary are borne by the company.

(d) Her son is studying in a school run by the company. The annual expenses incurred by the company per student is Rs. 3,600 but he had been sent for education to a similar school a sum of Rs. 1,200 would have been payable during the year.

(e) She proceeded on one month's leave to Shimla by car where she stayed in the

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Holiday Home maintained by the company.

(f) The company allotted her 100 shares at Rs. 100 each as per guidelines of the

Central Government. The market value per share on the date of acceptance of offer

was Rs. 350. Compute her taxable income from salary for the Assessment Year 2011-

12.

Q8. Mr. N is the Manager of a Jute Mil in Kolkata. He gets basic pay @ Rs. .7,000 p.m., dearness allowance @ Rs. 2,500 p.m., entertainment allowance @ Rs. 1,500 p.m. and education allowance Rs. 350 p.m. for a child. He has been provided with a rent-free house by the Mills, the fair rent of which is Rs. 60,000 p.a. He has been also provided by the Mill with the facility of free use of furniture costing Rs. 40,000 and refrigerator costing Rs. 8,000. The Mill has provided him two small cars, the expenses relating to the official use are borne by the Mill. The cars' are used partly for private purposes also. The salary of the drivers is paid by the Mill.

Other informations relating to cars 'are :

Cost of each car Rs. 3;00,000;

Salary to each driver Rs. 5,000 p.m.

Rs. .15,000 on the treatment of Mr. Nair and his family members in a private hospital

(not owned by the employer) were reimbursed by the Mill. The company has provided

the amenity of free lunch and free refreshment in office. The cost of which is Rs. 60

and Rs. 20 per day respectively for 250 days.

He as well as the company contributes 14% of full basic pay and half of the dearness allowance towards Recognised Provident Fund. . .

Compute Mr. N's salary income for the Assessment Year 2011-12.

Q9. Shri R who resides in Allahabad, got the following emoluments during the previous year ending on March 31,2011:

From X Ltd. : 6 months basic pay @ Rs. 3,000 p.m., dearness pay forming part of basic pay @ Rs. 250 p.m., and house rent allowance @ Rs. 1,000 p.m. .

From Y Ltd. : 4 months 'basic pay @ Rs. 4,000 p.m., dearness allowance @ 25% of basic pay, commission on sale @ 5% (on sales effected during four months Rs. 1,00,000), house rent allowance @ Rs. 2,500 p.m.

From Z Ltd.: 2 months salary @ Rs. 8,000 p.m., dearness allowance @ Rs. 1,000 p.m., house rent allowance Rs. 3,000 p.m. During this period, he lived in his own

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house.

He paid Rs. 3,000 p.m. as house rent throughout the previous year except two months when he lived in his own house.

Determine the amount of house rent allowance taxable for the assessment year 2011-

12.

Q10. Mr. D, an employee in a company at Delhi, is drawing a salary of Rs. 8,000 p.m. plus 10% of his salary as dearness pay. He is getting entertainment allowance of Rs. 1,000 p.m. He has spent Rs. 5,000 on entertainment of the company's customers. He is provided with a rent-free unfurnished house of the fair rental value of Rs. 4,000 p.m. The house is owned by the company. He is also provided with a small car for his personal and official use and all expenses of its running, maintenance and driver are met by the company. D borrowed Rs. 1,00,000 interest free loan from the company to construct the house before one year. The State Bank of India charges interest on such loans @ 8% p.a.

Calculate the value of perquisites of Mr. D for the assessment year 2011-12.

Q11. Mr. V is reader in a college, run by a society, on a monthly salary of Rs. 14,000. Besides salary he also gets 43% of salary as dearness allowance, Rs. 800 p.m. entertainment allowance and Rs. 400 p.m. as proctor's allowance. During the year he gets Rs. 250 p.m. as additional D.A. He contributes 10% of his salary to Provident Fund. The college contributes an equal amount. Interest credited to his provident fund @ 12% amounted to Rs. 10,000. Three children of Mr. V are studying in an institution run by the society, which runs the college for which he paid nothing. Normally expenditure in an institution of that standard comes to Rs. 1,500 p.m. for one student. Mr. V is provided with a rent-free accommodation which is owned by the college. Its fair rental value is Rs. 2,500 p.m.. A gardener for the up keep of the garden on the back side of the house is also provided. The salary of gardener amounting to Rs. 200 p.m. is also paid by the college. During the year Mr. V proceeded on two months. leave with full pay to his home at Jaipur. The college paid Rs. 4,500 being the air fair to and from Jaipur for him and his wife for this purpose.

Compute the taxable salaries income of Mr. V for the year ending on 31st March, 2011.

Q12. Mr. P submits the following particulars of his income and you are required to compute his gross income from salary for the previous year ended on 31st March, 2011 assuming that salary is due on the last day of the month:

(1) Employed in Q Ltd. upto 30th September, 2010 at a basic salary of Rs. 3,000

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p.m. and dearness allowance of Rs. 1,600 p.m. On 1st October, 2010, he resigned from this service.

(2) Joined R Ltd. from 1st December, 2010 at a monthly basic salary of Rs. 4,000 and dearness allowance of Rs. 2,000 p.m. He also received transport allowance at Rs. 500 p.m. and bonus equal to 10% of his salary plus dearness allowance from this company.

Q13. Following are the particulars of the income of a woman for the previous year ended 31st March, 2011 :

(a) Salary Rs. 15,000 per month.

(b) Her contribution to provident fund was at 14% of Salary, the employer also contributes a similar amount.

(c) Interest credited to her provident fund account at 9.5% per annum Rs. 19,000.

(d) She is provided by her employer with a rent-free (unfurnished) house in a small town of the Annual Value of Rs. 25,000.

(e) Proceeds of an endowment policy Rs. 10,000.

She paid Rs. 600 as Employment Tax of the State Government.

Find out her taxable salary for the assessment year 2011-12; if (i) the provident fund is

recognized, and (ii) it is unrecognized.

Q14. Compute the taxable salary of Smt. G of Kanpur for the assessment year 2011-12 from the following particulars:

(i) Basic salary Rs. 8,000 p.m

(ii) Dearness allowance Rs. 2,000 p.m. (which enters the retirement benefit as per the terms

of employment).

(iii) Bonus Rs. 8,000 p.a.

(iv) Rent-free accommodation provided by the employer, the fair rental value of which is Rs. 30,000 p.a. The cost of the furniture provided therein Rs. 10,000.

(v) Entertainment allowance Rs. 500 p.m.

(vi) Her contribution to Recognized Provident Fund is at 15%.

(vii) Employer's contribution to Recognized Provident Fund is Rs. 9,600p.a.

(viii) Interest on Recognized Provident Fund balance at 9.5% p.a. is Rs. 1,900.

(ix) Free use of a large Motor-car for both official and personal purposes. Driver is also provided by the employer.

Q15. X is working in a Company at Hyderabad on a salary of Rs. 10,500 p.m. and dearness allowance of Rs. 1,250 p.m. and medical allowance of Rs. 500 p.m. He

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received Rs. 3,500 as bonus for the year 2010-11.

He is given a rent-free unfurnished house, owned by the employer. The house is also provided with a gardener on a monthly salary of Rs. 250. He has taken a loan of Rs. 10,000 from his employer for purchasing a motor-cycle. Employer paid Rs. 4,000 as his membership fee of Rotary Club for the year ending 31.3.2011.

He is contributing 15% of his salary to Recognized Provident Fund, to which his employer is contributing 14%. Interest credited to the provident fund @ 9.5% p.a. during the year is Rs. 5,000.

Compute his taxable salary for the assessment year 2011-12.

Q16. From the following particulars of Sri B, working in a firm at Jaipur, compute his taxable income from salary for the previous year 2010-11: Rs.

(i) Basic Salary 1,800 p.m.

(ii) Contribution to Recognized Provident Fund 2,632 p.a

(iii) Employer's contribution 2,632

(iv) Interest on P.F. @ 9.5% 9,000

(v) House Rent Allowance 2,400

Rent paid for the house 4,800

(vi) Medical Allowance 1,000

(vii) Free service of water & gas for which the payment was done by the employer 1,200

(viii) He was provided with a cook whose salary was borne by the employer7,200

(ix) Sri B was provided with a motor-car by his employer for official and personal use.

(x) He claims the following deductions: (a) Rs. 700 in connection with purchase of Books.

(b) He paid Rs. 60 for State Employment Tax.

Q17. X is a pilot in Indian Airlines. He draws Rs. 72,000 as salary, Rs. 18,000 as dearness allowance, Rs. 70,000 as flight allowance to meet personal expenses while on duty, Rs. 12,000 as conveyance allowance (actual expenses Rs. 9,000) and Rs. 7,200 as educational allowance for his three children studying in a public school.

Determine the taxable value of the allowances paid to him.

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Q.18 Mr. A was appointed as the Branch Manager of a company at Jaipur on 1 – 2 – 2009 in

the pay scale of Rs. 6,000 – 100 – 7,000. He also receives 10% of his pay as D.A., Rs. 150

p.m. as medical allowance and Rs. 300 as conveyance allowance.

The company has given him a rent free residential house since 1 – 7 – 2010. the fair rent of the house is Rs. 10,000 p.a. The company has incurred the following expenses in respect of this house from July 2010 to March 2011.

Repairs Rs. 2,000, Electricity Bills Rs. 350, Water Bills Rs. 200, Telephone Bills Rs. 800. The electricity and water bills are in the name of the employer but the telephone bill was in the name of the employee.

On 1 – 10 – 2010, his conveyance allowance was stopped and he was given a motor car of 1.4 ltr. engine capacity for both official and personal use. All the expenses of running and maintenance of car including salary of driver, are paid by the company.

He as well as the company contributes 14 ½ % of his pay to a recognized provident fund. Interest credited during the previous year to his provident fund A/C @ 12 ½ % p.a. Rs. 1,250.

Compute his taxable income under the head salaries for the assessment year 2011-12 assuming that he has not spent any amount of conveyance allowance for official duties.

Q.19 . Mrs. B is offered an employment by XYZ Ltd. At a basic salary of Rs. 24,000 p.m. other allowances according to rules of the company are:Dearness Allowance: 18% of basic pay (not forming part of the salary), bonus one month’s basic pay, project allowance: 6% of basic pay.

The company gives Mrs. B an option either to take a rent-free unfurnished accommodation at Bhopal for which the company would directly bear the rent of Rs. 15,000 p.m. or to accept a house rent allowance of Rs. 15,000 p.m. and find out own accommodation. If Mrs. B opts for H.R.A., she will have to pay Rs. 15,000 p.m. as rent. Calculate the income of Mrs. B for the A.Y.2011-12 and state which one of the two options should be opted by her? Her income from other sources is Rs. 1,70,000.

Q.20 Mrs.X a finance manager of Y Ltd. New Delhi furnishes the following particulars for the previous year 2010-11: Basic salary Rs. 16,000 per month; dearness allowance Rs. 2,000 per month; bonus 3 month’s basic salary; commission Rs. 1,000 per month ; contribution of the employer and employee to recognized provident fund is Rs. 28,000 each; entertainment allowance Rs. 12,000 per annum; allowance to meet cost of education and hostel expenditure of three children @ Rs. 5,000 p.a. each. Rent free unfurnished accommodation provided in Delhi by the company for which company pays a rent of Rs. 2,600 per month. Housing loan of rs. 5,00,000 at the interest rate of 6% p.a. is advanced on October 1, 2008.(no repayment made during the year)(rate of State Bank of India is 10%) , Titan watch costing Rs. 4,800 is gifted by the company on the foundation day of the company and a maruti swift car which was purchased by the company on August 10, 2002 for Rs. 4,00,000 is sold to the employee on September 16, 2010 for Rs. 1,80,000. She makes the following payments and investments during the year : Life insurance premium paid on the life of her major son Rs. 20,000,

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Infrastructure Bonds for Rs. 30,000 and PPF Rs. 10,000. Compute tax payable by Mrs. X for the assessment year 2011-12

Q.21 Mr. A has submitted the following data regarding his income. Compute his total taxable income and tax payable by him for the assessment year 2011-12.Basic Salary Rs. 10,000 per month. Dearness allowance Rs. 2,000 per month. Contribution to

RPF 12% of salary (by employees and employer both)

City compensatory allowance Rs. 100 per month.

Interest on RPF 12% is Rs. 2,400.

HRA Rs. 1,000 per month.

Entertainment allowance Rs. 200 per month.

He has been provided with a 1800 cc car for both official and private purposes. The assessee pays for the running and maintenance for the personal use of the car.

The assessee's 2 children are studying in the school run by the employer. The cost of education in similar institution per student is Rs. 1,000 per annum.

The assessee is supplied with free gas, water and electricity for which the employer pays Rs. 1,000 per annum to an outside agency.

The assessee has encashed one month's earned leave in the previous year Rs. 2,600.

The assessee is provided with free lunch during working days. (In all 300 lunches of Rs. 90 each).

The assessee has travelled with his family members to Mumbai which is his native place. The value of travel concession received from the employer is Rs. 3,500.

Rent paid by the assessee for the house he is living in is Rs. 2,500 per month.

The following are his savings during the previous year:

(i) Life Insurance premium paid Rs. 10,000 on a policy of Rs. 1,20,000 which was

taken on the life of his wife and children.

(ii) Contribution to PPF Rs. 1,500.

(iii) ULIP premium paid Rs. 6,000.

(iv) Contribution to group insurance scheme Rs. 100 per month.

(v) Contribution to RPF @12% of salary.

Q22. Mr. X is a principal in a college of Delhi university. The details of his income for the financial year 2010-11 are as under:

Basic Salary Rs. 5,000 p.m.

Dearness Allowance (forming part of salary) 800 p.m.

City compensatory allowance 200 p.m.

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House rent allowance 1,200 p.m.

Examiner ship remuneration from various universities 4,000

Income received from U.T.I. 20,000

Being principal of the college, he has been given a free telephone at his domestic, costing the college Rs. 3,200. The college has also provided him a domestic servant @ Rs. 200 per month. He spent Rs. 21,000 on the treatment of his wife in a private hospital in Delhi. The medical bill was fully reimbursed by the college. During the year, the college also reimbursed him Rs. 6,000 for his travel to Kashmir under L.T.C. scheme.

He is a member of Statutory Provident Fund to which the college contributes 8% of his salary,. Interest on accumulated P.F. is Rs. 3,300; the rate of interest being 13%. He pays rent of Rs. 1,300 p.m. in respect of accommodation occupied by him for his residence. He donated Rs. 9,000 during the year to the Government for the promotion of family planning and Rs. 4,000 to National Defence Fund. His own contribution to P.F. is 15% of Basic Salary and D.A.

Compute (i) his salary income (ii) Total Income (iii) tax payable.

Q.23 X was employed with a Private company G Ltd. and was entitled to a salary of Rs. 10,000 p.m. He was also entitled to D.A. 40% of salary forming part of salary for retirement benefits. Besides the above, he was entitled to the following allowances/ perquisites.Transport allowance 1,000 p.m.(for commuting from residence to office and back out of which he spends Rs. 600 p.m.)Medical allowance 500 p.m.He spends Rs. 2,000 on his medical treatment and Rs. 1,000 on the treatment of his brother not dependent on himEducation allowance (for one child) 130 p.m.Entertainment allowance w.e.f. 1-5-2010 500 p.mHe was also entitled to a rent free unfurnished accommodation in Delhi, the fair rental value of which is Rs. 10,000 p.m. He resigned on 31-12-2010 and joined RBI w.e.f. 1-1-2011 in the grade of Rs. 14,000-400-15,200-500-18,200. He was also entitled to the following allowances/ perquisites. D.A. (forming part of salary) 30% of basic, Entertainment allowance Rs. 1,000 p.m., motor car of (1.5 ltrs) with driver, which he uses partly for his official purposes and partly for personal purposes. The expenses of running and maintenance were met by the employer.Medical reimbursement of the expenses incurred on the treatment of his wife Rs. 20,000. He is also provided with the rent free furnished accommodation by the employer the FRV of which is Rs. 10,000 p.m. Cost of furniture provided is Rs. 1,20,000.Compute his income under the head salary.

Q.24 Mrs. X is the Director of a tyre company at Bangalore since 1-1-1992. She was placed in the grade of Rs.14,000 – 400 – 18,000 – 600 – 27,000 plus a Dearness Allowance @ 20% of her basic pay, half of which enters into retirement benefits. She contributes 10% (of salary and 50% of DA) to a recognized provident fund to which her employer contributes an equal amount. She has been provided with a rent-free house owned by the company, the fair rent of which is Rs.72,000 p.a. She is getting a Transport allowance of Rs.1000 p.m. for traveling from residence

44

to office and back, Medical Allowance of Rs.1000 p.m. and Servant Allowance of Rs.500 p.m. Her club bills worth Rs.5,000 were also paid by the company. She has been provided with the facility of a gardener and a cook who are each paid Rs.150 p.m. by the employer. She has also been provided with a car of 2000 cc by the employer, for official use only. Two children of Mrs.X are studying in an institute run by the employer for which no fees is paid. Normal expenditure per student in such an institution is Rs.200 p.m. She deposited a sum of Rs.10,000 towards her PPF account, Rs.20,000 on the life insurance premium on the life of self (Sum assured Rs.3,00,000), Rs.8,000 towards NSC VIII th issue and Rs.30,000 towards IDBI’s infrastructure bonds.Calculate the tax payable by her for the assessment year 2011-12.

Q25 . A has been employed with PQR Ltd. since 1-5-1995. He retired from his service, w.e.f. 1-12-2010 and received the following from the company.

Rs.Basic Salary 12,000 p.m.Dearness Allowance (60% is part of salary for retirement benefits) 2,000 p.m.Commission 4,000 p.m.

He was provided with rent free accommodation in Delhi by the company which it had taken on a rent of Rs. 12,000 p.m. He contributed 15% of his salary to a recognised provident fund to which his employer contributed an equal amount.Besides the above, he received Rs. 1,40,000 as gratuity, Rs. 48,000 for 120 days leave standing to his credit and Rs. 2,40,000 from recognised provident fund. He was covered under Payment of Gratuity Act and was entitled to 35 days leave for each completed year of service. He was also entitled to pension of Rs. 6,000 pm w.e.f 1-12-2008. He got 60% of the pension commuted w.e.f 1-2-2009 and received a sum of Rs. 2,40,000 as commuted pension. .

W.e.f. 1-2-2011 he took employment with Y Ltd. on the following termsRs.

Basic Salary 20,000 p.m.DA (not forming part of salary for retirement benefits) 2,000 p.m.HRA 8,000 p.m.He has been paying rent to his former employer @ Rs 13,000 p.m. w.e.f. 1-12-2010 as he did not vacate the house till date.Compute the tax payable by A for the Assessment Year 2011-12.

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INCOME FROM HOUSE PROPERTY

Q1. Mr. R owns house property. Its annual letting value is Rs. 80,000. During the previous year it was let out to a tenant on a monthly rent of Rs. 7,000. He claimed the following expenses actually incurred by him :

(i) Municipal taxes Rs. 8;000.

(ii) Expenses for the recovery of rent of Rs. 600.

(iii) Maintenance Allowance paid to the step-mother Rs. 12,000 annually which was a charge

on the property according to his father's will.

The house remained vacant for one month during the previous year. Find out the income from house property for the assessment year 2011-12.

Q2. Mr. J owns a house which is let out for residential purposes. The construction of the house was completed in June 2007. The Annual letting value of the house is Rs. 96,000. Municipal Taxes paid Rs. 20,000. He spent Rs. 24,000 on White washing. On 1.4.2005 he had borrowed Rs. 30,000 on pro-note at 12% interest and spent it on the construction of the house. Nothing has been repaid out of this loan so far. Mr. J earns salary of Rs. 7,400 per month. He has a scooter for going to office and spends for petrol, etc., on an average Rs. 300 per month. Compute his income from House Property and also his Total Income for the Assessment Year 2011-12.

Q3 Mr. X owned two buildings -in Chennai. Details related to the properties are given below: Rs.

Building I (used as residence) Annual rental value 45,000

Taxes paid 8,000

Repairs-Actual 10,000

Building II Rent collected for 12 months 48,000

Taxes paid 12,000

Interest paid on Mortgage loan on building 5,000

The Mortgage loan was Rs. 50,000 and it was used as follows:

Remodeling Building No. II for getting a higher rent 25,000

Advanced to Firm XYZ, where Mr. X is a partner, free of interest, 20,000

Personal use and meeting cost of education of son 5,000

You are requested to work out the income from house property of Mr. X for

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assessment year 2011-12.

Q4. From the following particulars furnished by Shri H, compute his total income for

the Assessment Year 2011-12:

Salary received

Rent from house property:

Property B

Property C

Less: Municipal Taxes paid:

Property A

Property B

Property C

Repairs to Properties: Property A

Property C

Interest on Mortgage of Property

B for Rs. 5,000

Fire Insurance Premium:

Property A 50

Property B 75

Property C 100 225

Collection charges for all properties 700 3,925 4,175

Total Income Rs. 1,40,775

(a) The assessee has settled in Mumbai for purpose of his employment where he

resides in a rented house.

(b) All the house properties are at Kolkata. Property A is for self-occupation. Properties B and C are let out for residential purposes.

(c) According to Municipal records the annual value of properties A, Band Care Rs. 2,500, Rs. 2,500 and Rs. 4,500 respectively.

(d) The assessee was on leave for three months during previous year ended 31st March, 2011. During that period he resided in the Property A. No other benefit was derived from that property during the previous year.

(e) Rs. 5,000 raised on the mortgage of Property B was utilized for purchase of

Rs. Rs. Rs. Rs.

1,36,600

3,000

5,100

8,100

400

500

700 1,600

400

250 650

750

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agricultural lands, the income from which is exempt from Income tax.

Q5. Mr. Lal owns a big house, the construction of which was completed in May, 2009. 50% of the floor area is let out for residential purposes on a monthly rent of Rs. 22,500. 25% of the floor area is used by the owner for the purpose of his profession, which remaining 25% of the floor area is utilised for the purpose of his residence. Other particulars of the house are as follows:

Rs.

(i) Municipal Valuation 6,00,000

(ii) Standard Rent9,00,000

(iii) Municipal Taxes Paid 80,000

(iv) Repairs 30,000

(v) Interest on capital borrowed for repairs 3,00,000

(vi) Ground Rent 8,000

(vii) Annual Charges 10,000

(viii) Fire Insurance Premium

12,000

Compute the taxable income from house property of Mr. Lal for the assessment year

2011-12.

Q6. Dr. P constructed a big house in July, 2000, which municipal valuation is Rs. 80,000 per annum, while its standard rent under Rent Control Act is Rs. 90,000 annual. The house was used in following manner during the previous year:

(a) 25% portion for self residence

(b) 25% portion for self office. .

(c) 25% portion let out for residential purpose (Rs. 2,000 p.m.)

(d) 25% portioillet out to commercial firm (Rs. 2,000 p.m.)

Other particulars of the house are as follows:

(i) Municipal corporation tax Rs. 12,800 (actual payment during the previous year

2008-09 Rs. 9,000); (ii) Repairs Rs. 4,500; (ii) Ground rent Rs. 6,800; (iv) Annual charge Rs. 4,000 (created by will by his father); (v) Fire insurance premium Rs. 2,000;

(vi) Rent collection charges Rs. 1,500.

He has taken a loan from housing board to construct the house @ 12% per annum Rs. 2 lakh. Interest was due Rs. 24,000 during the previous year. Out of which Rs. 20,000 was paid. Compute income from house property for the assessment year 2011-12.

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Q7. Sri. R is the owner of four houses in Bangalore. He gives the following particulars of these properties:

Ist House llnd House III House IV houseUse of House Self Self Let out for Let out for

Business Residential businessPurpose

Rent received (Rs.) -- -- Rs. 6,600 5,400Fair rental value(Rs) -- -- paid by paid by tenant

But deducted from

RentRepairs (Rs.) 500 300 -- --Interest on loan -- --- -- 300Vacancy period 2 months ----- 1 month ---

Additional information:1. Sri R, along with his family stayed in Mysore for two months.2. Interest was paid on loan obtained by mortgaging the 4 th house

for the purpose of his daughter’s education in computers.3. During the year he won Rs. 20,000 from bettings and received

salary Rs. 1,22,500.

Find out income from house property and income from other sources.

.Q.8. Mr. A owns a house property at Delhi. 60% of the house property is self-occupied for residence and 40% is let out on a monthly rent of Rs. 10,000. The let out portion was also self-occupied from 1-10-2010 to 31-12-2010. However, w.e.f. 1-1-2011 the entire house was let out for Rs. 25,000 pm. The construction of the house property was completed on 31-12-1994.The following expenses were incurred for the above house property during the year ending on 31-3-2011.

Municipal tax paid:For financial year 2007-08 10,000For financial year 2008-09 20,000

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For financial year 2010-11 30,000Insurance premium paid 6,000Land revenue due 18,000Interest on money borrowed for construction of house property 36,000

Calculate income under the head house property of A for the assessment year 2011-12.

Q.9. Mr. C owns a house property. It is used by him throughout the previous year 2010-11 for his (and his family members) residence. Municipal value of the property is Rs. 1,66,000, whereas fair rent is Rs. 1,76,000 and standard rent is Rs. 1,50,000. The following expenses are incurred by Mr. C: Repairs: Rs. 20,000; municipal tax: Rs. 16,000; insurance: Rs. 2,000; interest on capital borrowed to construct the property: Rs. 1,36,000; interest on capital borrowed by mortgaging the property for daughter’s marriage: Rs. 20,000 (in either case capital is borrowed before April 1,1999). Income of Mr. C from business is Rs. 7,10,000. Find out the net income for assessment year 2011-12.

Q.10 Compute Income from house property: Annual rent Rs. 60,000 Standard Rent Rs. 48,000 Municipal valuation Rs. 40,000 Vacancy one month Recovery of unrealized rent for earlier year allowed as deduction Rs. 2,000 Fair Rent Rs. 50,000 Municipal taxes 20% Interest paid on loan taken for house property Rs. 15,000

Q11. Mr. X has two house properties situated at New Delhi; Property A was self-occupied for his residence. Property B has two identical units. Unit I was also self-occupied but unit II was let out for residential purposes. The other particulars of the property are given below:

Property A Property BMunicipal Valuation 60,000 90,000Rent for property let out - 4,000 p.m.Date of completion 1-6-1983 30-9-93Expenses on repairs 5,000 11,000Collection charges - 2,000Ground rent 1,000 -Interest on money borrowed for construction 20,000 36,000Municipal Taxes paid 10,000 16,000

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Unit II of Property B remained vacant for the month of June 2010. Calculate his taxable income for the relevant assessement year.

Q.12 .Mr. X is the owner pf three house properties in Delhi, particulars of which for the year ended 31-3-2011 are as below:

Ist house 2nd house 3rd houseDate of construction 31-12-1997 31-1-1997 31-12-1992

Rs. Rs. Rs.Actual Rent received 70,000 38,000 Self occupiedMunicipal value 1,20,000 38,000 55,600Standard Rent 90,000 80,000 30,000Municipal Tax paid by X 12,000 3,800 24,000Municipal Tax paid by Tenant 2,000 14,000 --------Collection Charges 3,000 3,000 _____Insurance premium 5,000 5,000 5,000Interest on loan taken forRenovation of house 4,800 6,000 12,000Unrealized Rent allowedIn the past, recovered During the previous year 4,000Mr.X resides in Mumbai for three months during the previous year in connection with his business and for all three months the house remained vacant. During the period of his stay in Delhi he did not occupy any other house of his own. Compute his income taxable under the Income from House Property.

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PROFIT AND GAINS FROM BUSINESS AND PROFESSION

Q1. The Profit and Loss Account of Mr. X Y a partnership firm for the year ending 31st March, 2011 is given below:

Profit and Loss Account

Expenses related to goods Sale of goods manufactured

manufactured 10,00,000 by the company 16,00,000

Expenses related to sale of other Sale of other goods 14,50,000

goods 8,20,000 Long term capital gain 5,70,000

Proposed dividend 8,05,000 Amount withdrawn from

Provision for unascertained general reserve 20,000

liabilities 40,000

General Reserve 60,000

Income Tax Paid 30,000

Wealth Tax paid 30,000

Fringe Benefits Tax 15,000

Net Profit 8,40,000

36,40,00036,40,000

Other relevant information are as follows:

1) An outstanding liability related to sales tax for 2002-03 paid during 2010-11 Rs.50,000 that was not charged to above P&L A/C.

2) Brought forward loss as per books of account is Rs.60,000 while the brought forward depreciation as per books of account is Rs. 80,000

3) Brought forward unabsorbed depreciation is Rs. 4,60,000

4) Brought forward loss under the head capital gain Rs. 3,50,000.Compute the tax liability of X Ltd. for the assessment year 2011-12.

Q2. From the following Profit and Loss Account of Mr. Y, ascertain his income from business and Gross Total Income for the assessment year 2011-12.

Rs. Rs. To salary (including By Gross Profit 1,22,000

proprietor’s salary) 45,000 By bad debt recoveredTo general expenses 5,000 (Not allowed earlier by A.O.To advertisements 14,000 due to lack of evidence) 2,000 To interest on proprietor’s capital 2,000 By rent received 3,000To interest on bank loan 4,500 By interest on Post-Office

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To provision for bad debts 2,000 savings bank A/C 1,000To Fire insurance Premium(on house property) 100To depreciation 4,000To reserve for sales tax 10,000To advance income tax 2,000To donation to Central Library 1,000To corporation tax on houseproperty 500To motor car expenses 1,000To wealth tax paid 3,500To income tax 4,000To stationery 1,900Net Profit 27,500

1,28,000 1,28,000Other information:1. Advertisement includes one neon-sign of Rs. 11,0002. General expenses include Rs. 300 given to a poor student to enable him to pursue his

studies.3. Depreciation is in excess by Rs. 1,500.4. Motorcar expenses include Rs. 300 for personal purposes.5. Central Library is an approved institution.

The proprietor draws Rs. 500 p.m. by way of salary.

Q3. Mr. B is a registered medical practitioner. He keeps his books on cash basis, and his summarized cash account for the year ended 31-3-2011 is as under:

Rs. Rs.Balance b/d 4,48,000 Cost of medicines 20,000Loan from bank for private purpose 6,000 Surgical equipments 8,000Sale of medicines 50,500 Motor car 4,40,000Consultation fees 1,10,000 Car expenses 12,000Visiting fees 48,000 Salaries 63,200Interest on govt. securities 9,000 Rent of dispensary 3,200Rent from property (not subject to local taxes) 7,200 General Expenses 600

Personal expenses 23,200

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Life insurance premium 6,000Interest on loan from bank 600Insurance of property 400Telephone expenses 6,000Balance c/d 95,500

6,78,700 6,78,700Compute his income from profession for the assessment year 2011-12 taking into account the following further information:

i) ¼ th of motor car expenses are in respect of his personal use.ii) Depreciation allowable on car is 15% and surgical equipments is 15%. Both the assets

were purchased in December 2006.Opening stock and closing stock of medicines was Rs. 40,000 and Rs. 24,000 respectively.

Q.4. Dr. A is a renowned medical practitioner who maintains books of accounts on cash basis. The following is the receipts and payments account for the financial year 2010-11:

Rs. Rs.Balance brought forward 44,000 Rent of clinicConsultation Fees 2004-05 24,8002003-04 5,000 2005-06 1,2002004-05 1,35,000 Water & Electricity Bills 2,000Visiting Fees 30,000 Purchase of professional books 40,000Loan from bank 1,25,000 Household Expenses 47,800Sale of medicines 60,000 Collection charges for Gifts and presents 5,000 dividend income 100Royalties for articles published Motor car purchased 1,30,000in various journals 6,000 Surgical equipment purchased 24,800Dividend 10,000 Income tax 10,000Interest on govt. securities 7,000 Salary to staff 15,000

54

Life Insurance Premium 15,000Gift to son 5,000Interest on loan 11,000Car expenses 15,000Purchase of medicines 40,000Balance c/d 45,300

4,27,000 4,27,000Compute his income from profession for the assessment year 2011-12 after taking into account the following information:

1) Books worth Rs.25,000 were purchased on 15-5-2010 and the balance on 5-2-2011.2) Car was purchased on 1-1-2011 and the surgical equipment on 4-9-2010.3) It is estimated that 1/3 of the use of car is for his personal use.4) Gifts and presents include Rs.2,000 from patients in appreciation of his medical service

and Rs.3,000 received as birthday gifts.5) Opening and closing stock of medicines amounted to Rs.10,000 and Rs.6,000

respectively.

Q.5 .The following is the Profit and Loss Accoount of Mr. X for the year ended 31-3-2011.Debit Rent of business premises 96,000 Gross Profit 7,38,500Staff salary 4,20,000 Unclaimed credit balancePrinting and Stationery 15,000 transferred 42,000.Telephone 20,000 Prize from Lottery (gross) 37,500Purchase of Trade Mark Refund of custom penalty 25,000Mark in May 2008 41,500 Dividend from UTI 5,000Loss of stock in trade due to Interest on Post office White ants 3,000 saving bank 2,000Audit fees 5,000Scholarship for a poor butdeserving student 5,000

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Life insurance premium 10,000Depreciation on fixed assets 30,000Gifts and presents 3,000Gratuity Reserve 25,000Net Profit 1,76,000 ----------- -------------- 8,50,000 8,50,000 ----------- ------------Notes;

1. The unclaimed credit balance of Rs. 42,000 represents:(a) Due to a trade creditor no longer payable. Rs. 15,000(b) Deposits made by a person who in not traceable Rs. 27,000.

2. Life insurance premium is in respect of a deferred annuity for Rs.1,50,000.3. The fixed deposits are as follows:

Asset WDV Additions Dep: Date of AdditionsFurniture and fittings 60,000 20,000 10% 5-10-2010Typewriters and Calculators 80,000 ------- 15% ----------Cycle ----- 1,600 15% 1-12-2010Machine 12,000 ---- 15% ------ Compute tax payable be Mr. X for the Assessment year 2011-12

CAPITAL GAINS

Q. 1 Mr. A provides the following data regarding his transaction for the sale of his residential house for assessment year 2011-12. Compute the amount of Capital Gain to be included in the Total Income for the assessment year 2011-12 :

House purchased in 1987-88 5,00,000

Sold in November 2010 28,50,000

Purchased another house in September 2010 3,50,000

Deposited in the Capital Gains Alc Scheme, 1988 in January 2009 4,00,000

The cost inflation indices for 1987-88 and 2010-11 were 150 and 711 respectively.

Q 2 From the following data, you are required to work out the capital gains for Assessment Year 2011-12 :

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(i) Site purchased in 1975 value Rs.0.33 lakh

(ii)Market value of site on 1.4.1981 Rs.0.75 lakh

(iii) Ground floor-Cost of construction in 1981 Rs.1.50 lakh

(iv)First floor-Cost of construction in 1985 Rs.2.66 lakh

(v) Sale consideration received in 2010 Rs. 33.00 lakh

(vi) Investment in new property Rs. 10.00 lakh

Assume that the property being sold and the new property being acquired are both residential:

Index 1985-86-133, 2010-11-711.

Q.3 M/s. P. Bros. Chennai running an industrial undertaking were ordered by City Corporation, Chennai- to shift their unit from urban area of Chennai. They shifted their concern during 2010-11 and in the process sold some of the assets whose details are given below:

Assets P &M Land Building

Acquired in 1989 June 1983 1989

Rs. Rs. Rs.

Sale proceeds 10,00,000 7,00,000 12,00,000

W.D.V. on 1.4.2010 [cost U/S 50(2)]4,40,000 - 7,32,500

Cost of acquisition - 6,00,000 1,40,000 10,00,000

Amount invested during Dec. 2010

due to shifting . 8,00,000 2,00,000 5,00,000

Compute the taxable capital gain for the assessment year 2011-12

(C.I.I. for 1983-84 is 116; 1988-89 is 161; 2010-11 is 711)

Q.4. During the previous year 2010-11, Mr. Ramesh sells the following capital assets:Sale Cost of Year of Fair Market

proceeds Acquisition Acquisition Value as on 1 - 4 – 1981

(Rs.) (Rs.) (Rs.)Land 1,58,00,000 18,50,000 1977 28,00,000Gold 9,86,000 2,40,000 1980 2,41,000Listed Debentures 1,57,000 75,000 1975 40,000

Assume that his business income is Rs. 1,46,000, determine his net income for the assessment year 2011-12.

Q5. Mr. A lives in Bangalore. He owns not only house properties in and around Bangalore but also cultivable land near Mangalore. He lives in a house which had been bought by him in January, 1986 for Rs. 2,31,000. The agricultural land measuring 10 hectares is being cultivated by his father for over 15 years. Its fair market value as on 1-4-1981 was Rs.

57

8,00,000. The residential house is sold by him for Rs. 14,00,000in December 2010 and another house bought within 3 months at a price of Rs. 3,00,000 to be used for residential purposes. Agricultural land is also sold for Rs. 46,00,000 in January 2011. on 30-6-2011 he bought another agricultural farm for Rs. 5,00,000 which will be cultivated by him. Gold ornaments were also sold by him in November, 2010 for Rs. 2,00,000 the fair market price thereof as on 1-4-1981. being Rs. 30,000. He bought fresh jewellery for Rs. 80,000 within 6 months of sales. You are required to compute taxable capital gains of Mr. A for the A. Y. 2011-12.

(Capital Gain Index No. of the year 1981-82 = 100, 1986-87 = 133, 2010-11 = 711)

Q6 You are required to compute the total income for the assessment year 2011-12. ‘P’ sold a house property on 30-11-2010 for Rs.3,50,000. He had acquired this property from ‘O’ under a will on 1-6-1991 and expended Rs.19,900 on its improvement in 1991-92. Compute P’s income under the head ‘Capital Gains’ for the assessment year 2011-12 assuming that ‘O’ had acquired this property at the cost of Rs.40,000 in 1981-82 and further spent Rs.15,000 during the same year on its improvements. The cost inflation indices are as under:

1981-82 100,1991-92 199,2010-11 711.

Q.7 X was the owner of the following assets:Gold purchased on 15th December 1977 for Rs. 1,40,000 (market price as on 1-4-1981 Rs.1,82,000)Land purchased on 15th Dec. 1979 for Rs. 31,60,000 (market price as on 1-4-1981 Rs.5,60,000)Listed Debentures purchased on 15th December 1976 for Rs. 3,14,000 (market price as on .1-4-1981 Rs. 2,00,000)He sold these assets in financial year 2010-11 as follows;Gold for Rs. 38,00,000, Land for Rs. 1,54,00,000 and Debentures for Rs. 5,10,000). Compute Capital gain taxable for Mr. X for the assessment year 2011-12.(Capital gain Index no. 1981-82 ;100 and 2010-11 ;711 )

Q8. X owns several assets but does not own any residential house. He sells the following assets and requests you to compute his capital gains for the assessment year 2011-12.

(1) Shares (purchased in April, 1992 for Rs. 1,20,000) sold through recognised stock exchange on 15-12-2010 for Rs. 2,00,000.

(2) On 1-4-1981, he had agreed to sell the jewellery to Y for Rs. 5,60,000 which was purchased in 1975 for Rs. 3,00,000. However, the sale could not be effected as Y backed out. He now sold the jewellery on 15-7-2010 for Rs. 32,40,000 and incurred Rs. 40,000 incidental selling expenses on account of brokerage and commission. He also invested Rs. 3,00,000 on 20-10-2010 in a Deposit Account with a public sector bank under the Capital Gains Deposit Account Scheme. In December, 2010 he also purchased a small residential house for Rs. 3,80,000.

(3) Debentures (listed) (purchased in September, 1993 for Rs. 1,00,000) sold on 1-12-2010 for Rs. 1,60,000.

(4) Sold his motor car (purchased in August, 1992 for Rs. 1,40,000) on 15-3-2011 for Rs. 1,60,000.

( Capital Gain Index No.: 1981-82 = 100, 1992-93 = 223, 2010-11 = 711 )

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INCOME FROM OTHER SOURCES

Q1. Mr. X has the following investments in the previous year ended on 31st March, 2011 :

(i) Rs. 750 received as interest on Post Office Recurring Deposit.

(ii) Rs. 25,000, 12% Haryana State Electricity Board Bonds.

(iii) Rs. 20,000, 13% Allahabad Development Bonds.

(iv) Family Pension Rs. 24,000.

(v) Rs. 1,751 received interest on tax-free Secured Securities of Chits India (P) Ltd. Co.

(vi) Rs. 30,000, 10% (Tax-free) Listed Debentures of a Company.

59

(vii) Rs. 40,000, 12% Debentures of Goa Development Authority.

He took a loan to purchase Goa Development Authority Debentures Rs. 20,000 @ 11% on which interest has become due but not yet paid in the previous year. Bank charged 2% as collection charges on realisation of interest on all securities. Interest being payable in each case on 1st January and 1st July.

Calculate his income from interest on securities under the head 'Income from Other Sources'.

Q2. Mr. X, a resident individual, submits the following particulars of his incom~ for the year ended 31st March, 2011 :

(1) Royalty from a coal mine Rs. 20,000.

(2) Agricultural income in Pakistan Rs. 15,000.

(3) Salary for a part-time job with a firm Rs. 21,000.

(4) Salary as Member of Parliament Rs. 36,000.

(5) Daily Allowance as M.P. Rs. 15,000.

(6) His residential house has been taken on a rent of Rs. 1,000 p.m., half of which he has sub-let at Rs. 1,200 p.m.

(7) Dividend received from a co-operative society Rs. 5,000.

(8) He has incurred the following expenses:

(i) Paid collection charges Rs. 100 for collecting dividends.

(ii) Rs. 3,000 spent for earning and collecting royalty income.

Compute Mr. X's income from other sources for the assessment year 2011-12.

Q3. Shri N, a resident individual, submits the following particulars of her income

from other sources for the year ended 31stMarch, 2011:

1. Family pension from the Government of Uttar Pradesh Rs. 42,000.

2. She has written a book for schools on which she gets a royalty of Rs. 17,000 from the publisher. She has spent Rs. 3,000 on books, stationery, typing, etc. during the previous year.

3. She has received remuneration for doing invigilation in Examination Rs. 1,000.

4. Remuneration for acting as examiner Rs. 1,800. She incurred Rs. 75 on postage, etc. in

connection with the examination work, which were reimbursed by the University.

5. Cash worth Rs. 1,00,000 was found in the previous year in her bank locker, the source of

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which could not be explained by her.

6. Interest credited to her savings bank account in Allahabad Bank Rs. 800.

7. Interest credited to her recurring deposit account and cumulative time deposit account in

post office was Rs. 700 and Rs. 2,000 respectively.

Compute her taxable income from other sources for the assessment year 2011-12.

Q4. Mrs. R, a resident individual, submits the following particulars of income for the previous year ending March 31, 2011 :

Dividend from REC International Ltd. (Gross) Rs. 4,800; Dividend from Sundaram Finance Ltd. Rs. 2,700; interest paid on capital borrowed for the purpose of investment in shares of Sundaram Finance Ltd. Rs. 4,200; collection charges in respect of dividend Rs. 460. Winnings from lottery net amount Rs. 69,400. Tax deducted at source Rs. 30,600. Winnings from card games Rs. 23,500. Interest on securities issued by the Government of Singapore Rs. 20,570. Determine the income chargeable under the head 'Income from other sources' for the assessment year 2011-12.

Q5 Mr. A furnishes the following particulars of his income for the financial year ending 31-3-2011:(i) Dividends in September, 2010 from UTI Rs. 4,000(ii) Dividends received in July, 2010 from Assam Tea Co. Ltd., Rs. 7,160 (60% of income of the company is agricultural income)(iii) Amount received on 1-12-2010 in connection with winning from a horse race Rs. 11,104.(Iv) Amount received on 1-12-2010 in connection with winning from lottery Rs. 55,520. Cost of lottery tickets purchased Rs. 4,000.(v) Directors fees received in August, 2010 Rs. 40,000(vi) He has rented a residence of Rs. 500 per month. Half portion of this house was sub-let on a monthly rent of Rs. 500 p.m.Compute his taxable income for the assessment year 2011-12.

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INDIVIDUALS

Q1. Mr. X, an employee of a company, has furnished the following particulars of his income for the year ended 31st March, 2011 : .(a) Salary from 1st April, 2010 to 31st December, 2010 @ Rs. 9,000 per month and D.A. @ Rs. 5,000 p.m.(b) Entertainment allowance from 1st April, 2010 to 31st December, 2010@ Rs. 1,000 per month.(c) Premium paid by the employer to Life Insurance Corporation on a policy for Rs. 5,000 taken on his life and for his benefits Rs. 600. .(d) Premium paid by Mr. X out of his own pocket on Life Insurance policies on his own life Rs. 3,500.(e) Interest on Savings Account with Bank Rs. 400.(f) Interest on National Plan Certificates Rs. 500.(g) Own house in his own town (built in 1966) was occupied by his brother-in-law free ofrent.The annual letting value of the house according to municipal valuation is Rs. 2,000 and municipal taxes for the year are Rs. 400.(h) The employer had provided him a small car both for his official use and private use for the above period. The maintenance expenses are met by the employer. . Compute the total income of Mr. X for the assessment year 2011-12.

Q2. Mr. X, a Government employee and a citizen of India, is sent to London on office duty on 1st June, 2010. He stays there upto 31st January, 2011. The salary and allowance drawn by him during this period are given below:. Rs. .

4 months' salary in India. . 72,000

8 months' salary in London 1,44',000'

Overseas allowance 96,000

Free residence in London (Rent Rs. 10,000 per month for 8 months)80,000

The full amount of 8 months' salary was spent in London and nothing was brought to India. He owns property in Delhi which he uses for his residence. During the period of his stay in London the house was occupied by his wife and children. Annual rental value of the house is Rs. 5,600. Municipal taxes paid in respect of this house during the year 2010-11 were Rs. 600 and ground rent paid Rs. 200. His bank interest in India was Rs. 4,200. He paid Rs. 20,000 donation to a charitable institution to which section 80G applies. Compute his total income.

Q3. Mr. B. presents the following information regarding previous year ended 31.3.2009 :

(1) Taxable profits from Poultry farming business Rs. 90,000. Taxable profits from dairy business Rs. 75,000.

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(2) Taxable profits from small-scale industry in rural area (established in 2001-02) Rs.

2,60,000. The industry produces article listed in schedule 11 of Income Tax Act.

(3) Dividend received from co-operative society Rs. 2,700. .

(4) Dividend received from a domestic company Rs. 2,685.

(5) Income from units of M.F. Rs. 2,500.

(6) Sale proceeds of a residential plot Rs. 1,33,250. This plot was purchased in 1975 for Rs. 20,000. Rs. 5,000 were spent on registration. The market value of plot on 1.4.1981 was Rs. 22,000. Cost inflation index for the year 2008-09 was 582.

(7) Mr. Roy resides in a rental bungalow at Indore, for which he pays Rs. 3,500 per month.

.(8) Loss from cloth production business (before deducting allowable depreciation Rs. 21,000) Rs. 49,000. Brought down losses of this business for previous year is Rs. 32,000.

(9) Interest on post office saving a/c Rs. 1,500.

(10) Interest accrued on National Savings Certificates (VIII issue) Rs. 6,000.

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

Q4. Mrs. M submits .the following particulars of her income for the assessment year 2011-12 :

Salary from Aristocracy Private Ltd. (computed) 50,000Dividends on TISCO shares (Gross) 1,500Interest on securities (Gross) 7,500Interest on fixed deposits in SBI 3,200Profits from agency business 10,000Loss from speculation in shares 20,000Profits from speculation in silver 9,000Loss from short-term capital assets 5,000First prize from Kerala State lottery 1,00,000Gains from playing bridge in the club 5,500Gains from playing rummy in the office 1,000Loss in flash (card game) with friends 7,000Maharashtra'State lottery tickets bought 10,000Loss in race course on betting 20,000Expenditure in maintaining race horse 40,000Stake money received in respect of the horse 90,000

You are required to compute the Gross Total Income for the relevant A. Y.

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Q5. The following are the particulars of Mr. X for the previous year 2010-11. You are asked to compute his net tax liability or amount refundable, as the case may be :Business Income 1,46,900Rent of property 10,000Municipal tax on property paid 1,000Agricultural Income 10,000Long-term capital gains 15,000Lottery winning from Kerala State 50,000Life Insurance premium paid 10,000Contribution to Public Provident Fund 15,000Casual Income from crossword puzzles 1,200

Q6. Shri Ravi who is 70 years old has submitted the following particulars of his income for the previous year 2010-11 :

Rs.(i) Income from profession as musician:

(a) Earned and received in India 1,39,000(b) Earned and received in foreign country and

brought in India. 1,60,0002,99,000

(ii) Interest from Government Securities 17,000

(iii) Accrued interest on National Saving Certificates during theprevious year 17,000

During the previous year he has made the following payments: Rs.

(i) National Saving Certificates VIII issue purchased 10,000

(ii) Premium on self insurance policy 6,000

(iii) Deposited in Public Provident Fund Account 10,000

(iv) Health Insurance premium of his children paid by cheque 9,000(v) House rent paid for rented house of his own residence

36,000Compute his total income and tax payable by him for A.Y. 2011-12

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ASSESSMENT OF FIRM’S AND ASSOCIATION OF PERSONS

Q1 A firm is engaged in the manufacture of basic drugs. It consists of three partners. A,B,and C sharing profits and losses in proportion of 3,2, and 1 respectively.The firm’s accounts for the year ended 31st March, 2011 disclosed a net profit of Rs. 1,90,500After debiting the following items:

(a) Salary of Rs. 1,15,000 paid to partner C, who is a chemist and is incharge of the firm’s laboratory.

(b) Rent of Rs. 9,000 paid to partner B for the portion of his building in which the firm’s office was situated.

(c) Rs.9,100 paid as interest to partner A on a loan advanced by him to the firm @ 13% p.a.

(d) Rs.65,000 paid for the purchase of patent right to manufacture a drug for caner.

Depreciation was debited to the Profit and Loss Account as permissible under the Act. The net profit of Rs. 1,90,500 after debiting the following items:

(a) Salary of Rs. 1,15,000 paid to partner C, who is a chemist and is incharge of the firm’s laboratory.

(b) Rent of Rs.9000 paid to partner B for the portion of his building in which the firm’s office was situated.(c) Rs. 9,100 paid to partner B for the portion of his building in which the firm’s office was situated.

(d) Rs. 65,000 paid for the purchase of lpatent right to manufacture a drug for cancer.

Depreciation was debited to the Profit and Loss Account as permissible under the Act. The net profit of Rs. 1,90,500 included Rs. 6,000, being interest on fixed deposit with the State Bank of India. New machine costing Rs. 15,000was purchased and installed in July 2010. Its cost has not been charged against the Profit and Loss Account. Compute the total income of the firm giving briefly the reasons for inclusion and exclusion of each item.

Q2. The partnership firm, M & Co., consists of M, Mrs. M and N. The partners have contributed capital equally and share profits and losses in equal proportion. M and N paid their capital of Rs. 1,00,000 each from funds belong to them. Mrs M has contributed her share of the capital Rs. 1,00,000 from the amount of Rs. 2 of capital contribution have been accepted by the Assessing Officer.The profit of the firm for the assessment year 2011-12 are settled with the Assessing Officer at Rs.1,80,000 after tax.The firm pays interest @ 12% p.a. on partners’ capital but it does not pay any remuneration to partners. The partners have other sources of income as given below:M: Dividend Rs. 10,000; Ground rent Rs. 5000. He owns immovable property, the Net Municipal Value of which is Rs. 30,000. The total gross receipts on account of rent during the year amount to Rs. 39,000. Expenses incurred on the property are as under:

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Municipal Tax Rs. 3,000; Insurance Rs. 500, Ground Rent Rs. 500; Collection Charges Rs. 600;lRepairs Rs. 4,000; Interest on Loan utilized for making substantial extensions to the property Rs. 2,000.Mrs. M: Interest on Government Securities Rs. 12,000, she received a legacy of Rs. 2,00,000 left to her by her grandmother and paid life insurance premium of Rs. 2,000.Mr. N: During the year, Mr.N was engaged in speculation of shares which resulted in a profit of Rs. 20,000. Besides, he also did speculation business which resulted in a loss of Rs. 30,000. He paid Rs. 8,000 as life insurance e premium on a policy of Rs. 30,000.Prepare statements showing the respective assessable incomes of the three partners for the assessment year 2011-12.

Q3. Shri Avinash, Shri Ajay and Shri Abhay are partners in a partnership firm “Avinash & Co.’ sharing profits in the ratio 5:3:2:. The net profit of the firm as per its P.& L. Account for the year ending 31st March, 2011 was Rs. 3,60,000The debits to the Profit and Loss Account included the following:(i) Rs. 3,000 for depreciation of scooter purchased by Avinash for Rs. 15,000 on Ist April, 2008, which is used wholly for the business of the firm and Rs. 3,600 for Scoooter Allowance to Avinash at Rs. 300 per month for meeting the cost of petrol and repairs etc. of this scooter.

(ii) Rs. 30,000 paid as Commission to Smt. Vijay, wife of Shri Ajay, for acting as the Sole

selling agent of the firm.(iii) Rs. 2000 paid as fees to Smt. Alka, wife of Shri Abhay for appearing as an advocate in an appeal filed by the firm in the Rajasthan High Court. (iv) Rs. 50,000 spend on scientific research including Rs. 30,000 for the construction of research laboratory completed on 30th September, 2008.(v) Rs./ 10,000 spent by the firm for the purpose of promoting family planning amongst its employees including Rs. 6,000 capital expenditure.(vi) ;Rs. 3000 paid in proportion of 5:3::2 to the Life Insurance Corporation for getting each partner’s life insured for Rs. 15 ,000.Prepare the Statement of Total Income of the firm for the Assessment Year 2011-12 and also compute the income tax payable by the firm on its total income

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Q4. The profit and loss account of the Firm of M/s A and B, sharing profits and losses in the ratio of 3:2, for the previous year ending on 31dst March 2011 is as follows:

Rs. Rs.

Cost of goods sold 5,45,000 Sales9,50,000

Remuneration of partners 3,00,000 Dividends 20,000Remuneration to employees 1,70,000 Long term Capital gain

1.90,000

Interest to Partners 15,000Other expenses 1,00,000Sales tax outstanding 10,000Net profit 20,000

__________________

11,60,00011,60,000

__________________

Additional information is given below:(1) Other expenses include the following:

(i) Entertainment expenses Rs. 20,000(ii) V.I.P. bags, costing Rs. 1,500 each given to ten customers who exceeded the sales target fixed under sales promotion scheme.(iii) Rs. 32,500 paid in cash to an advertising agency.

(2) Outstanding sales tax was paid as 14th July, 2009(3) The firm is not evidenced by instrument.(4) The detailed particulars of remuneration and interest to A and B, working partners, are given below:

Amount actually paidA

B(i) Salaries 70,000 80,000(ii) Bonus 60,000 40,000(iii) Commission 20,000 30,000(iv) Interest

9,000 6,000

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(v) Other incomes

You are required to compute for the assessment year 2011-12: total income and tax liability of the firm.

_____________________________________________________________

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