APPLIED DIRECT TAXATION
CC EXAMINATION
Suggested Answer
PART-A
I. Fill in the blanks: (10X 1 = 10marks)
- Any leave encashment received during period of service is always Taxable.
- In case of deemed let out property actual rent is non existent.
- A non-resident is a person who fails to fulfill basic conditions.
- The concept of aggregation can be applied only if agricultural income exceeds Rs.5000 per annum.
- Deduction u/s 32 pertaining to depreciation is a mandatory charge.
- Surcharge on income tax is payable by a domestic company at 7.5% rate.
- Income from agriculture from a land situated outside India is chargeable to tax.
- Employer's contribution to unrecognised provident fund and interest thereon is taxable as Salary.
- The basic exception to rule of charging income from house property in hands of owner is Deemed owner.
- Maturity proceeds of keyman insurance policy received by an employer are taxable under Profits and gains of business or profession.
II. Choose the correct answer: (6 X ½ = 3 marks)
1. The maximum amount of exemption available for a senior citizen being women is:
(a) 1,60,000
(b) 2,40,000
(c) 1,90,000
(d) None of the above
2. Income which accrues or arises outside India from a business controlled from India is taxable in case of:
(a) Resident only
(b) Not ordinarily resident
(c) Both ordinary and not ordinary resident
(d) Non-resident
3. A is entitled to children education allowance @ Rs 80 p.m per child for 3 children. It will be exempt to the extent of:
(a) 200 p.m
(b) 160 p.m
(c) 240 p.m
(d) 100 p.m
4. In case deduction u/s 35 for scientific research expenses, deduction for cost of building shall be taken at:
(a) 100%
(b) 175%
(c) 200%
(d) 125%
5. XYZ Ltd was incorporated on 01.10.2010 and commenced its operation on the same date. Its assessment year shall comprise of:
(a) 12 months
(b) 6 months
(c) 3 months
(d) 7 months
6. An assessee under the IT act includes any person:
(a) by whom tax is payable
(b) to whom refund is due
(c) Against whom proceeding is pending under the act.
(d) All of the above.
Ans: 1-b, 2- c, 3-b, 4-a, 5-a, 6-d
III. True or False: (4X ½ = 2marks)
- Assessee is always a person but a person may or may not be an assessee.
Ans: True
(i) Essential pre-requisite for becoming an assessee is he should fall within definition of a person u/s 2(31).
(ii) Every person need not be an assessee unless he becomes liable for tax/refund/any legal proceeding is pending against him as covered u/s 2(7).
(iii) Hence, the above statement is justified.
- Depreciation is allowable only in case of tangible assets.
Ans: False
(i) Depreciation is a mandatory charge allowable on all fixed assets whether tangible or intangible.
(ii) The only difference between tangible and intangible assets for depreciation purpose is that for tangible asset, rate of depreciation is as prescribed under appendix whereas for intangible it is at flat rate of 25%.
- Unrealized rent would be charged to tax u/s 25AA in the year of receipt in hands of assessee whether or not he continues to be the owner.
Ans: True
(i) The unrealized rent would be charged in hands of the assessee in the year of recovery u/s 25AA, if the same has been excluded as per rule 4 in the relevant previous year for computation of income from house property.
(ii) It would be chargeable irrespective of the fact the assessee continues to be the owner of the house property under consideration.
- Exemption u/s 10(13A) pertaining to HRA can be claimed by an assessee who resides in his own accommodation.
Ans : False
(i) The entitlement to claim exemption u/s 10(13A) wrt HRA is that assessee should incur rental obligation.
(ii) An assessee who resides in his own accommodation/does not incur any rental obligation is not eligible to take the benefit of above exemption.
PART – B
IV. Distinguish the following (Any 5) (5 x 4= 20 marks)
- Let out property and deemed let out property.
| LET OUT PROPERTY | DEEMED LET OUT PROPERTY |
| Ø Where the property has been let out for rental purpose. Ø Deduction u/s 24 wrt Standard deduction available as well as interest on loan is available without any restriction. | Ø Deemed let out property arises where assessee has two property in his self occupation . Ø He can choose one among the property as his self occupied and the other property shall be assigned as deemed let out. Ø In case of deemed let out property shall be treated in par with let out property for all Income tax provision except actual rent is non-existent |
- Short term capital gain and long term capital gain.
| SHORT TERM CAPITAL GAIN | LONG TERM CAPITAL GAIN |
| Ø Capital gain arising from the transfer of a long term capital asset. Sec. 2(42B) Ø Short term capital gain shall be taxed at slab rate applicable to individual assesses. Ø Exception: In case of capital gains arising on transfer of listed securities and on which securities transaction tax has been paid tax shall be payable @15% - sec 111A. Ø No benefit of chapter VI-A deduction can be taken in case of short term capital gain chargeable u/s111A @ 15%. | Ø Capital gain arising on the transfer of a short term capital asset. Sec. 2(29B) Ø Short term capital gain shall be taxed at 20% with indexation benefit and 10% without indexation benefit. Ø Exception: In case of capital gains arising on transfer of listed securities and on which securities transaction tax has been paid entire capital gain exempt u/s 10(38)- Sec 112. Ø No benefit of chapter VI-A deduction can be taken in case of long term capital gain chargeable u/s 112. |
- Commuted and Uncommuted pension.
| COMMUTED PENSION | UNCOMMUTED PENSION |
| Ø It is a lump sum amount taken in lieu of monthly pension based on percentage of pension agreed to be commuted. Ø It is entirely exempted in hands of government employee and proportionately in hands of non-government as notified u/s 10(10A). | Ø It is periodic monthly pension received by an assessee. Ø It is taxable for both government as well as non-government employees.(Sec 17) |
- AOP and BOI
| AOP | BOI |
| Ø Any person can be a member in an association of persons. Ø An AOP does not mean any and every combination of persons. It is only when they associate themselves with a common objective of carrying on an income producing activity they become an AOP. Ø There must be a common desire, combined will and meeting of minds on common objective to constitute an association of persons. Common interest or title coupled with production of income is not enough. | Ø Only individuals can be members in a body of individuals. Ø In the case of a body of individuals such common will and desire is lacking and it is formed by operation of law. Ø When an individual who carried on business died and his widow continued the business as a single unit on her behalf and on behalf of three minor children, the business was assessable in the status of 'body of individuals'. The widow could not insist that the income of the joint venture (business) must be assessed separately on the minors and on her. A profit-yielding joint venture has to be taxed as a single unit – Meera and Company Vs. CIT. |
- Specified and non-specified employee
| SPECIFIED EMPLOYEE | NON-SPECIFIED EMPLOYEE |
| The following are the specified employees for the purpose of section 17(2)(iii): Ø A director employee of employer company. Ø An employee who has substantial interest in the employer company. Ø An employee (not covered by above) whose income under the head 'Salaries', excluding the value of all non-monetary benefits and amenities, exceeds Rs.50,000. While computing the limit of Rs.50,000, the following are deducted / excluded: a. All non-monetary benefits; b. Monetary benefits which are exempt under Sec.10; c. Deduction for entertainment allowance [sec.16 (ii)] and profession tax [sec.16 (iii)]. Ø In case of specified employee all perquisite shall be taxable. | Ø If an employee ceases to be an specified employee since he fails to satisfy the listed conditions he will be regarded as non-specified employee. Ø In case of non-specified employee only perquisite in respect where obligation of an employee met by employer would be taxable. |
- Resident and Non-resident
| Resident | Non-Resident |
| Ø In case where the assessee satisfies both the basic conditions. Ø Once an assessee becomes a resident he will be classified as resident and ordinary resident or resident but not ordinary resident based on he fulfilling additional conditions. Ø | Ø In case where the assessee fails to satisfies both the basic conditions. Ø Additional conditions are not applicable for a non-resident assessee. |
V. Answer the following with reasons (Any five) (5X7 = 35 marks)
1. a. During the previous year 2010-11, X a foreign citizen, stayed in India for just 69 days. Determine his residential status for the assessment year 2011-12 on the basis of the following information:
(i) During 2007-08, X was present in India for 365 days.
(ii) During 2004-05 and 2003-04, X was in Japan for 359 and 348 days respectively and for the balance period in India.
Ans:
An individual is said to be resident in India in any previous year if he fulfils any one of the following two basic conditions:
i) He is in India in that year for a period or periods amounting in all to 182 days or more;
ii) He is in India for a period or periods amounting in all to 60 days or more during the previous year and 365 days or more during the 4 years preceding that previous year.
Since Mr.X stays only for 69 days in relevant previous year 1st basic condition is not satisfied. He satisfies 2nd basic condition of 60 or more in RPY and 365 days in 4 PPY.
Hence he is a resident.
Mr.X to be regarded as RNOR he should satisfy either of the additional condition:
a) he has been a non-resident in India in 9 out of the 10 preceding previous years; (OR)
b) he has been in India for a period not exceeding 729 days during the 7 preceding previous years.
Mr .X has already stayed for:
| Year | No of days stay |
| 2007-08 | 365 |
| 2004-05 | 359 |
| 2003-04 | 348 |
| Total | 1072 |
Hence, he fails to satisfy either of the additional condition. His residential status for assessment year 2011-12 is resident and ordinary resident. (ROR) .
b. Explain the deduction available u/s 35 w.r.t Scientific research under IT Act.
Ans:
Deduction for Scientific research
Expenditure on In- House Payment to scientific research Deduction for
Research Company companies in special
Business
1. Expenditure on In-house research: The following expenditures shall be allowed as deduction
a) Current year Expenditure:
Current year revenue or capital expenditure on scientific research.
b) Prior period Expenditure:
Prior period revenue or capital expenditure incurred during 3 years immediately preceding the date of commencement of business will be allowed as deduction in the previous year in which the assessee commenced the business.
c) Expenditure on Land:
The expenditure on acquisition of land shall not be allowed as deduction.
d) Allowability of Depreciation:
Any amount of capital expenditure claimed u/s 35 is not eligible for depreciation u/s 32.
2. Payment to Scientific Research company:
An amount equal to 175% of sum paid to any company engaged in scientific research including associations engaged in social science and statistical research shall be eligible for deduction subject to following conditions:
- The company should be approved by the prescribed authority.
- The main objects of the company shall be scientific research and development.
3. Deduction for companies in specified business: Sec 35(2AB)
(a) In case of a company engaged in the business of manufacture or production of the article or thing other tan those specified in eleventh schedule are eligible for 200% of the expenditure on scientific research shall be allowed as deduction.
Aerated waters used in concentrates, synthetic essence etc, beers, wine & other alcoholic spirits, confectionaries & chocolates, cosmetics & toilet preparations.
Tobacco and tobacco preparations, tooth paste, dental cream, tooth powder & soaps.
(b) The cost of land shall not be allowed as deduction.
(c) Cost of building is entitled only for 100% deduction and not for weighted deduction.
(d) No deduction shall be allowed in respect of expenditure incurred after 31.03.2012.
4. Contribution for research:
| Purpose | Recipient | Deduction | Conditions |
| Scientific research, social or statistical research or research in social science | Any scientific research organization. University, college or institutions approved for this purpose. National laboratory or university or Indian Institute of Technology Company registered in India and having main object as scientific research and development. | 175% of the amount paid 125% of the amount paid | 1.The association, university or college should be approved 2. The same shall be notified in official gazette. |
2. a. The following are the particulars of Income of R for the previous year 2010-11:
Particulars Amount
1. Capital gain on sale of property at Delhi received in USA 1,80,000
2. Income from business in USA controlled from Delhi 2,20,000
3. Income from a business in Bangalore controlled from USA 3,80,000
4. Rent from property in USA received there but remitted to India
at later date 6,00,000
5. Interest from deposits with an Indian company received in USA 40,000
6. Profits for the year 2009-10 of a business in USA remitted to
India during the previous year 2010-11 (Not taxed earlier) 1,75,000
7. Gifts received from parents 4,45,000
8. Interest payable by Indian government for use of Royalty rights 1,00,000
Compute his income for assessment year 2011-12 if he is a :
(1) resident and ordinarily resident
(2) Resident but not ordinarily resident
(3) Non-resident
Ans:
Computation of total income of Mr.R for AY 2011-12
| Particulars | ROR | RNOR | NR |
| 1. Capital gain on sale of property at Delhi received in USA | 1,80,000 | 1,80,000 | 1,80,000 |
| 2. Income from business in USA controlled from Delhi | 2,20,000 | 2,20,000 | ---- |
| 3. Income from a business in Bangalore controlled from USA | 3,80,000 | 3,80,000 | 3,80,000 |
| 4. Rent from property in USA received there but remitted to India at later date | 6,00,000 | ----- | ----- |
| 5. Interest from deposits with an Indian company received in USA | 40,000 | 40,000 | 40,000 |
| 6. Profits for the year 2009-10 of a business in USA remitted to India during the previous year 2010-11 (Not taxed earlier) | ---- | ---- | ---- |
| 7. Gifts received from parents (Since capital receipts) | ----- | ---- | ---- |
| 8. Interest payable by Indian government for use of Royalty rights | 1,00,000 | 1,00,000 | 1,00,000 |
| Total Income | 15,20,000 | 9,20,000 | 7,00,000 |
Note:
Ø Past untaxed profits do not qualify as current year Income. Hence , not taxable in all 3 criteria's.
Ø Gifts received qualify as capital receipts not as Income of the recipient.
b. Explain the perquisite valuation with respect to educational facility provided by the employer.
Ans:
§ Where the educational institution is maintained and owned by the employer(or)
§ Where such free educational facilities are allowed in any other institution by reason of his being in that employment,
| Perquisite = Reasonable cost of such education in a similar institution. |
§ (if the cost of such education or the value of such benefit per child does not exceed Rs.1,000 per month, nothing shall be taxed as a perquisite)
3. X was employed with ABC Ltd and retired from the services on 01-01-2011 after rendering a service of 26 years and 8 months. At the time of retirement he received gratuity of Rs.3,30,000 and leave encashment was Rs.1,85,000. Employer offers 45 days leave for each completed year of service. Leave to the credit (as per employer terms) is: 15 months. His last drawn salary comprises of Basic: 24,500 and DA: 3,500 (60% forms part of retirement benefits). Salary before 6 months was Basic: 24,000 and DA stands at same amount. He received proceeds from RPF: Rs.3,25,000. Compute the taxable salary for assessment year 2011-12.
Ans:
Computation of taxable salary of Mr.X for assessment year 2011-12
| Particulars | | Amount |
| Basic DA Gratuity Leave encashment Recognized PF | (24,500X6+24,000X3) 3,500X9 (W.N.I) (W.N.II) 3,25,000 Less: Ex u/s10(12) 3,25,000 | 2,19,000 31,500 NIL 1,32,200 NIL
3,82,700 |
W.Note 1: a. Taxable Gratuity (covered by POGA)
| Particulars | Rs |
| Actual Gratuity received Less: Exempt u/s 10(10) to extent of least of the following: 1. Rs.10,00,000 2. 15/26 X 26,600 X 27 = 4,14,346 3. 3,30,000 Taxable gratuity | 3,30,000 3,30,000 NIL |
Salary means: (24,500+3,500*60%) = 26,600
b. Taxable Gratuity (Not covered by POGA)
| Particulars | Rs |
| Actual Gratuity received Less: Exempt u/s 10(10) to extent of least of the following: 1. Rs.10,00,000 2. ½ x26400X26 = Rs.3,43,200 3. 3,30,000 Taxable gratuity | 3,30,000 3,30,000 NIL |
Average Salary = (24,500X6+24,000X4+3,500*60%X10) = 26,400
10
W.Note 2: Leave encashment:
| Total leave eligible on the basis of one month for each completed year of service Leave taken: As per employer's Rule : 1.5X 26 = 39 months Less: Leave to the credit : 15 months Leave to his credit ( calculated as per IT rules) (26M-24M) Average of last 10 months salary Cash equivalent of leave to the credit | 26 months 24 months 2months 26,400 52,800 |
| Particulars | Rs. | Rs. |
| Actual leave salary Less: Exempt u/s.10(10AA) to the extent of least of the following: 1.Cash equivalent of leave to the credit of employee at the time of retirement 2. 10 months salary – Rs.26,400 x 10 3. Amount notified 4.Actual leave salary Taxable leave salary Rs. | 52,800 2,64,000 3,00,000 1,85,000 | 1,85,000 52,800 1,32,200 |
4. Mr. Shamshad sells his house property, acquired in 1975 for Rs.2.5 lacs, for a consideration of Rs.80 lacs in April, 2010. Cost of improvement incurred for this property in June 1985 was Rs.1.5 lacs and in August 2000 was Rs.3 lacs. Expenses incurred for effecting sale is Rs.1.5 lacs. He acquired a new house property during September for a consideration of Rs.10 lacs. Compute the taxable capital gains by assuming that the fair market value as on 1.4.81 at Rs.10 lacs for assessment year 2011-12.
Ans:
Computation of taxable capital gains for the A.Y. 2011-12
| Particulars | Rs. | Rs. |
| Sale consideration Less: Expenses incurred Net consideration Less: Indexed cost of acquisition (10,00,000 x 711 / 100) Indexed cost of improvement :(1,50,000 x 711 / 133)= 8,01,880 :(3,00,000x 711/ 406) = 5,25,370 Long term capital loss | 71,10,000 13,27,250 | 80,00,000 1,50,000 78,50,000 84,37,250 (5,87,250) |
Note:
¨ The long term capital loss can be carried forward for a period of 8 assessment years.
¨ He is entitled for exemption u/s 54, Since he has purchased the new residential house within 6 months from date of original transfer.
5. R is engaged in business of transportation of goods. On 01-04-2010 the WDV of his various assets are furnished below:
| Particulars | Rate of depreciation | Amount |
| A. Office building (2nos) B. Commercial vehicles(6 nos) C. Car (3 nos) | 10% 30% 15% | 9,20,000 30,50,000 2,10,000 |
During the year, he sold one of the commercial vehicles which was over 15 years old for Rs.60,000. It was replaced by another vehicle at the cost of Rs.9,00,000 on 01-11-2011. A new motor car was purchased on 16-10-2010 for Rs.3,50,000. on 15-03-2011 one of the existing motor car was disposed for Rs.55,000. Compute the allowable depreciation u/s 32.
Ans:
Total admissible depereciation = 92,000 + 10,32,000 + 49,500 = 11,73,500
| Particulars | Block A (10%) Office building | Block B (30%) Comm vehicles | Block C (15%) Car |
| Opening WDV of the block Add: additions Carrying value of the block Less: Disposals Closing value of the block Less: Depreciation Closing WDV of the block | 9,20,000 ---- 9,20,000 ---- 9,20,000 ( 92,000) 8,28,000 | 30,50,000 9,00,000 39,50,000 (60,000) 38,90,000 (10,32,000) 28,58,000 | 2,10,000 3,50,000 5,60,000 (55,000) 5,05,000 (49,500) 4,55,500 |
W.Note: Depreciation admissible for Block B and Block C:
1,35,000 (9,00,000 @30%@50%)
(i) Block B: 38, 90,000
8,97,000 (29,90,000 @ 30%)
10,32,000
26,250 (3,50,000 @ 15%@50%)
(ii) Block C : 5,05,000
23,250 (1,55,000 @ 15%)
49,500
6. Dushyanth was employed with XY Ltd on a basic salary of Rs.5000 per month. He is also entitled to dearness allowance @ 60% of basic salary, 50% included for retirement benefits. The company gives HRA of Rs.3000 per month which was increased to Rs.3500 per month w.e.f 01-02-2011. He also got an increment of Rs.500 in his basic salary w.e.f 01-02-2011. Rent paid by him during the previous year 2010-11 is as under:
April and May, 2010 – Nil, as he stayed with his parents
June to October, 2010 – Rs.3000 for an accommodation at Ghaziabad
November, 2010 to March,2011 – Rs.4000 per month for an accommodation in Delhi.
Compute the gross salary for assessment year 2011-12.
Ans:
Computation of taxable salary of Dushyanth for AY 2011-12
| Particulars | Amount |
| Basic(5000X10+5500X2) DA (5000 X30%X10+5500X30%X2) HRA (W.Note) Taxable salary | 61,000 18,300 9,250 88,550 |
W.Note:
| Month | Computation | Amount |
| Apr'10& May'10 | 3000 X 2 (Fully taxable since stays in own accommodation) | 6,000 (A) |
| June'10 to Oct'10 | Actual HRA:(3000 X 5) Less: Exempt u/s 10(13A): (i) Actual : (3000 X5) :15,000 (ii) 40% of salary (40% of 32,500) : 13,000 (iii) (3000X5-3,250) : 11,750 WEL Taxable HRA Salary = Basic + DA(forming part of retirement benefits)+commission = {5000 + 1,500 (5000*60%*50%)}5= 32,500 | 15,000 11,750 3,250 (B) |
| Nov'10 to Mar'10 | Actual HRA:(3000 X 3+3500X2) Less: Exempt u/s 10(13A): (i) Actual : :16,000 (ii) 50% of salary (40% of 34250) : 17,125 (iii) (4000X5-3,425) : 16,575 WEL Taxable HRA Salary = Basic + DA(forming part of retirement benefits)+commission = {5000X3+5500X2+8250)= 34,250 | 16,000 16,000 NIL (C) |
Taxable HRA = 6,000 + 3,250 + NIL = 9,250
7. a. Siddharth , is employed with Xansa Ltd and the details of his salary and allowances are as under:
| Particulars | Amount |
| Basic pay House rent allowance City compensatory allowance Reimbursement of medical expenses (Incl Rs.8,000 spent in a government hospital) | 50,000 p.m 12,000 p.m 300 p.m 24,000 p.m |
He is given a motor car of 1400 cc engine capacity and is entitled to use it both for office and private purposes. He is also given the facility of driver w.e.f 01-10-2010. He is also provided with facility of gardner and watchman by his employer for which employer pays Rs.500 p.m to each such employee. 500 shares of face value Rs.10 each given to him free of cost under ESOP. The market value of the shares is Rs.10,000.
He contributes 15% of his salary to recognized provident fund to which employer contributes a similar amount. Interest credited to RPF @12 % p.a is Rs.84,000. The company has taken a personal accident policy for which annual premium of Rs.1,500 is paid by the employer.
Compute the taxable salary of Mr.Siddharth for assessment year 2011-12.
Ans:
Computation of taxable salary of Mr. Siddharth for assessment year 2011-12
| Particulars | | Amount |
| Basic HRA CCA Employer's contribution to PF in excess of 12% Interest on RPF in excess of 8.5% Perquisites: (i)Reimbursement of medical expenses (ii) Motor car: > 1.6CC : Running & maintenance : 2400X12 : Drivers salary : 900 X 6 (iii) Gardner & watchman sal : (500X2) (iv) ESOP (v) Insurance premium paid Taxable salary | 50000 X 12 12000 X 12 300 X 12 (6,00,000 X 3%) (84,000 X3.5/12) (24,000 – 8,000 -15000)X12 Fair mkt val since shares allotted free of cost Perquisite u/s 17(2) | 6,00,000 1,44,000 3,600 18,000 24,500 12,000 34,200 12,000 10,000 1,500 8,59,800 |
b. Maintenance of books of accounts u/s44AA
Ans:
Sec. 44AA: MAINTENANCE OF BOOK OF ACCOUNTS
| Specified Professional | Others |
- Assesee carrying on profession of law , medicine, accountancy, architecture, technical consultancy, film artists, IT professionals
- Limit: where the gross receipts exceed Rs.1,50,000 in all the prior three years or during the current previous year in which the business is commenced.
| 1.Where the income from business or profession exceeds Rs.1,20,000 in any of the three preceding previous years or likely to exceed during the current previous year (or)Where the turnover or sales or gross receipts exceed Rs.10,00,000 in any in any of the three preceding previous years or likely to exceed during the current previous year(or) declaring lower income than as prescribed u/s 44AD/44AE/44AF/44BB/44BBB |
BOOKS TO BE MAINTAINED:
To be maintained by all professional assesees:
(a) cash book
(b) ledger
(c) Journal
(d) Bills and vouchers.
(e) Copies of bills exceeding Rs.25.
In addition to those mentioned above doctors have to maintain:
(1) Daily case register (form 3C),
(2) Medicine inventory Register
PERIOD TILL WHICH BOOKS ARE TO BE MAINTAINED: 6 years
NON- MAINTENANCE OF BOOKS OF ACCOUNTS:
Penalty for non-maintenance is subject to penalty u/s 271 A amounting to Rs.25, 000.
PART - C
Answer any Two of the following (2X 15 = 30 marks)
1. Sanjay is employed with ABC Ltd. He submits the following particulars of his salary income:
(i) Basic salary 30,000 p.m
(ii) Dearness allowance 15,000 p.m
(iii) A company owned accommodation is provided at varnasi (population 16 lakhs)
(iv) Free use of computer for his son studying in a school. The computer was purchased by the company on 01-06-2010 for Rs.1,00,000 and it was sold to Sanjay for Rs.15,000 on 05-11-2010.
(v) The company had given him a loan of Rs.6,00,000 on 01-06-2010 for wedding of his daughter. The entire loan is still outstanding (SBI Interest is 12% p.a)
(vi) Free food in office for 300 days. The value per meal is Rs.70.
(vii) Gift of watch on annual foundation of company valued at Rs.16.000.
(viii) The company had purchased a motor car on 05-04-2006 for Rs.10,00,000 and it was sold to sanjay for Rs.2,10,000 on 02-04-2010. Car is not used by sanjay.
(ix) The company had purchased video camera for Rs.1,20,000 on 01-06-2007 which Sanjay has been using for his personal purposes then. The camera was sold for Rs.50,000 on 01-11-2010.
Compute his gross salary for the assessment year 2011-12.
Ans:
Computation of taxable salary of Mr. Sanjay for assessment year 2011-12
| Particulars | | Amount |
| Basic salary DA Perquisites: 1. Rent free accommodation 2. perk on usage of moveable asset (Computer) 3.perk on transfer of moveable asset (Computer) 4. Value of concessional loan 5. Free meal 6.Gift of watch 7. Transfer of motor car 8. Video camera: Usage: Transfer: Total salary | 30,000 X12 15,000 X 12 W.Note 4 W.Note 1 W.Note 1 (6,00,000 X12%X 10/12) (70-50)X 300 Exempt up to Rs.5000 (16,000 – 5,000) W.Note 2 1,20,000 X10%X 7/12 W.Note 3 | 3,60,000 1,80,000 54,000 4,167 64,167 60,000 6,000 11,000 1,99,600 7,000 NIL 9,45,934 |
Working Note 1: Perquisite on usage and transfer of moveable asset (Computer)
Usage:
From 01/06/2010 – 31/10/2010
1, 00,000 X 10% X 5/12 = 4167
Transfer:
Date of purchase: 01/06/2010
Value of asset: 1, 00,000
Rate of depreciation: 50%
Amount of depreciation: 1, 00,000 X50%X 5/12 = 20,833
WDV as on date of transfer : 79,167
Less : Amount paid by Mr.sanjay : 15,000
Value of perquisite 64,167
Working Note 2: Perquisite on transfer of moveable asset (Motor car)
| Year | Value | Depreciation@20% | WDV |
| 2006-07 2007-08 2008-09 2009-10 | 10,00,000 8,00,000 6,40,000 5,12,000 | 2,00,000 1,60,000 1,28,000 1,02,400 | 8,00,000 6,40,000 5,12,000 4,09,600 |
Value as on 01-04-2010 : 4, 09,600
Less: Amount recovered: 2,10, 000
Value of perquisite 1,99,600
Working Note 3: Perquisite on transfer of moveable asset (Video camera)
| Year | Value | Depreciation@50% | WDV |
| 2007-08 2008-09 2009-10 2010-11 | 1,20,000 60,000 30,000 15,000 | 60,000 30,000 15,000 4375 (7 months) | 60,000 30,000 15,000 10,625 |
WDV as on date of Transfer: 10,625
Less: Amount recovered : 50,000
Value of perquisite NIL
Working Note 4: Value of RFA:
Salary = Basic + DA
= (30,000 X12) + (15,000 X 12) = 5, 40,000
RFA @ 10 % of salary since population is 16lacs = 10 %( 5, 40,000)
= 54,000
2. Mr.satish owns 3 residential house and the details of the same are furnished there under:
House I House II House III
Nature of property Let-out Self-occupied Self- occupied
Standard rent 1,30,000 96,000 75,000
Fair rent 2,20,000 2,10,000 2,25,000
Municipal valuation 2,15,000 2,18,000 2,40,000
Actual rent 27,500/pm --- ---
Municipal taxes paid 2,400 3,000 5,400
Repairs Nil 3,000 6,000
Ground rent 1,500 ---- 4,500
Loan borrowed 2,00,000 3,00,000 4,00,000
Date of loan 01-07-2005 01-04-2006 01-10-2007
Rate of Interest 10.5% 9.75% 10.25%
Date of commencement of constn 01-12-2005 01-07-2006 01-02-2008
Date of completion 01-10-2008 01-05-2009 01-01-2011
Computation of Income from house property for assessment year 2011-12.
Ans:
| Particulars | Option I | Option II |
| House II Self occupied Rs. | House III Deemed let out Rs. | House II Deemed let out Rs. | House III Self occupied Rs. |
| Gross Annual Value Less: Municipal tax paid Net Annual Value Less: Deduction u/s.24 30% of net annual value Interest on loans Income from House Property | Nil --- Nil --- 30,000 (30,000) | 75,000 5,400 69,600 20,880 61,500 (12,780) | 96,000 3,000 93,000 27,900 46,800 18,300 | Nil --- Nil --- 30,000 (30,000) |
| Net effect | Loss: (42,780) | Loss: (11,700) |
OPTION I IS FAVOURABLE:
COMPUTATION OF INCOME FROM HOUSE PROPERTY
| particulars | House I let out | House II Self occupied | House III Deemed let out |
| Gross Annual Value Less: Municipal tax paid Net Annual Value Less: Deduction u/s.24 30% of net annual value Interest on loans | 3,30,000 2,400 3,27,600 98,280 32,550 | Nil --- Nil --- 30,000 | 75,000 5,400 69,600 20,880 61,500 |
| Income from house property | 1,96,770 | (30,000) | (12,780) |
W.Note 1: Computation of GAV :
| Particulars | HP I | HP II | HP III |
| A: Fair rent or Mun valn WEH B: Result of step 1 or Std rent WEL C : Result of step 2 or Actual rent WEH | 2,20,000 (or) 2,15,000 = 2,20,000 2,20,000 (or ) 1,30,000 = 1,30,000 1,30,000 (or ) 3,30,000 = 3,30,000 | 2,10,000(or) 2,18,000 = 2,18,000 2,18,000 (or) 96,000 = 96,000 NA | 2,25,000 (or) 2,40,000 = 2,40,000 2,40,000 (or) 75,000 = 75,000 NA |
W.Note 2: Computation of Interest on housing loan:
| Particulars | HP I | HP II | HP III |
| Amount of Loan Date of loan Rate of Interest Date of comm of constn Date of completion Pre-constn period (PCP) No of Months Annual Interest PCP Interest PCP allowable in 5 inst Allowable Interest (PCI+ Current year interest) | 2,00,000 01-07-2005 10.5% 01-12-2005 01-10-2008 01-07-05 - 31-03-08 33 M 21000 21000 X 33/12: 57,750 11,550 32,550 (11550+21000) | 3,00,000 01-04-2006 9.75% 01-07-2006 01-05-2009 01-04-06- 31-03-09 36M 29250 29250 X 36/12 : 87,750 17,550 46800(17550+29250) | 4,00,000 01-10-2007 10.25% 01-02-2008 01-01-2011 01-10-07-31-03-10 30M 41000 41000 X 30/12: 1,02,500 20,500 61500(20500+41000) |
3. M/s. ABC industries, is a partnership firm. The following particulars are for the previous year relevant to the assessment year 2011-12:
Profit and Loss account for the year ending March 31st' 2011
Rs Rs
Salary to staff 13,000 Gross profit 2,75,000
Salary to partners: Income tax refund 5,500
Jaswanth: 60,000 Interest on fixed deposit 4,500
Singh : 30,000 90,000 Bad debts recovered
Staff welfare expenditure 6,000 (previously not allowed as 750
General expenses 36,500 deduction)
Bad debts 3,000
Fire insurance 4,000
Advertisement expenses 11,000
Interest on Partner's capital:
A: 10,000
B 6,500 16,500
Interest on loan paid to Financial
Institution 4,250
Expenditure on acquisition
Of a Know-how on 1st march'11 2,800
Depreciation on other business assets 16,000
Provision for Income tax 3,000
Contribution to a political party 1,500
Payment to a scientific research
Institution for carrying out scientific
Research 6,250
Net profit 71,950
2,85,750 2,85,750
Other information:
1. Salary to a staff include salary paid to a relative which is unreasonable to the extent of Rs.3, 500.
2. General expenses include an amount of Rs.25,000 paid in cash.
3. Interest on partner's capital is paid at 15%.
4. One of the partners Mr. Singh is a Non-working partner.
5. Interest on loan paid to financial institution is paid on 1st October'2011.
Compute the taxable business income of the firm for the assessment year 2011-12.
Ans:
Solution:
Taxable business income of M/s. Jaswanth industries for the AY 2011-12
| Particulars | Rs. | Rs. |
| Net profit as per Profit & Loss account Add: Disallowances/Inadmissible expenses /Income to be accounted: Salary to partners (Sec 40(b)) Salary to staff being relative disallowed to extent unreasonable: sec 40A(2) Interest on partner's capital (15%-12%) Interest on loan paid to financial institution Expenditure on acquisition of Know-how (refer note) Provision for Income-tax Contribution to political parties Payment to scientific research Institution for carrying out scientific Research General expenses paid in cash: Sec 40A(3) Less: Income to be excluded /Expenses not accounted: Income tax refund: 5,500 Interest on FD: 4,500 Bad debts recovered: 750 Depreciation for Know-how 350 Contribution to scientific research Institution @ 175% 10,938 Book profit Less: Salary allowable as per sec 40b(refer w.note) Taxable business profit | 90,000 3,500 3,300 4,250 2,800 3,000 1,500 6,250 25,000 | 71,950 1,39,600 (22,038) 1,89,512 (60,000) 1,29,512 |
Working note:
1. Depreciation on Know-how computed @ 50% of original rate of 25% specified for intangibles since date of acquisition is 1st march'2011.
(2800*25%*50%) = Rs.350
2. Salary allowable to partners u/s 40b:
On first Rs.3,00,000 Rs.1,50,000 (or) 90% of book profit whichever is higher
Step 1: Book profit is Rs 1,89,512 . Therefore, salary allowable to working partners as per sec 40b is : Rs.1,50,000 or 90% of Rs.1,89,512 i.e Rs.1,70,560 i.e Rs.1,70,560
Step 2: salary actually paid to working partner i.e Rs.60,000
Step 3: Result of step 1 or step 2 whichever less i.e Rs.60,000
Since, Mr.singh is a non-working partner, salary payable to him is permanently disallowed.
3. Income tax/provision for income tax is a personal expenditure and hence not allowable.
4. Interest on loan paid to financial institution is disallowed since it has been paid after due date of filing return of income.(Sec 43B). It would be an allowable expenditure in the next assessment year.
5. Income tax refund is not an income.
6. Interest on FD would come under "Income from other sources"
7. Bad debts recovered is not treated as business income since the bad debts was not allowed as deduction in earlier year in computing business income.
