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CMA June 2013
Direct Tax
FULLY SOLVED,ANALYSED &
EXPLAINED BY
CS K.K. AGRAWAL
as per AY 2013-14
From last 6 attempts
this book has proved
that 100% questions
can be attempted with
ease.
Question 1 is compulsory.
Attempt any 5 questions from the remaining 8 questions
25 + (15 x 5) = 100
Q.N Marks Topic. (PGBP 21.5%) P 33% | T 67%
1.
25
a. 13 Multiple type questions Theory
b. 12 Fill in the blanks Theory
2.
15
a. 3 RS of Individual. Section 6(1) & (6) Practical
b. 7 Incidence of Tax. Section 5 & 9 Practical
c. 5 Other Sources. Section 56(2) Theory
3.
15
a. 8 Income from House Property. Good question Practical
b. 4 Rates of tax. Good question Practical
c. 3 Tax deducted at source Theory
4.15
a. 5 Wealth Tax Practical
b. 5 Assessment procedure, Appeals & Revision Theory
c. 5 Charitable Trusts Practical
5.
15
a. 5 Business or profession Theory
b. 5 Section 10 Theory
c. 5 DTAA Practical
6.
15
a. 4 HRA Practical
b. 4 Advance Tax Theory
c. 3 TDS Theory
d. 2,2 Presumptive basis of taxation Theory & Practical
7.
15
a. 2 Agricultural Income Theoryb. 3 Business or Profession Theory
c. 10 Business or Profession Theory
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8.
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a. 2 Penalty Theory
b. 2 Deduction u/s 80GGC Theory
c. 3 Clubbing of Income Theory
d. 2 Salary Theory
3 6 Business or Profession Theory
Question 1(a) 1 x 13 = 13
Choose the most appropriate alternative :-
(i) The basic Exemption limit for a female below the age of 60 years for the assessment year 2013-14 is
(A) 1,80,000 (B) 1,90,000 (C) 2,50,000 (D) 2,50,000
(ii) Under Rule 7A of the Income Tax Rules, the following % age of income from manufacture of Rubber
shall be deemed to be business income and liable to tax
(A) 15% (B) 25% (C) 35% (D) 50%
(iii) Interest is payable to assessee on Refund under the income Tax Act 1961 at the rate of
(A) 5% (B) 6% (C) 9% (D) 12%
(iv) The maximum penatly leviable for failure to keep or maintain books of account or document as required
u/s. 44AA of the Income tax Act 1961 is
(A) 50,000 (B) 75,000 (C) 1,00,000 (D) 1,50,000
(v) Tax on non-monetary benit paid by the employer is
(A) Fully taxable (B) Taxable to the
extent of 50%
(C) Taxable to the
extent of 60%
(D) Fully
exempted
from Tax.
(vi) Mr. A gifted jewellery worth Rs. 5 lakhs to his wife Mrs. A on 12th April 2012. Mrs. A in turn gifted
the said jewellery to Mrs. B, the wife of their son Mr. B on 25th May 2012. The value of the jewellery
as on 31st March 2013 is includible in the net wealth of
(A) Mr. A (B) Mrs. A (C) Mrs. B (D) Mr. B
(vii) The maximum amount of deduction from Gross Total Income available to an individual for interest on
savings bank deposit is
(A) 5,000 (B) 7,500 (C) 10,000 (D) 12,000
(viii) Loss from activity of outstanding and maintaining race horses can be carried froward for :
(Assessment years)
(A) 4 (B) 6 (C) 8 (D) 5
(ix) Annual value of house property if not let out is taken as....................
(x) No tax is deductible if the amount of rent credited or paid during the nancial year does not exceed
rupees ......................... u/s. 194 I of the Income Tax Act 1961.
(xi) When entire net consideration has been invested by an individual towards subscription of shares of an
eligible company the exemption u/s. 54GB of the Income Tax Act 1961 would be
(A) NIL (B) 10% of capital
gain
(C) 50% of
capital gain
(D) 100% of
capital gain
(xii) Amount received towards share application money when not properly explained it is
(A) taxable u/s. 68 (B) exempt
u/s. 10
(C) fully taxable but
deduction @ 50% u/s.
57(iii) is allowable
(D) None of the
above
(xiii) Book prot u/s. 115JB of a domestic company was Rs.50 lakhs. The tax liability of the company for
the assessment year 2013-14 would be
(A) 18.54% including
cess
(B) 19.055%
including
cess
(C) 20% including
surcharge @ 5%
(D) 19.43% including
cess & surcharge
@ 2%
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Solution 1(a) 1 x 13 = 13
Option Answers Option Answers
(i) (C) 2,00,000 (viii) (A) 4
(ii) (C) 35% (ix) - SOP - R : Nil. Vacant for whole year : Nil
(iii) (B) 6% (x) - 1,80,000
(iv) S 271A. Rs. 25,000 (xi) (D) 100% of capital gain
(v) (A) Fully exempt (xii) (A) Taxable u/s 68
(vi) (A) Mr. A (xiii) (B) 19.055%
(vii) (C) 10,000
Question 1(b) Answers
(i) Any sum paid to an approved university, college or other institutions u/s. 35(1)(iii) of
the Income Tax Act 1961 the allowed deduction is.......................... (100% / 125%)125%
(ii) Interest payable to a partner by a rm shall not exceed ....... (18% / 12%)per annum. 12%
(iii) An assessee ............................... (can / cannot) spread over the arrears of rent over the
past several years. cannot
(iv) Chapter VI - A deduction ...................................... (shall / shall not) be allowed in
respect of income from short term capital gain.shall not
(v) Dividend receives by an Indian Company on shares of a Foreign Company is
............................. (taxable / exempted)exempted
(vi) Salary received by Mr. P a foreign national & a non resident outside India for services
rendered in India for 150 days is ................ (chargeable / not chargeable) to tax in Indiachargeable
(vii) Deduction for provision for bad and doubtful debts made by public nancial institution
is allowed upto ............................ % of total income before allowing such deduction
and deduction under chapter VIA.
20%
(viii) Z. Ltd. awarded three contracts for repair work of Rs.22,000, Rs.23,000 and 30,000respectively to L.Ltd. in the year 2012-13. Z. Ltd. is .......................... (required /not
required) to deduct tax at source under section 194C of the Income Tax Act 1961.
not
required
(ix) In case of slump sale of any undertaking indexation benet is ................................
(allowed/not allowed) for the purpose of computation of capital gainnot
allowed
(x) Annual value of any one palace in the occupation of a former ruler is ....................... exempt
(xi) A charitable trust must apply atleast ........... percent of its income towards its objects. 85%
(xii) The time limit for issue of notice to assets the income in relation to assets located
out side India for reassessment purpose is ........ years from the end of the relevant
assessment year.
16 years
Question 2(a)
Mr. Jeff , a citizen of USA came to India for 80 days, 90 days, 110 days and 130 days in the nancial years
2009-10, 2010-11, 2011-12 and 2012-13 respectively. Determine his residential status for the AY 2013-14.
Solution 2(a)
Previous Year No. of days present in India
2012-13 130
2011-12 90
2010-11 80
Mr. Jeff is a foreign citizen therefore he will not fall in exception to the basic condition. Both condition isrequired to be checked. Mr. Jeff do not satisfy 182 days condition. He satises 60 days condition but in last
4 years Mr. Jeff is not present in India for 365 days. Therefore he do not satisfy 2nd basic condition also.
Therefore his RS is Non Resident.
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Question 2(b)
Compute the total income of Mr. Taylor, UK citizen and non-resident for the Assessment Year 2013-14 from the
following details furnished by him.
(i) Income from business carried out in Mumbai (60% received in USA) 5,00,000
(ii) Capital gain from sale of shares of Zenith Private Limited, an Indian company. Sale
proceeds were received in UK
3,50,000
(iii) Rent from a house property in New jersey collected there, but later remitted to Indian
through normal banking channel
12,00,000
(iv) Dividend received from MNO Limited , an Indian Company 2,50,000
(v) Royalty received in UK from PQR Limited , an Indian company for use of trade mark for
its business operation in India
6,00,000
(vi) Interest on loan received in UK from S & T Limited, an Indian company. The loan was
used by S & T Limited for its business carried on in Dubai.
3,00,000
Solution 2(b)
Non -Resident
(i) Indian Income 5,00,000(ii) Indian Income 3,50,000
(iii) Foreign Income -
(iv) Indian Income - Dividend income exempt from tax u/s 10(34). Nil
(v) Indian Income 6,00,000
(vi) Foreign Income -
Total Income 14,50,000
Question 2(c)
Write a note on how interest received by an assessee on delayed compensation or enhanced compensation is
taxed.
Solution 2(c)
Section 56(2). Interest received on delayed or enhanced compensation is taxed in the year of receipt under
the head Other Sources. Deduction allowed is 50% of interest irrespective of the expenditure incurred for
enhancement of compensation.
Question 3(a)
Mr. Sridhar constructed his house on a plot of land acquired by him in Kolkata . The house has two oors of
equal size. He started construction of the house on Ist April , 2011 and completed construction on 30th June,
2012 .He occupied the ground oor on 1st july ,2012 and let out the rst oor at a rent of Rs. 20,000 per month
on the same date. However, the tenant vacated the rst oor on 31st January, 2013 and Mrs. Sridhar occupiedthe entire house from Ist February, 2013 to 31st March, 2013.
Other Information
(i) Fair Rent of each oor 1,20,000 per annum
(ii) Municipal value of each oor 80,000 per annum
(iii) Municipal tax paid 10,000
(iv) Repair expenses 5,000
Mr Sridhar obtained a housing loan of Rs.15 lacs at interest of 10% per annum on 1st july 2011. He did not repay
any part of the loan till 31st March, 2013. Compute income from House Property in the hands of Mr. Shridhar
for the AY 2013-14.
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Solution 3(a)
First Floor Let out Rs. 20,000 p.m.
SOP - R : 2 months
Completion of construction : 30-6-2012 15 L @ 10% p.a.
Fair Rent : 1,20,000 | MV : 80,000 DOB : 1-7-2011
Ground Floor SOP - R : 12 months MT paid : 10,000 DOR : not paid
Computation of Interest on borrowed capital
Previous Year Interest Pre Interest Post Interest Total Interest2011-12 1,12,500 / 5 =
22,500
- - -
2012-13 1,50,000 22,500 1,50,000 1,72,500
2013-14 1,50,000 22,500 1,50,000 1,72,500
Computation of Income from House Property
Ground Floor (SOP - R) First Floor (Let out)
GAV nil Expected Rent of 12 months 1,20,000
Less : Interest on
borrowed capital.1,72,500 / 2 =
86,250
(86,250)
Expected Rent of 9 months 90,000
Actual rent of 7 months 1,40,000GAV 1,40,000
Less : Municipal Tax (5,000)
NAV 1,35,000
HP 1 (86,250) Less : Standard Deduction @ 30% (40,500)
Less : Interest on borrowed capital. 1,72,500 / 2 =
86,250 (86,250)
HP 2 8,250
Income from House Property : (78,000)
Question 3(b)
Mr. Rajput, aged 82 years gives you the following information for the previous year 2012-13:
(i) Interest on xed deposits with banks 4,80,000
(ii) Long- term capital gain on sale of land 50,000
(iii) Short-term capital gain on sale of shares (securities transactions tax paid) 20,000
Compute tax payable by Mr. Rajput for the AY in cases (i) he is resident; (ii) he is non - resident
Solution 3(b)
Computation of Total Income
Capital Gain
Long- term capital gain on sale of land 50,000
Short-term capital gain on sale of shares (securities transactions tax paid) 20,000
Income from Other Sources
Interest on xed deposits 4,80,000
Total Income 5,50,000
Working note if Resident
LTCG @ 20% STCG STT paid @ 15% Normal Income at slab rate
50,000 20,000 4,80,000
Basic Exemption (20,000) - (4,80,000)
Balance 30,000 20,000 -
Tax 6,000 3,000 nil
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Computation of Tax if he is Resident.
Tax on LTCG @ 20% on Rs. 30,000 6,000
Tax on STCG STT paid @ 15% on Rs. 20,000 3,000
Tax on Normal Income nil
Total Tax 9,000
+ Education cess @ 3% 270
Tax 9,270
Computation of Tax if he is Non Resident.
Tax on LTCG @ 20% on Rs. 50,000 10,000
Tax on STCG STT paid @ 15% on Rs. 20,000 3,000
Tax on Normal Income on Rs. 4,80,000 at slab rate 28,000
Total Tax 41,000
+ Education cess @ 3% 1,230
Tax 42,230
Note : Basic exemption advantage and tax concession advantage is not available to Non Resident.
Question 3(c)
State briey whether the following transaction require deduction of tax ay source:
(i) Payment of royalty of Rs. 5 lacs by P. Limited, an Indian Company to another Indian Company,
Q. Limited
(ii) Payment of interest of 7,500 by D. Limited, an Indian Company to M. Limited, an Indian Company
for delayed payment of sale proceeds.
(iii) Payment of 1,00,000 by a partnership rm, resident in India to Mr. L, resident contractor for
manufacturing a product as per requirement of the rm. The contractor used materials which were
purchased by him from a company.
Solution 3(c)
Section Rate of TDS & Amount of TDS
(i) Section 194J. 10% of 5,00,000 = 50,000
(ii) Section 194A. 10% of 7,500 = 750
(iii) This is not the case of Job Work since raw material is not supplied by the Customer.
Question 4(a)
The details of assets and liabilities as on 31st March, 2013 of a partnership rm consisting of two partners, Palak
and Nolak sharing prots and losses in the ratio of 3:1 is as follows:(i) Value of assets located outside India 45 lakhs
(ii) Value of assets located in India 120 lakhs
(iii) Debts incurred in relation to assets located in India 75 lakhs
Capitals of Palak and Nalok as on 31st March, 2013 are 20 lakhs and 10 lakhs respectively. Compute the value
of interest of the partners as on 31st March, 2013 for the purpose of wealth tax.
Solution 4(a)
Value of assets located outside India 45 lakhs
Value of assets located in India 120 lakhs
Less : Debts incurred in relation to assets located in India (75 Lakhs) 45 LakhsNet Wealth of the Firm 90 Lakhs
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Palak Nolak Total
Capital Contribution 20 L 10 L 30 L
Balance net wealth to be distributed in Prot Sharing Ratio 45 L 15 L 60 L
Net Wealth of Partner 65 L 25 L 90 L
Question 4(b)
State the time limit prescribed for passing the following orders under the Income Tax Act:
Particulars Solution 4(b)
(i) An order of assessment by the Assessing Ofcer under
section 143(3);
2 year from the end of relevant assessment
year. AY 3
(ii) An order of assessment by the assessing ofcer under
section 143(3), where reference has been made to
Transfer Pricing Ofcer for determination of arms
length price in international transactions.
3 year from the end of relevant assessment
year. AY 4
(iii) An order of assessment by the Assessing Ofcer under
section 147:
1 year from the end of nancial in which
notice u/s 148 is served.(iv) An order of revision by the Commissioner of Income
Tax under section 263:
2 year from the end of nancial year in
which assessment order is passed.
(v) An order by the Commissioner of Income Tax for
granting registration to a public charitable trust under
section 12AA.
6 month from the end of the month in
which application for registration is made.
Question 4(c)
Srinivas Charitable Trust registered under section 12AA of the Income Tax Act is engaged in providing medical
assistance to the physically challenged persons. The trust has furnished the following details relating to previous
year 2012-13:
(i) Net income from the properties help under trust 16,50,000
(ii) Voluntary Contribution (including donation 1,50,000 received with
direction from the donor that it would form part of corpus)
5,00,000
(iii) Financial assistance to physically challenged persons 9,50,000
(iv) Purchase of land for construction of ofce of the trust 4,00,000
Compute tax payable , if any, by the trust for the Assessment Year 2013-14
Solution 4(c)
Computation of Total Income of Charitable Trust
Net income from the properties help under trust 16,50,000
Voluntary Contribution (excluding corpus donation) 3,50,000
Total 20,00,000
Less : Deduction @ 15% 3,00,000
Less : Application of income (Financial assistance) 9,50,000
Less : Purchase of land 4,00,000
Income of trust 3,50,000
Computation of Tax of Charitable Trust
Tax on Total Income at slab rate on Rs. 3,50,000 15,000
+ Education cess @ 3% 450Tax 15,450
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Question 5(a)
Abhishek & Co. a partnership rm incurred the following expenses:
Particulars Solution 5(a)
(i) Salary paid to staff 12,00,000 of which two
employees were paid salary in excess of 2,00,000
each. No tax was deducted at source on those
salary payments.
Allowed. Restriction u/s 40(a)(ia) is not
applicable to payment made by way of
Salary.
(ii) Interest paid to bank on working capital limit
27,500. No tax was deducted at source.
Not allowed as per S 40(a)(ia).
(iii) Interest on capital paid to partners at 15% per
annum of 1,50,000. No tax was deducted on such
interest payment.
Deduction allowed @ 12% p.a. There is no
requirement of deduction of tax at source on
interest paid by Firm to its partners.
(iv) Payments made to contractors for job work
process 6,87,000. Two parties to whom payments
were 87,000 and 1,02,000 for which no tax
was deducted at source. The parties however
have agreed to admit the receipt in their income
statement and pay tax thereon.
Deduction is allowed. Restriction u/s 40(a)
(ia) is applicable. However the other parties
have admitted for payment of tax therefore
deduction is allowed.
(v) Rent paid for machinery 20,000 per month for 8
months. No tax was deducted at source on this
amount
Deduction is allowed since no tax is required
to be deducted at source as the rent do not
exceeds Rs. 1,80,000 in a nancial year.
Determine the allowability or otherwise of the above said expenses due to non deduction of tax at source.
Question 5(b)
Decide the exemption / taxability of following receipts / recipients:
Particulars Solution 5(b)
(i) Educational scholarship of 10,000 received from a charitable trust by acollege students.
Not taxable. Section 56(2).
(ii) Rental income earned by a registered trade union. Exempt u/s 10(24).
(iii) Co-operatives formed for promoting the interest of schedule tribes. Exempt u/s 10(27).
(iv) Dividend received from Indian companies by resident individuals and
tax on such dividend paid by the company u/s. 115-O .
Exempt u/s 10(34).
(v) Amount received by a non - resident towards compulsory acquisition of
urban agricultural land in India by Central Government.
Section 10(37).
Question 5(c)
Mr. Basu is an actor deriving income from contracts performed outside India 1,00,000. Tax of 20,000 wasdeducted at source in the country where the performances were given. India does not have any agreement with
that country for avoidance of double taxation. Assuming that Indian Income of Mr. Basu is 3,00,000 what is the
relief due to him under section 91 for the assessment year 2013 - 14 ?
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Solution 5(c)
Computation of total income Working note for computation of Relief u/s 91
Indian Income 3,00,000 1. Average Indian Income Tax =
Foreign Income 1,00,000 20,600
----------- x 100 = 5.15%
4,00,000Total Income 4,00,000
Computation of tax & relief u/s 91 2. Average Foreign Tax =
Tax as per slab rate 20,000 20,000
----------- x 100 = 20%
1,00,000+ Education cess @ 3% 600
Tax 20,600
Less : Relief u/s 91 (see note) (5,150) 3. Doubly taxed income = Rs. 1,00,000
Tax 15,450 4. Relief u/s 91 = 5.15% of 1,00,000 = 5,150
Question 6(a)
X a resident of Bengaluru receives 20,00,000 as basic salary. In addition he gets 6 lakhs as dearness allowance
(forming part of basic salary), 3.5% commission on sales made by him (sale made by X during the previousyear is 80,00,000); 2,40,000 is paid to him as house rent allowance . He however pays 2,80,000 as house rent.
determine the quantum of HRA exempt from tax.
Solution 6(a)
Salary for the purpose of HRA. (SAS) = BS + DA (not forming part of salary) + Commission (if)
Basic Salary 20,00,000
+ Dearness Allowance forming part of salary 6,00,000
+ Commission based on sales turnover 2,80,000
SAS 28,80,000
Computation of exemption of HRA
M 40% of SAS = 40% of 28,80,000 11,52,000 Least
is
exempt
Nil
is
exempt
A Actual HRA received 2,40,000
F Rent paid - 10% of SAS = 2,80,000 - 2,88,000 nil
Question 6(b)
Enumerate the conditions for exemptions of senior citizens from payment of advance tax u/s 44AD.
Solution 6(b)
If all the following conditions are satised then senior citizens are not required to pay advance tax.
a. An individual is aged atleast 60 years;
b. Such individual is resident in India; and
c. Such individual do not have any business income.
Question 6(c)
A company pays in August 2012, a remuneration of Rs. 50,000 to its Director, which is not in the nature of
salary. State whether tax has to be deducted from the payment and if so the amount to be deducted.
Solution 6(c)
Yes tax is to be deducted u/s 194J. Amount of TDS = 10% of 50,000 = 5,000.
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Question 6(d)(i)
State who are the persons not eligible to avail any benet u/s. 44AD.
Solution 6(d)(i)
Following persons are ineligible to avail any benet u/s 44AD.
a. If a person is Non Resident; or
b. If a person is a Company, LLP, AOP / BOI, Local Authority.
Question 6(d)(ii)
An assessee owns a light commercial vehicle for 8 months and 3 days, a medium goods vehicle of 11 months
and another medium goods vehicle for 12 months during the previous year. Compute his prots from the three
trucks in term of section 44AD.
Solution 6(d)(ii)
Light Commercial Vehicle 4,500 x 9 = 40,500
Medium Commercial Vehicle 4,500 x 11 = 49,500
Medium Commercial Vehicle 4,500 x 12 = 54,000
Total 1,44,000
Question 7(a)
State whether the following are agricultural income or non- agricultural
income.
Solution 7(a)
(i) Where owner himself performs slaughter tapping & them sells the
rubber.
100% Agricultural Income
(ii) Conversion of sugar cane into gur. 100% Non Agricultural
Income
Question 7(b)
In the course of assessment proceedings, the Assessing Ofcer enhanced the value of closing stock and added
the difference to the total income. In the assessment year subsequent to this, assessee wants the AO to enhance,
by the same amount, the value of the opening stock of the year. Discuss the validity of the claim.
Solution 7(b)
Validity of claim is justied. The value of enhanced closing stock shall be taken as value of opening stock of
next year.
Other Facts : Only for reading
Valuation of stock : Assessee has a choice to value at (i) cost (ii) market price (iii) cost or market value which-
ever is less (Chainrup Sampatram vs- CIT 24 ITR 481 SC). However it should be regularly employed.While applying the cost method, the cost is being determined through different modes i.e. FIFO method, LIFO
method, average cost method etc. once a particular mode is applied, the same should be applied regularly unless
change is bonade.
The above rule is subject to one exception that on discontinuation of business, it should always be valued at
market price. (ALA Firm-vs- CIT 189 ITR 285 SC)
Finished or semi nished goods (i) where cost method is applied then it should include all overhead ex-
penses otherwise it would give distorted picture (ii) merely because incorrect method was applied in past, the
AO would not be precluded from applying the correct method (British Paints India Ltd-vs-CIT 188 ITR 44 SC).
However, if closing stock is varied by the ITO then such varied value shall be treated as opening stock of
the next year irrespective of valuation disclosed in books.
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Question 7(c) : Please advise regarding admissibility of
the following items of expenditure:
Solution 7(c)
(i) Payment of interest of 40,000 on monies borrowed
from bank for payment of dividends to share holders.
Business expenditure therefore allowed.
(ii) 12,000 has expended for shifting of business from
the original site to another place which is more
advantageously located.
Capital Expenditure and hence not allowed.
(iii) Lump sum paid to acquire a licence regarding technical
information to reduce production cost.
Capital expenditure to acquire intangible
assets. Assessee can claim depreciation @
25%.
(iv) Expenses for registration of trademarks. Revenue expenditure and hence allowed.
(v) Theft of stock - in- trade assuming (a) it is insured (b)
it was uninsured
Allowed u/s 28 as a loss. If it is insured
insurance premium is charged under the head
Business Income.
Question 8(a)
What are the consequences if a person fails to comply with provisions of section 139A of the Income Tax Act,
1961?
Solution 8(a)
Section 272B: Penalty for failure to comply with the provisions of section 139A. Rs. 10,000.
Question 8(b)
What is the effect of contribution made by an individual to electoral trust on his taxable income?
Solution 8(b)
Simple answer : Contribution made by an individual to electoral trust is eligible for 100% deduction u/s 80GGC
which shall reduced his gross total income.
Do not write this 80GGB 80GGC
Applicable to Indian Company All assessee
Not applicable to Others Local authority & every articial juridicalperson wholly or partly funded by the Govt.
Contribution to Political party or Electoral Trusts Political party orElectoral Trusts
Amount of deduction 100% of contribution 100% of contribution
Question 8(c)
A, a mentally retarded minor has a total income of 2,40,000 for the assessment year 2013-14. The total income
of his father B and of his mother C for the relevant assessment year is 4,00,000 and 3,00,000 respectively.
Discuss the treatment to be accorded to the total income of A for the relevant assessment year.
Solution 8(c)
Income of mentally retarded minor child is covered u/s 80U. Hence his income shall not be clubbed in the hands
of parents. Instead it shall be taxable in the hands of minor child itself. He can claim deduction of Rs. 50,000
u/s 80U. He has to le his return of income since his gross total income exceeds basic exemption. The return of
income shall be in the name of minor child but signed by either of his parents.
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Question 8(d)
What are the conditions to be fullled by an employee to get his accommodation in a hotel that will not be a
taxable perquisite?
Solution 8(d)
a. He is transferred from one city to another city; andthen exemption is only for upto 15 days.
b. He is provided a accommodation in a hotel.a. He is transferred from one city to another city; and
b. He is provided a accommodation in a hotel.
then exemption is only for upto 15 days.
Question 8(e)
State the deductibility of the following expenses while computing
the business income:
Solution 8(e)
(i) Anticipated hedging loss under a contract to purchase raw
material;
Anticipated loss not allowed.
(ii) Consultation fees paid to tax advisor; Business expenditure hence allowed.
(iii) Advertisement expenses incurred outside Indian in foreign
currency. RBI permission has not been obtained;
Allowed. No need to take RBI
approval.
(iv) 500 VIP briefcases costing 2,000 each presented to customers; Business expenditure and hence
allowed.
(v) Travelling expenses incurred to explore the feasibility of new
line of business;
Treated as preliminary expenses.
Allowed in 5 equal installment from the
completion of new line of business.
(vi) The assessee claims the setoff of unabsorbed depreciation of a
discontinued business against the prots of another business.
As per section 32(2) unabsorbed
depreciation can be set off from
discontinued business.
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Notes
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Notes
