category-c with sol

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MOCK TESTCategory-C

Full Syllabus

(With solution)IPCCA.Y.2013-14

Total No. of Question 7] [Total No. of Printed Pages 25Time Allowed 3 Hours Maximum Marks 100

Answers to questions are to be given only in English except in the case of candidateswho have opted for Hindi medium. If a candidate who has not opted for Hindi

medium, answers in Hindi, his answers in Hindi will not be valued.

Question No.1 is compulsoryAttempt any five questions from the remaining six questions.

Wherever required, suitable assumptions may be made by the candidate.Working notes should form part of the answer.

1(a). Mrs. Purvi is a Chartered Accountant in practice. She maintains her accounts on cash basis. Her income and Expenditure account for the year ended March 31, 2013 reads asfollows:

Expenditure`

Income`

`

Salary to Staff 5,50,000 Fees earned:Stipend to articledAssistants 37,000

Audit 7,88,000

Incentive to ArticledAssistants 3,000

Taxation Services 5,40,300

Office rent 24,000 Consultancy 2,70,000 15,98,300Printing and Stationery 22,000 Dividend on shares of

Indian Companies(Gross)10,524

Meeting, Seminar andConference

31,600Income from unit Trustof India

7,600

Purchase of car 80,000 Honorarium receivedfrom VariousInstitutions for valuationof answer papers

15,800

Repair, MaintenanceAnd petrol of car 4,000 Rent Received from

Residential flat let out85,600

Travelling expenses 35,000Municipal Tax paid inrespect of houseProperty

3,000

Net profit 9,28,224

Marks10


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17,17,824 17,17,824

Other information :

(i) Allowable rate of depreciation on motor car is 15%

(ii) Value of benefits received from clients during the course of profession is`10,500.

(iii) Incentives to articled assistants represent amount paid to two articledassistants for the passing IPCC Examination at first attempt.

(iv) Repairs and maintenances of car include ` 2,000 for the period from01.10.2012 to 30.09.2013.

(v) Salary include `30,000 to a computer specialist in cash for assisting Mrs.

Purvi in one professional assignment.

(vi) The total travelling expenses incurred on foreign tour was `32,000 which waswithin the RBI norms.

(vii) Medical Insurance premium on the health of dependent brother and major son dependent on her amounts to `5,000 and `10,000 respectively paid incash.

(viii) She invested an amount of `10,000 in National Saving Certificate.

Compute the Total Income and Tax Payable of Mrs. Purvi for the Assessment Year 2013-2014.

Solution 1(a):`

Computation of Total Income of Mrs. PurviIncome under the head business/profession

Net profit as per profit and loss account 9,28,224.00Add: Value of benefit received 10,500.00Add: inadmissible items

Purchase of car 80,000.00 Municipal tax 3,000.00 Payment made in cash in excess of `20,000 {Sec 40A(3)} 30,000.00

Less: Dividend on shares 10,524.00 Income from Unit Trust of India 7,600.00 Honorarium received 15,800.00 Rent received 85,600.00 Depreciation on Car (80,000 x 15% ) 12,000.00

Income under the head business/profession 9,20,200.00

Income under the head House PropertyGross annual value 85,600.00Less: Municipal Taxes 3,000.00

Net annual value 82,600.00Less: 30% of NAV u/s 24(a) 24,780.00


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Less: Interest on capital borrowed u/s 24(b) NilIncome from house property 57,820.00

Income under the head Other SourcesDividend from Indian company {exempt u/s 10(34)} NilIncome from UTI {exempt u/s 10(35)} NilHonorarium received 15,800.00

Gross Total Income 9,93,820.00Less: Deduction u/s 80C NSC 10,000.00Total Income 9,83,820.00

Computation of Tax PayableTax on `9,83,820 at slab rate 1,26,764.00Add: Education cess @ 2% 2,535.28Add: SHEC @ 1% 1,267.64

Tax Liability 1,30,566.92Less: TDS NilTax Payable 1,30,566.92Rounded off u/s 288B 1,30,570.00

1(b). Rishabh Professionals Ltd. is engaged in providing services which became taxable witheffect from July 01, 2012. Compute the service tax payable by Rishabh ProfessionalsLtd. on the following amounts (exclusive of service tax) received for the month of March, 2013:-

Particulars Amount(

`

)Services performed during March 2013 5,00,000Services by way of renting of residential dwelling for use as residence 1,50,000Market Value of free services rendered to the friends 20,000Advance received in March,2013 for services to be rendered in July,2013(The agreement got terminated in April, 2013. Hence, no services wererendered in July,2013. However, a sum of ` 3,50,000 was refunded inJune, 2013)

5,00,000

Other receipts 12,00,000

Marks4

Solution 1(b):Computation of Service Tax Payable by Rishabh Professionals Ltd.:-

Particulars Amount ( `)Services performed during March 2013 5,00,000Services by way of renting of residential dwelling for use as residence (Note-1) NilFree services rendered to the friends (Note-2) NilAdvance received for the services to be rendered in July, 2013 (Note-3) 5,00,000Other receipts 12,00,000

Total 22,00,000Less: Exemption available to small service providers (Note-4) 10,00,000Value of taxable services 12,00,000Service tax @12% 1,44,000Add: Education cess @ 2% 2,880


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Add: Secondary and higher education cess @ 1% 1,440Service Tax Payable 1,48,320

Notes:-

1. Services by way of renting of residential dwelling for use as residence are included in the negativelist of services. Hence, they are not subject to service tax.

2. Service tax is chargeable on the value of service. Thus, service tax is not payable in case of freeservices as there is no consideration in such case.

3. Advance received for the services to be rendered in July, 2013 is liable for service tax. The amountof service tax included in the amount refunded in the next financial year i.e. June 2013 would beadjusted against service tax liability of subsequent periods. [It is assumed that ` 3,50,000 refunded inJune, 2013 after the termination of agreement includes the amount of service tax payable thereon].

4. Since, services provided by Rishabh Professional Ltd. became taxable on July 01, 2012, aggregatevalue of taxable services rendered in preceding financial year 2011-12 is Nil. Hence, RishabhProfessional Ltd. is eligible for exemption under Notification No. 33/2012 ST dated 20.06.2012. Ithas been assumed that no Service has been provided from 01-07-2012 to 28-02-2013.

1(c). Compute net VAT liability of Rishi from the following information:

Particulars`

`

Raw materials from foreign market (Including Import duty@ 20% plus EC)

- 1,23,600

Raw material purchased from local marketCost of raw material 2,50,000Add: Excise duty @ 16% 40,000

2,90,000Add: VAT @ 4% 11,600 3,01,600

Raw material purchased from neighbouring State(Including CST @ 2%)

51,000

Storage and transportation cost 9,000Manufacturing expenses 30,000

Rishi sold goods to Madan and earned profit @ 12% on the cost of production. VATrate on sale of such goods is 4%.

Marks4

Solution 1(c):Computation of VAT liability of Rishi:- Particulars

`

`

Raw materials purchased from foreign market (including Import duty 1,23,600@ 20% plus EC)Raw material purchased from local market:-Cost of raw material 2,50,000

Add: Excise duty @ 16% 40,000 2,90,000Raw material purchased from neighbouring State (including CST @ 2%) 51,000Storage and transportation cost 9,000Manufacturing expenses 30,000Cost of production 5,03,600


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Add: Profit @ 12% of cost of production 60,432Sale Price 5,64,032VAT @ 4% on `5,64,032 22,561

Net VAT liability of Rishi:-VAT on sale price 22,561

Less: Input tax creditImport duty paid on imports NilCST paid on inter-state purchases NilVAT paid on local purchases 11,600Net VAT payable by Rishi 10,961

1(d). Briefly explain the Exemption available to small scale service providers in referenceto service tax.

Marks2

Solution 1(d):

Central Government has exempted the taxable services of aggregate value not exceeding ` 10 lakh in anyfinancial year from the whole of the service tax leviable thereon under section 66B of the Finance Act, 1994in case the aggregate value of taxable services rendered by the service provider from one or more premises,does not exceed `10 lakh in the preceding financial year.

2(a). Mr. X is a Dealer Registered in Delhi Value Added Tax Act, 2004 and also under Central Sales Tax Act, 1956 and he has submitted the informations as given below:

(i) Purchased Goods A from Delhi `1,00,000 inclusive of VAT @ 4% and sold thegoods in Delhi for `1,50,000 inclusive of VAT @ 4%.

(ii) Purchased goods B from U.P. for `2,00,000 inclusive of central sales tax @ 2% andsold goods in Delhi for `2,50,000 inclusive of VAT @ 12.5%.

(iii) Purchased goods C from Delhi for `4,00,000 inclusive of VAT @ 12.5% and soldthe goods to a registered dealer in Orissa for `4,75,000 inclusive of central sales tax @2%

(iv) Purchased goods D for `5,00,000 in Delhi inclusive of VAT @ 12.5% and sold thegoods for `5,50,000 to an unregistered dealer in Punjab inclusive of central sales tax @12.5%.

(v) Purchased goods E from Madhya Pradesh for `3,00,000 inclusive of central salestax @ 1% and sold goods in Maharashtra for `3,50,000 inclusive of central sales tax @1%.

(vi) Purchased goods F from Delhi `7,00,000 inclusive of VAT @ 1% and the goodswere sold to an unregistered dealer in Maharashtra for `7,50,000 inclusive of centralsales tax @ 1%.

(vii) Purchased goods G for `6,00,000 in Delhi inclusive of VAT @ 12.5% and goods

were stock transferred to some other state.(viii) Purchased goods H for `8,00,000 in Delhi inclusive of VAT @ 4% and goodswere exported for `8,50,000 and no VAT was charged (because as per sect ion 6 CentralSales Tax Act, 1956, CST cannot be charged in case of export sale.)

Marks8


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(ix) Purchased goods I for `9,00,000 in Delhi inclusive of VAT @ 12.5% and sold thegoods to a manufacturer in SEZ for `10,50,000 and no VAT was charged.

Show the tax treatment for VAT and also compute his income tax liability for theassessment year 2013-14.

Solution 2(a)(i)Purchased Goods A from DelhiPurchase Price 1,00,000VAT (1,00,000 x 4% / 104%) 3,846Purchase price net of Tax 96,154Input tax credit 3,846Goods sold in DelhiSelling Price 1,50,000VAT (1,50,000 x 4% / 104%) 5,769

Selling Price net of Tax 1,44,231

(ii)Purchased goods B from U.P.Purchase Price 2,00,000Central sales tax (2,00,000 x 2% / 102%) 3,922Input tax credit NilGoods sold in DelhiSelling Price 2,50,000VAT (2,50,000 x 12.5% / 112.5%) 27,778Selling Price net of Tax 2,22,222

(iii)Purchased goods C from DelhiPurchase Price 4,00,000VAT (4,00,000 x 12.5% / 112.5%) 44,444Purchase price net of Tax 3,55,556Input tax credit 44,444Goods sold in OrissaSelling Price 4,75,000Central sales tax (4,75,000 x 2% / 102%) 9,314Selling Price net of Tax 4,65,686

(iv)Purchased goods D from DelhiPurchase Price 5,00,000VAT (5,00,000 x 12.5% / 112.5%) 55,556Purchase price net of Tax 4,44,444Input tax credit 55,556Goods sold in Punjab to unregistered dealer Selling Price 5,50,000Central sales tax (5,50,000 x 12.5% / 112.5%) 61,111Selling Price net of Tax 4,88,889

(v)Purchased goods E from Madhya PradeshPurchase Price 3,00,000


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Central sales tax (3,00,000 x 1% / 101%) 2,970Input tax credit NilGoods sold in MaharashtraSelling Price 3,50,000Central sales tax (3,50,000 x 1% / 101%) 3,465Selling Price net of Tax 3,46,535

(vi)Purchased goods F from DelhiPurchase Price 7,00,000VAT (7,00,000 x 1% / 101%) 6,931Purchase price net of Tax 6,93,069Input tax credit 6,931Goods sold in Maharashtra to unregistered dealer Selling Price 7,50,000Central sales tax (7,50,000 x 1% / 101%) 7,426

Selling Price net of Tax 7,42,574(vii)Purchased goods G from DelhiPurchase Price 6,00,000VAT (6,00,000 x 12.5% / 112.5%) 66,667Purchase price net of Tax 5,33,333Goods Stock transferred 6,00,000VAT credit allowed in stock transfer (6,00,000 x 10.5% / 112.5%) 56,000(in case of stock transfer, VAT credit shall be allowed after retaining 2%)

(viii)Purchased goods H from DelhiPurchase Price 8,00,000VAT (8,00,000 x 4% / 104%) 30,769Purchase price net of Tax 7,69,231Input tax credit 30,769Goods exportedSelling Price 8,50,000Output tax NilSelling Price net of Tax 8,50,000

(ix)Purchased goods I from DelhiPurchase Price 9,00,000VAT (9,00,000 x 12.5% / 112.5%) 1,00,000Purchase price net of Tax 8,00,000Input tax credit 1,00,000Goods sold to manufacturer in SEZSelling Price 10,50,000Output tax NilSelling Price net of Tax 10,50,000

VAT A/CParticulars

`

`

OUTPUT TAX VAT CSTGoods A 5,769 ---


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Goods B 27,778 ---Goods C --- 9,314Goods D --- 61,111Goods E --- 3,465Goods F --- 7,426

Goods G (Stock transfer) Not applicable ---Goods H (Export) Nil ---Goods I (Sale to SEZ) Nil ---

33,547 81,316LESS: INPUT TAX CREDITGoods A 3,846Goods B Not allowedGoods C 44,444Goods D 55,556Goods E Not allowedGoods F 6,931Goods G 56,000Goods H 30,769Goods I 1,00,000

2,97,546

After adjusting output VAT of `33,547 and CST of `81,316, there will be unutilised VAT credit of `1,82,683and it can be set off from other output tax or it can be carried forward or refund can be claimed but

procedure differs from State to State. At the year end it should be shown on the assets side of the balancesheet under the head CURRENT ASSETS, LOAN AND ADVANCES.

Computation of Income Tax LiabilityParticularsPurchases

Amount`

ParticularsSales

Amount`

Goods A 96,154 Goods A 1,44,231Goods B 2,00,000 Goods B 2,22,222Goods C 3,55,556 Goods C 4,65,686Goods D 4,44,444 Goods D 4,88,889Goods E 3,00,000 Goods E 3,46,535Goods F 6,93,069 Goods F 7,42,574Goods H 7,69,231 Goods H 8,50,000Goods I 8,00,000 Goods I 10,50,000

Net profit 6,51,68343,10,137 43,10,137

Income under the head Business/Profession 6,51,683.00Gross Total Income 6,51,683.00Less: Deduction u/s 80C to 80U NilTotal Income 6,51,683.00Rounded off u/s 288A 6,51,680.00Tax on `6,51,680 at slab rate 60,336.00Add: Education cess @ 2% 1,206.72Add: SHEC @ 1% 603.36Tax Liability 62,146.08Rounded off u/s 288B 62,150.00

Income shall be computed exclusive of VAT because any VAT collected shall be paid to the Government


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and it will not be considered to be income. Similarly VAT paid by the dealer is collected from the customer hence it will not be considered to be expense. If any balance is left in VAT credit, it will be shown as assetin the Balance Sheet on the last day of the relevant financial year. Further, the stock transfer of goods G ishaving a neutral effect and thus ignored for calculation of business/profession income.

2(b). Compute capital gains in the following situations for the assessment year 2013-14:

Asset Gold Land Residentialhouse

PersonalMotor Car

Date of purchase 01.07.1978 01.04.1980 01.07.2010 01.05.2003Cost price 3,00,000 5,00,000 7,00,000 2,00,000Cost of improvement 20,000 1,00,000 3,00,000 NilYear of improvement 1979-80 1980-81 2010-11 2006-07Fair market value on01.04.1981

2,90,000 5,50,000 N.A. N.A.

Date of Sale 01.01.2013 01.01.2013 01.01.2013 01.01.2013Full value of consideration 30,00,000 32,00,000 15,00,000 1,80,000

Marks4

Solution 2(b).`

Gold

Full value of consideration 30,00,000Less: Indexed cost of acquisition

= 3,00,000 / Index of 81-82 x Index of 12-13= 3,00,000 / 100 x 852 = 25,56,000 25,56,000Long term capital gain 4,44,000

LandFull value of consideration 32,00,000Less: Indexed cost of acquisition= 5,50,000 / Index of 81-82 x Index of 12-13= 5,50,000 / 100 x 852 = 46,86,000 46,86,000Long term capital loss 14,86,000

Residential HouseFull value of consideration 15,00,000Less: Cost of acquisition 7,00,000Less: Cost of improvement 3,00,000Short term capital gain 5,00,000

Personal motor carIt is not a capital asset as per section 2(14)

2(c). State with reasons, whether tax deduction at source provisions are applicable to thefollowing transactions and if so, the rate of tax deduction:

(i) X & Co. (Firm) engaged in wholesale business assigned a contract for constructionof its godown building to Mr. Ravi, a contractor. It paid `25,00,000 to Mr. Ravi as

Marks4


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Solution 3(a):

The period of stay of Mr. Nixon for various years is given below:

P.Y. 2009-10/ A.Y. 2010-11 Period of stay 303 days

(April 16, May -31, June 30, July 31, August 31, September 30, October 31, November 30,December 31, January 31, February 11)

P.Y. 2010-11/ A.Y. 2011-12 Period of stay Nil


(June 16, July 31, August 14)


(February 27, March 31)

Under section 6(1) of the Act, an individual is said to be resident in India in any previous year if he satisfiesone of the following basic conditions:

(i) is in India in the previous year for a period of 182 days or more ;(ii) is in India for a period of 60 days or more in the previous year and 365 days or more during the four years preceding the previous year.

A pe rson will be considered to be not ordinarily resident if he satisfies any of the following two conditions

viz;

(i) he has been a non resident in India in 9 out of 10 previous years preceding the relevant previous year ; or

(ii) he has been in India for a period of 729 days or less in 7 previous years preceding the relevant previousyear.

Maintenance of a residence in India or the stay of the wife and children in India are not relevant for determining the residential status of Mr. Nixon.

In the above background, Mr. Nixon s case will be decided as under:

(i) P.Y. 2009-10/A.Y. 2010-11: has been in India for 303 days. He will be a resident under the basicconditions. Since his stay in seven years preceding the relevant previous year is Nil i.e. 729 days or less,hence he will be NOR

(ii) P.Y. 2010-11/A. Y. 2011-12 : has not been in India at all ; though his wife and children continue to residein New Delhi, he will be a non-resident for this year.

(iii) P.Y. 2011-12/A.Y. 2012-13: has been in India for 61 days. He satisfies one limit of the basic condition but having been in India for a period amounting to 303 days only in the four previous years preceding this

year and not 365 days, he will be non-resident for this year.

(iv) P.Y. 2012-13/A.Y. 2013-14: has been in India for 58 days, he will be non-resident.


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3(b). (i) Write a note on administration of service tax.

(ii) List the documents to be submitted alongwith the first service tax return.

Marks3+3

Solution 3(b)(i):The Department of Revenue of the Ministry of Finance exercises control in respect of matters relating to allthe direct and indirect taxes through two statutory Boards, namely, the Central Board of Direct Taxes(CBDT) and the Central Board of Excise and Customs (CBEC). Matters relating to the levy and collectionof all the direct taxes (income tax, wealth tax etc.) are looked after by CBDT, whereas those relating to levyand collection of indirect taxes (customs duties, central excise duties etc.) fall within the purview of CBEC.The two Boards were constituted under the Central Board of Revenue Act, 1963.

The responsibility of administration and collection of service tax has also been vested upon the CBEC('Board'). The Board administers service tax matters through the Central Excise Zones and each Zone, inturn works through Central Excise Commissionerate falling under its territory. Each zone is headed by a

Chief Commissioner of Central Excise, while each Commissionerate is headed by a Commissioner of Central Excise.

The Chief Commissioner of Zone exercises supervision and control over the working of theCommissionerates in the Zone and is mainly responsible for monitoring revenue collection, disposal of

pendencies, redressal of grievances of trade, etc. He also ensures coordination among the Commissionerateswithin the Zone.

ADMINISTRATION OF SERVICE TAX

MINISTRY OF FINANCE (1)

DEPARTMENT OF REVENUE (2)

CENTRAL BOARD OF EXCISE AND CUSTOMS (3)

CENTRAL EXCISE ZONES HEADED BY CHIEF COMMISSIONERS (4)

CENTRAL EXCISE COMMISIONERATES HEADED BY COMMISSIONERS (5)

SERVICE TAX COMMISSIONERATE (6)

ADDITIONAL COMMISSIONER (7)

JOINT COMMISSIONER (8)

ASSISTANT COMMISSIONER/DEPUTY COMMISSIONER (9)

SUPERINTENDENT (10)

INSPECTOR (11)

Solution 3(b)(ii):Every assessee shall furnish to the Superintendent of Central Excise at the time of filing the return for thefirst time, a list of following documents in duplicate:

DIRECTOR GENERAL OF SERVI CE TAX (Coordinator between 3 & 5)


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(a) all the records prepared or maintained by the assessee for accounting of transactions in regard to

(i) providing of any service, whether taxable or exempted;

(ii) receipt or procurement of input services and payment for them;

(iii) receipt, purchase, manufacture, storage, sale or delivery, as the case may be, in regard toinputs and capital goods;

(iv) other activities such as manufacture and sale of goods, if any.

(b) all other financial records maintained by him in the normal course of business.

3(c). Mr. Tony has estates in Rubber, Tea and Coffee. He derives income from them. He hasalso a nursery wherein he grows plants and sells. For the previous year ending

31.03.2013, he furnishes the following particulars of his sources of income from estatesand sale of Plants.

You are requested to compute the taxable income and tax liability for the assessmentyear 2013-14.

`

(i) Manufacture of rubber 5,00,000

(ii) Manufacture of coffee grown and cured 3,50,000

(iii) Manufacture of tea 7,00,000

(iv) Sale of plants from nursery 1,00,000

Marks4

Solution 3(c):Agricultural BusinessIncome Income

Income from growing and manufacturing of Rubber {Rule 7A}Agricultural income 65% and business income 35% 3,25,000 1,75,000Income from Coffee grown and cured {Rule 7B}Agricultural income 75% and business income 25% 2,62,500 87,500Income from growing and manufacturing of Tea {Rule 8}Agricultural income 60% and business income 40% 4,20,000 2,80,000Income from growing and selling of plants 1,00,000 xxxxx

Total 11,07,500 5,42,500

Computation of Tax LiabilityTax on agricultural income + non-agricultural income 3,25,000.00Tax on agricultural income + 2,00,000 2,22,250.00Tax before education cess (3,25,000 2,22,250) 1,02,750.00Add: Education cess @ 2% 2,055.00Add: SHEC @ 1% 1,027.50Tax Liability 1,05,832.50Rounded off u/s 288B 1,05,830.00


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4(a). Mr. X has submitted information given below.

i) Income from owning and maintaining of race horse ` 2,00,000.

ii) Income from owning and maintaining of race camels ` 1,00,000.

iii) He had winning of ` 1,60,000 from horse race on 01.12.2012 and winningfrom camel race `1,80,000 on 07.12.2012.

iv) He purchased lottery tickets of `10,000 on 01.02.2013 and had winning of `2,00,000 on 12.02.2013.

v) He has received Royalty of book of literary nature @ 50% of print price of ` 600 and total copies sold are 2,000

vi) He has paid advance tax as given below:

Upto 15.09.2012 ` 30,000Upto 15.12.2012 ` 80,000Upto 15.03.2013 ` 1,30,000

Balance was paid on 10.06.2013

Compute tax liability for the A.Y 2013-14 and interest under section 234A, 234B and234C.

Marks5

Solution 4(a):Computation of Total Income for the A.Y 2013-14

`

Income under head Other SourceIncome from owning and maintaining race horse 2,00,000Income from Royalty 6,00,000Income from winning horse race (casual income) 1,60,000Income from winning camel race (casual income) 1,80,000Income from lottery income (casual income) 2,00,000Income under head Other Sources 13,40,000

Income under head Business/ProfessionIncome from owning and maintaining race camel 1,00,000

Gross Total Income 14,40,000Less: Deduction u/s 80QQB (WN 1) 1,80,000Total Income 12,60,000

Computation of Tax LiabilityTax on ` 7,20,000 at slab rate 74,000Tax on casual income i.e. ` 5,40,000 @ 30% 1,62,000Tax before education cess 2,36,000Add: Education cess @ 3% 7,080Tax Liability 2,43,080

Interest u/s 234A Nil


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Interest u/s 234B 2,43,080 1,30,000= 1,13,080 = 1,13,000 x 1% x 3 3,390

Interest u/s 234C

Date Advance tax paid Amount payable Shortfall Interestupto 15.09.2012 30,000 22,866 NIL NIL

(74,000 x 103% x 30%)

upto 15.12.2012 80,000 1,08,768 28,768 861[(74,000 + 1,02,000) x 103% x 60%] (28,700 x 1% x 3)

upto 15.03.2013 1,30,000 2,43,080 1,13,080 1,130(1,13,000 x 1% x 1)

Interest u/s 234C 1,991

Total Interest Payable 5,381Rounded off u/s 288B 5,380

Working Notes:1. Maximum deduction allowed u/s 80QQB

15% of print price i.e. ` 600 x 15% x 2,000= `1,80,000.

4(b). Write a note on Signing of Return of Income of all the assessee. Marks3

Solution 4(b): Signing of return of income

Return by whom to be signed Section 140The return under section 139 shall be signed and verified

1. in the case of an individual, (i) by the individual himself.(ii) where he is absent from India, by the individual himself or by some person duly authorized by him in

this behalf.(iii) where he is mentally incapacitated from attending to his affairs, by his guardian or any other person

competent to act on his behalf and(iv) where, for any other reason, it is not possible for the individual to sign the return, by any person duly

authorized by him in this behalf.

Provided that in a case referred to in sub-clause (ii) or sub-clause (iv), the person signing the return holds avalid power of attorney from the individual to do so, which shall be attached to the return.

2. in the case of a Hindu Undivided Family, by the karta, and, where the karta is absent from India or ismentally incapacitated from attending to his affairs, by any other adult member of such family.3. in the case of a company, by the managing director thereof, or where for any unavoidable reason suchmanaging director is not able to sign and verify the return, or where there is no managing director, by anydirector thereof.

Provided that where the company is not resident in India, the return may be signed and verified by a person

who holds a valid power of attorney from such company to do so, which shall be attached to the return.

Provided further that,

(a) where the company is being wound up, whether under the orders of a court or otherwise, or where any


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person has been appointed as the receiver of any assets of the company, the return shall be signed andverified by the liquidator.

(b) where the management of the company has been taken over by the Central Government or any StateGovernment under any law, the return of the company shall be signed and verified by the principal officer thereof.

4. in the case of a firm, by the managing partner, or where for any unavoidable reason such managing partner is not able to sign and verify the return, or where there is no managing partner as such, by any partner thereof, not being a minor.

5. in the case of a limited liability partnership, by the designated partner thereof, or where for anyunavoidable reason such designated partner is not able to sign and verify the return, or where there is nodesignated partner as such, by any partner thereof.

6. in the case of a local authority, by the principal officer.

7. in the case of a political party referred to in sub-section (4B) of section 139, by the chief executive officer of such party (whether such chief executive officer is known as secretary or by any other designation).

8. in the case of any other association, by any member of the association or the principal officer.

9. in the case of any other person, by that person or by some person competent to act on his behalf.Behari Lal Chatterji v. CIT [1934] (Allahabad)Khialdas & Sons v. CIT [1997] (M.P.).An unsigned return is not a valid return at all i.e. it will not be considered to be defective return rather it isan invalid return.

4(c). (i) How will a taxable service be valued when the consideration thereof is not whollyor partly in terms of money?

(ii) Write a note in brief on Provisional Payment of Service Tax.

Marks2+2

Solution 4 (c)(i)As per section 67 (2) of the Finance Act, 1994, if the consideration for a taxable service is not wholly or

partly in terms of money, then the value of such service shall be such amount in money, with the addition of service tax charged, is equivalent to the consideration.

In other words, where the service rendered is for a consideration not wholly or partly consisting of money

the value of the taxable service is equivalent to the total value of the consideration. However, the total of such money and non-money values of the consideration has to be treated as inclusive of the service tax

payable thereon.

Solution 4(c)(ii):In case the assessee is unable to correctly estimate, at the time of the deposit, the actual amount of servicetax for any month or quarter, he may make a written request to Assistant/ Deputy Commissioner of CentralExcise for making payment of service tax on provisional basis. The provisions of the Central Excise Rules,2002 relating to provisional assessment shall apply except the provisions relating to execution of bond.

For the purpose of provisional assessment at the time of filing the return, the assessee is required to file a

statement in form ST - 3A giving detail of difference between service tax deposited and the service tax liableto be paid for each month. The quarterly or half yearly statements should also accompany.

The Assistant/Deputy Commissioner of Central Excise, on the basis of memorandum in form ST - 3Amay complete the assessment after calling for necessary documents or records, if need be.


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4(d). (i) Under what circumstances registration can be cancelled under VAT?

(ii) Briefly explain the income variant of VAT.

Marks2+2

Solution 4(d)(i)VAT registration can be cancelled on:

(i) discontinuance of business; or (ii) disposal of business; or (iii) transfer of business to new location; or (iv) annual turnover falling below the specified limit.

Solution 4(d)(ii): The income variant of VAT allows deduction of purchases of raw material and components as well asdepreciation of capital goods. This method provides incentive to classify purchases as current expenditure toclaim set off. In practice, however, there are many difficulties connected with the specification of anymethod of measuring depreciation, which basically depends on the life of an asset as well as on the rate of

inflation.

5(a). (i) Nathan Aviation Ltd. is running two industrial undertakings, one in a SEZ (Unit S)and another in a normal area (Unit N). The brief summarized details for the year ended 31.03.2013 are as under:

(`

in lacs)S N

Domestic turnover 10 100

Export turnover 120 Nil

Gross profit 20 10

Less: Expenses and depreciation 7 6

Profits derived from the unit 13 4

The brought forward business loss pertaining to Unit N is `2 lacs. Briefly computethe business income of the assessee.

(ii) Explain with brief reason whether the return of income can be revised under section 139(5) of the Income-tax Act, 1961 in the following cases:

(i) Defective or incomplete return filed under section 139(9).

(ii) Belated return filed under sect ion 139(4).

(iii) Return already revised once under section 139(5).

(iv) Return of loss filed under section 139(3).

Marks4+4

Solution 5(a)(i):Computation of business income of Nathan Aviation Ltd.Particulars

`

in lacs


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Total profit dervied from Units S & N ( `13 lacs + `4 lacs)

Less: Exemption under section 10AA [ See Working Note below ]

Less: Brought forward business loss

17

12523

Working Note

Computation of exemption under section 10AA in respect of Unit S located in a SEZ`

in lacs

Domestic turnover of Unit SExport turnover of Unit STotal turnover of Unit S

Profit derived from Unit S

Exemption under section 10AA

Profit of Unit S x Export turnover of Unit S = 13 120Total turnover of Unit S 130

10120130

13

12

Note 100% of the profit derived from export of articles or things or from services is eligible for deductionunder section 10AA, assuming that F.Y. 2012-13 falls within the first five year period commencing from theyear of manufacture or production of articles or things or provision of services by the Unit in SEZ.

Solution 5(a)(ii):

Any person who has furnished a return under section 139(1) or in pursuance of a notice issued under section142(1) can file a revised return if he discovers any omission or any wrong statement in the return filedearlier. Accordingly:-

(i) A defective or incomplete return filed under section 139(9) cannot be revised. However, the defect can beremoved.

(ii) A belated return filed under section 139(4) cannot be revised. Only a return furnished under section139(1) or in pursuance of a notice issued under section 142(1) can be revised.

(iii) A return revised earlier can be revised again as the first revised return replaces the original return.Therefore, if the assessee discovers any omission or wrong statement in such a revised return, he can furnisha second revised return within the prescribed time i.e. within one year from the end of the relevantassessment year or before the completion of assessment, whichever is earlier.(iv) A return of loss filed under section 139(3) is deemed to be return filed under section 139(1), andtherefore, can be revised under section 139(5).

5(b). ABC partnership firm, is engaged in providing a taxable service. For the quarter endedon 31 st March 2013, its gross receipts were ` 18, 00,000 (no amount has been received

by firm up to 31-12-2012 during F.Y. 2012-2013). The break-up of these receipts areas follows:

Month in which services are performed Receipt

(`

)July, 2012 (includes ` 1,00,000 for the services in relating to betting) 4,00,000August, 2012 (includes ` 1,25,000 for the services rendered within theIndian territorial waters)

3,00,000

Marks4


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January, 2013 (includes ` 1,75,000 for services rendered to ReserveBank of India)

5,00,000

February, 2013 (includes ` 1,50,000 for services rendered in the State of Jammu & Kashmir)

6,00,000

In the financial year 2011-12, ABC partnership firm had paid `2,47,200 as Service Tax(@12.36%). State the amount of Service Tax Liability for the quarter ended on 31 st March, 2013.

Solution 5(b):Computation of Service Tax Liability by ABC partnership firm for the quarter ended on 31st March,2013Particulars

`

Services performed in July, 2012 [Refer Note 1] 3,00,000Services performed in August, 2012 [Refer Note 2] 3,00,000Services performed in January, 2013 [Refer Note 3] 5,00,000

Services performed in February, 2013 [Refer Note 4] 4,50,000Total taxable services including service tax 15,50,000Service Tax (including 3% education cess) Liability on above, rounded off [Refer Note 5] 1,70,506Notes:1. Services in relation to betting is included in the negative list of services. Hence, it is not taxable.

2. Levy of service tax extends to whole of India excluding Jammu and Kashmir and India includes Indianterritorial waters. Hence, services rendered within Indian territorial waters would be liable to service tax.

3. Services rendered to Reserve Bank of India are liable to service tax.

4. Levy of service tax extends to whole of India excluding Jammu and Kashmir. Hence, services rendered inJammu and Kashmir would not be liable to service tax.

5. As the particulars relate to gross receipts, the same are taken to be inclusive of service tax and henceservice tax has been computed by making back calculations

=36.112

36.12000,50,15

6. The aggregate value of taxable services of ABC partnership firm In the preceding financial year i.e., F.Y.2011-12 is more than ` 10,00,000 as it has paid service tax of ` 2,47,200. Hence, it will not be entitled toexemption for small service providers in F.Y.2012-13 and would be liable to service tax.

5(c). (i) What are the different rates under VAT system?

(ii) State whether the following are true or false giving reasons to substantiate your

answer:

a) Under VAT, the tax is payable on the first sale price.

b) VAT would increase the working capital requirements and the interest

burden.

Marks2+2

Solution 5(c)(i):Broadly, VAT system has following tax rates:

(a) Zero rate for tax free goods comprising of natural and unprocessed products in unorganized sector,

items which are legally barred from taxation and items which have social implications.(b) 1% on precious or semi-precious stones, bullion, gold and silver ornaments etc.(c) 4% on items of basic necessities, medicines and drugs, agricultural and industrial inputs, capital

goods and declared goods.(d) 12.5% on other goods.


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(e) 20% on non VAT goods like petrol, diesel, ATF, other motor spirit, liquor and lottery tickets.Solution 5(c)(ii):

a) False, VAT is a multi-point tax where tax is imposed at each and every stage of sales and tax paid at the earlier stage is allowed as set-off.

b)

True, VAT increases the working capital requirements and the interest burden. The tax isimposed or paid at various stages and not on last stage only. It increases the requirement of working capital and also the interest element as compared to single stage-last point taxationsystem.

6(a). Mr. X has taken a loan of `10,00,000 from S.B.I @ 10 % p.a. on 01.07.2008 for construction of one residential house which was completed on 01.07.2010. It was letout @ ` 55,000 p.m. w.e.f 01.04.2012 and Mr. X has paid Municipal tax of `20,000though the amount due is `30,000.

He has repaid Principal amount of `70,000 on 01.07.2012.

He has Agricultural income of ` 3,00,000 and unadjusted loss of house property of P.Y.2003-04 `10,000 and P.Y. 2004-05 `21,000

He has invested `10,000 in NSC and `5,000 in Public Provident Fund and `5,000 in PostOffice 5 Year Time Deposit.

Compute his Income Tax Liability for the A.Y. 2013-14.

Marks4

Solution 6 (a)Computation of income under the head House Property

Gross Annual Value 6,60,000.00Less: Municipal Tax 20,000.00

Net Annual Value 6,40,000.00Less: 30% of NAV u/s 24(a) 1,92,000.00Less: Interest on capital borrowed u/s 24(b) 1,29,750.00Working Note:Prior period interestFrom 01.07.2008 to 31.03.2010= (10,00,000 x 10% x 9/12) + (10,00,000 x 10% x 1)= `75,000 + `1,00,000 = `1,75,000Installment = `1,75,000/5 = `35,000Current period interestFrom 01.04.2012 to 31.03.2013= (10,00,000 x 10% x 3/12) + (9,30,000 x 10% x 9/12)= `25,000 + `69,750 = `94,750Total interest on capital borrowed= `35,000 + ` 94,750 = `1, 29,750Income under the head House Property 3,18,250.00Brought forward Loss of P.Y.2004-05 21,000.00Income under the head House Property 2,97,250.00Gross Total Income 2,97,250.00

Less: Deduction u/s 80CRepayment of Housing loan 70,000.00

NSC 10,000.00PPF 5,000.00Post Office Time Deposit 5,000.00


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Total Income 2,07,250.00Agricultural Income 3,00,000.00

Computation of Tax LiabilityStep 1 Tax on (agricultural + non agricultural income)i.e. Tax on `5,07,250 at slab rates 31,450.00

Step 2 Tax on (agricultural + 2,00,000) at slab rates 30,000.00Deduct Tax at Step 2 from Step 1 1,450.00Tax before EC 1,450.00Add: EC @ 2% 29.00Add: SHEC @ 1% 14.50Tax Liability 1,493.50Rounded off u/s 288B 1,490.00

6(b). Define the following as per Point of Taxation of Rules,2011?(i) Date of Payment as Per Rule 2A(ii) Define Rule 5 of POT Rules 2011?

Marks2+2

Date of payment shall be:-

(a) date on which the payment is entered in the books of accountsor

(b) date on which payment is credited to the bank account of the person liable to pay taxwhichever is earlier.

Date of payment in case of change in effective rate of tax or a new levy between the above two dates:In case,(i) there is a change in effective rate of tax or when a service is taxed for the first time during the period

between such entry in books of accounts and its credit in the bank account;(ii) the bank account is credited after four working days from the date when there is change in effective rateof tax or a service is taxed for the first time; and(iii) the payment is made by way of an instrument which is credited to a bank account,the date of payment shall be the date of credit in the bank account instead of the date of recording of

payment in the books of accounts.

Solution 6(b)(ii): Payment of tax in cases of new services [Rule 5]Where a service is taxed for the first time, then, (a) no tax shall be payable to the extent the invoice has been issued and the payment received against suchinvoice before such service became taxable;(b) no tax shall be payable if the payment has been received before the service becomes taxable and invoicehas been issued within 14 days of the date when the service is taxed for the first time.

6(c). (i) Enlist the installments of advance tax and due dates thereon in case of companies.

(ii) Define Relative as given in the taxability of Gift?

Marks2+2

Solution 6 (c) (i)Advance tax shall be payable by companies as per the following schedule of installments:Companies - four installmentsDue date of installment Amount payableOn or before the 15 th June Not less than 15% of tax payable

Solution 6(b)(i):


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On or before the 15 th September Not less than 45% of tax payable

On or before the 15 th December Not less than 75% of tax payable

On or before the 15 th March The whole amount of tax payable

Solution 6 (c) (ii)Relative means

(1) in case of an individual

(i) spouse of the individual.

(ii) brother or sister of the individual.

(iii) brother or sister of the spouse of the individual.

(iv) brother or sister of either of the parents of the individual.

(v) any lineal ascendant or descendant of the individual.

(vi) any lineal ascendant or descendant of the spouse of the individual.(vii) spouse of the person referred to in clause (ii) to (vi).

(2) in case of a Hindu undivided family, any member thereof.

6(d). Ashok, purchas ed raw material A for `30,00,000 plus VAT @ 4%. Out of such rawmaterial 60% was used for manufacture of taxable goods and the remaining for manufacture of goods which are exempt from VAT.

Another raw material B was purchased for `15,00,000 on which VAT was paid @1%. Entire raw material B was used for manufacture of taxable goods only.

The entire taxable goods were sold for `50,00,000 plus VAT @ 12.5%.

Compute VAT liability of Ashok on the assumption that there was no opening or closing inventory.

(i) Note: Ashok is not a dealer who opted for Composition Scheme.

Marks4

Solution 6(d):Raw Material A Purchase price 30,00,000Add: VAT @ 4% 1,20,000Raw Material B Purchase price 15,00,000Add: VAT @ 1% 15,000

Sale price 50,00,000Add: VAT @ 12.5% 6,25,000

Net tax payableOutput Tax 6,25,000Less: Input tax credit Raw Material A (1,20,000 x 60%) 72,000Less: Inpu t tax credit Raw Material B 15,000


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Net Tax Payable 5,38,000

7(a). From the following details compute the total income of Siddhant of Delhi and taxliability for the Assessment Year 2013-14:

`

Salary including dearness allowance 3,35,000Bonus 11,000Salary of servant provided by the employer 12,000Rent paid by Siddhant for his accommodation 49,600Bills paid by the employer for gas, electricity and water

provided free of cost at the above flat11,000

Siddhant was provided with companys car engine capacity 1.6 litre (self driven)also for personal use and it is not possible to determine expenditure on personaluse and all expenses were borne by the employer.Siddhant purchased a flat in a Co-operative Housing Society for `4,75,000 in April,

2006, in Delhi, which was financed by a loan from Life Insurance Corporation of India of `1,60,000 @ 15% interest, his own savings of `65,000 and a deposit from anationalised bank for `2,50,000 to whom this flat was given on lease for ten years.The rent payable was `20,000 per month. The following particulars are relevant:

`

(a) Municipal taxes paid 4,300

(per annum)(b) Society charges for passage lights, watchmans

salary1,900

( per annum)(c) Insurance 860

(d) He earned `2,700 in share speculation business and lost `4,200 in cottonspeculation business.

(e) In the year 2006-07 he had gifted `30,000 to his wife and `20,000 to his sonwho was aged 11. The gifted amounts were advanced to Mr. Rajesh, who was

paying interest @ 19% per annum.

(f) Siddhant received a gift of `25,000 each from four friends.(g) He contributed `5,600 to public provident fund and `4,000 to Unit Linked

Insurance Plan.(h) He received national award for humanitarian work from the Central

Government in the form of a land whose fair market value is `5,00,000 as on31 st March, 2013.

Marks12

Answer.Computation of Total Income and Tax Liability of Siddhant for the A.Y. 2013-14

`

`

Salary IncomeSalary including dearness allowance 3,35,000Bonus 11,000Value of perquisites:(i) Salary of servant 12,000(ii) Car (1,800 x 12) 21,600


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(iii) Free gas, electricity and water 11,000 44,6003,90,600

Income from house propertyGross Annual Value (GAV) (Rent receivable is taken as GAV in theabsence of other information) (20,000 12) 2,40,000

Less: Municipal taxes paid [See Note (ii)(a)] _4,300 Net Annual Value (NAV) 2,35,700 Less: Deductions under section 24(i) 30% of NAV 70,710(ii) Interest on loan from LIC @ 15% of 1,60,000 24,000 94,710 1,40,990[See Note (ii)(b)]

Income from speculative businessIncome from share speculation business 2,700

Less: Loss from cotton speculation business 4,200 Net Loss 1,500

Net loss from speculative business has to be carried forward as itcannot be set off against any other head of income.

Income from Other Sources(i) Income on account of interest earned from advancing money 3,800gifted to his minor son is includible in the hands of Siddhant as

per section 64(1A) Less: Exempt under section 10(32) 1,500

2,300(ii) Interest income earned from advancing money gifted to wife has 5,700to be clubbed with the income of the assessee as per section 64(1)

(iii) Gift received from four friends (taxable under section 56(2) as theaggregate amount received during the year exceeds `50,000) 1,00,000

1,08,000Gross Total Income 6,39,590

Less: Deduction under section 80CContribution to Public Provident Fund 5,600Unit Linked Insurance Plan 4,000 9,600

Total Income 6,29,990

Particulars`

Tax on total income 55,998.00

Add : Education cess@ 2% 1,119.96 Add: Secondary and higher education cess @ 1% 559.98

57,677.94Tax Liability (rounded off u/s 288B) 57,680.00

Notes:(i) National Award for humanitarian work given by the Central Government is exempt under section10(17A) of the Income-tax Act, 1961.(ii) The following assumptions have been made while computing income under the head Income fromhouse property

(a) It is the owner, namely, Mr. Siddhanth, who has paid the municipal taxes;(b) The entire loan of `1,60,000 is outstanding as on 31.03.2013; and(c) Society charges of `1,900 p.a. is not included in the rent of `20,000 p.m. payable by the tenant.Such charges have either been paid directly by Mr. Siddhant or recovered separately from the tenant.


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7(b). During the year ended 31.3.2012, Kohli & Co. , running a coaching centre, hascollected a sum of ` 10.2 lacs as service tax, ` 70,000 was met through Cenvat creditand the balance was paid by cheques on various dates. The details pertaining to thequarter ended 30.6.2012 are as under:

Particulars Amount(

`

)Market value of free coaching rendered 20,000Coaching fees collected from students (Service tax collected separately) 14,50,000Advance received from a college for coaching their students, on30.6.2012.However, no coaching was conducted and the money was returned on12.4.2013

3,00,000

Determine the Service Tax Liability for the quarter and indicate the date by which the

service tax has to be remitted by the assessee.

Marks4

Solution 7(b):Computation of Service Tax Liability of Kohli & Co. for the quarter ended 30.06.2012:-

Particulars Amount of service tax(

`

)Free coaching rendered Nil

Coaching fees collected from students100

36.12000,50,14

1,79,220

Advance received from a college for coaching their students 33,001Total Service Tax Liability for the quarter ended 30.06.2012 2,12,221

Notes:1. Free coaching is not liable to service tax2. Coaching fees collected from students will be liable to service tax @ 12.36%.3. Advance receipt is chargeable to service tax. It is immaterial that no coaching was conducted and themoney was returned on 12.4.2013. Advance would be chargeable to service tax in the quarter ended

30.06.2012. Advance has been assumed to be inclusive of service tax36.112

36.12000,00,3

During the preceding financial year, the service tax liability met by the assessee, inclusive of CENVATcredit availed was more than ` 10 lakh. Hence, during the current financial year, for all quarters, payment of service tax will have to be made electronically. Therefore, the last date for making the payment of servicetax by Kohli & Co. (non-corporate assessee) for the quarter ended 30.06.2012 is 6 th July, 2012.

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