CA PE - II :: Income Tax and Central Sales Tax : May 2003

Roll No…………………
Total No. of Questions—6]	[Total No. of Printed Pages—6
Time Allowed — 3 Hours	Maximum Marks — 100
SR
Answers to questions are to be given only in English except in the cases of candidates who 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.
Questions of both the Sections have been given together without the Sections being mentioned in the question-paper. Candidates are advised to attempt all the required questions in the same answer-book.
Attempt all questions
Marks

(a)

Mr. Vignesh, Finance Manager of KLM Ltd, Mumbai, furnishes the following particulars for the financial 2002-03:

(i)	Salary	Rs. 46,000 per month
(ii)	Value of medical facility in a hospital maintained by the company	Rs. 7,000
(iii)	Rent Free accommodation owned by the company
(iv)	Housing Loan of Rs. 6,00,000 at the interest rate of 5% p.a. (No repayment made during the year)
(v)	Gifts made by the company on the occasion of Wedding anniversary of Mr. Vignesh Rs. 4,750
(vi)	A Wooden table and 4 chairs were provided to Mr. Vignesh at his residence (dining table). This was purchased on 1.5.99 for Rs. 60,000 and sold to Mr. Vignesh on 1.8.2002 for Rs. 30,000
(vii)	Personal Purchases through Credit Card provided by the Company amounting to Rs. 10,000 was paid by the Company. No part of the amount was recovered from Mr. Vignesh

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(viii)

An ambassador can which was purchased by the Company on 16.7.99 for Rs. 2,50,000 was sold to the assessee on 14.7.02 for Rs. 80,000.

Other Income Received by the Assessee during the previous year 2002-03:

(a)	Interest on Fixed Deposits with a Company.	Rs.	5,000
(b)	Income from specified Mutual Fund	Rs.	3,000
(c)	Interest on Bank Deposits of minor married daughter.	Rs.	3,000
(d)	Income from UTI received by his handicapped	Rs.	1,200
(e)	Contribution to LIC towards premium U/S 80CCC.	Rs.	10,000
(f)	Deposit in PPF Account made during the year 2002-03.	Rs.	75,000
(g)	Bonds of ICICI (Tax Savings) eligible for Tax rebate.	Rs.	25,000

Compute the taxable Income of Mr. Vignesh and the tax thereon for the Assessment year 2003-04.

(b)

Compute the deduction U/S 80HHC from the following particulars given by a individual Trader for the Assessment year 2003-04:

Export Sales (Received in convertible Foreign Exchange Rs. 45,00,000 in India)

Total Sales	Rs.	70,00,000
Direct Cost of Goods exported	Rs.	30,00,000
Allocated Indirect Costs relating to Export	Rs.	8,00,000
Export Incentives.	Rs.	5,00,000

(c)

M/s QQ & Co., a sole proprietory concern, was converted into a Company on 31.8.2002. Before the conversion, the sole proprietory concern had a Block of Plant and Machinery (Rate of Depreciation 25%), whose WDV as on 1.4.2002 was Rs. 3,00,000. On 1st April, itself a new Plant of the same Block was

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Purchased for Rs. 1,20,000. After the conversion, the Company has purchased the same type of Plant on 1.1.2003 for Rs. 1,60,000

Compute the depreciation that would be allocated between the sole proprietory concern and the successor Company.

(d)

Discuss the following issues relating to Income from House property:

(i)

Income earned by Residents from House Properties situated in foreign countries.

(ii)

Properties which are used for Agricultural purposes.

Either

(a)

Compute the Tax liability of Mr. Madhavan for the Assessment year 2003-04 from the following particulars:

(i)	Net House Property Income as computed under the head Income from House property	Rs.	2,70,000
(ii)	Income from business before adjusting the following	Rs.	90,000
	(a) Carried forward business Loss	Rs.	70,000
	(b) Current Depreciation	Rs.	30,000
	(c) Carried forward unabsorb Depreciation	Rs.	1,40,000
(iii)	Short-term Capital Gains—Jewellery	Rs.	1,60,000
(iv)	Long-term Capital Loss—Shares	Rs.	40,000
(v)	Long-term Capital Gain—Debentures	Rs.	2,00,000
(vi)	Dividend on shares held as stock in trade	Rs.	10,000
(vii)	Dividend from a company carrying on Agricultural operation	Rs.	12,000
(viii)	Income from growing and manufacturing Coffee (Cured and Roasted)	Rs.	1,00,000

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During the Previous year 2002-03, the assessee has donated Rs. 35,000 to an approved Local Authority for the promotion of Family Planning and purchased NSC VIII issue for Rs. 1,00,000

(b)

Discuss the treatment of unrealised Rent and its recovery in subsequent years.

(a)

Mr. Sivan, a retail trader of Cochin gives the following Trading and Profit and Loss Account for the year ended 31st March 2003:

Trading and Profit and Loss Account for the year ended 31.03.2003

	Rs.		Rs.
To Opening Stock	90,000	By Sales	12,11,500
Purchases	10,04,000	Income from UTI	2,400
Gross Profits	3,06,000	Other Business receipts	6,100
		Closing Stock	1,80,000
	14,00,000		14,00,000
To Salary	60,000	Gross Profit B/d	3,06,000
Rent and Rates	36,000
Interest on loan	15,000
Depreciation	1,05,000
Printing and Stationery	23,200
Postage and Telegram	1,640
Loss on Sale of Shares (short-term)	8,100
Other General Expense	7,060
Net Profit	50,000
	3,06,000		3,06,000

Additional Information:

(i)

It was found, some stocks were omitted to be included in both the Opening and Closing stock; the values of which were

Opening stock	Rs.	9,000
Closing stock	Rs.	18,000

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(ii)

Salary includes Rs. 10,000 paid to his brother, which is unreasonable to the extent of Rs. 2,000.

(iii)

The whole amount of Printing and Stationery was paid in cash.

(iv)

The Depreciation provided in the Profit and Loss Account Rs. 1,05,000 was based on the following information:

The written down value of Plant and Machinery is Rs. 4,20,000. A new Plant falling under the same Block of depreciation of 25% was bought on 1.7.2002 for Rs. 70,000. Two old plants were sold on 1.10.2002 for Rs. 50,000.

(v)

Rent and Rates includes Sales Tax liability of Rs. 3,400 paid on 7.4.03.

(vi)

Other Business receipts include Rs. 2,200 received as refund of Sales Tax relating to 2001-02.

(vii)

Other General Expenses include Rs. 2,000 paid as Donation to a Public Charitable Trust.

You are required to advise Mr. Sivam whether he can offer his business income U/S 44AF i.e. Presumptive taxation.

(b)

Mr. X and Mr. Y are working for M/s Gama Ltd. As per Salary fixation norms, the following perquisites were offered:

(i)	For Mr. X, who engaged a domestic servant for Rs. 500 per month, his employer reimbursed the entire salary paid to the domestic servant i.e. Rs. 500 per month
(ii)	For Mr. Y, he was provided with a domestic servant @ Rs. 500 per month as part of remuneration package.

You are required to comment on the taxability of the above in the hands of Mr. X and Mr. Y, who are not specified employees

Discuss the following with regard to:

3x6=18

(a)

Deductions in respect of Donations for Scientific Research and Development U/S 80GGA of the Income Tax Act, 1961.

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	(b)	Summary Assessment U/S 143(1) of the Income Tax Act, 1961.
	(c)	Deductions allowable U/S 57 of the Income Tax Act, 1961, in respect of Income from other sources.
4.	Write short notes on any three of the following:		3x5=15
	(a)	Clubbing of Income of Minor children in the hands of Parent.
	(b)	Deduction based on actual payment under Sec. 43B of the Income Tax Act, 1961.
	(c)	Exemption in respect of encashment of Leave salary.
	(d)	Computation of Capital Gains in the case of 'Slump Sale' U/S 50B of the Income Tax 1961.
5.	(a)	Discuss briefly about Central Sales Tax Appellate Authority U/S 19 of the CST Act.	7

(b)

(i)	M/s Snow White Ltd., Mumbai sells iron rods to M/s Hyderabad Ltd. in Vijayawada, both of them are Registered Dealers for a value of Rs. 10,00,000 inclusive Central Sales Tax @ 4%. The Local Sales Tax on iron rods in Mumbai is 3%.	2
	Ascertain the Central Sales Tax payable.
(ii)	If Hyderabad Ltd. were unable to submit form 'C', being a unregistered dealer, what will be the Central Sales Tax liability, if the Local Sales Tax rate is 12%?	2

	(c)	Discuss briefly about the liability of a company in liquidation under Central Sales Tax Act.	4
6.	State with reasons, whether the following is True or False under the CST Act:		5x2=10
	(a)	Electricity supplied will not come within the meaning of 'Goods' under CST Act.
	(b)	The supply of Aviation Spirit by a petroleum dealer from his depots at an Airport in India to an Aircraft proceeding abroad is an export out of India eligible for exemption under CST.
	(c)	In respect of Declared Goods, Central Sales Tax can exceed 4% for Sales to Government.
	(d)	Weighment charges charged separately from buyers will not form part of Sale price.
	(e)	To avail concession in CST, in respect of Sales to Registered dealers, 'Form D' is to be furnished by the dealer.