CA PE - II :: Income Tax and Central Sales Tax : May 2005

Roll No…………………
Total No. of Questions—6]	[Total No. of Printed Pages—8
Time Allowed — 3 Hours	Maximum Marks — 100
XL
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
Workings notes should form part of the answer. Wherever required, suitable assumptions may be made by the candidate.
Marks

(a)

From the following particulars furnished by Mr. X for the year ended 31.3.2005, you are requested to compute his total income and tax payable for the assessment year 2005-06:

(1)	Mr. x retired on 31.12.2004 at the age of 58, after putting in 25 years and 9 months of service, from a Private company at Mumbai.
(2)	He was paid a salary of Rs. 25,000 p.m. and house rent allowance of Rs. 6,000 p.m. He paid rent of Rs. 6,500 p.m. during his tenure of service.
(3)	On retirement, he was paid a gratuity of Rs. 3,50,000. He was not covered by the payment of Gratuity Act. His average salary in this regard may be taken as Rs. 24,500. Mr. X had not received any other gratuity at any point of time earlier, other than this gratuity.
(4)	He had accumulated leave of 15 days per annum during the period of his service; this was encashed by Mr. X at the time of his retirement. A sum of Rs. 3,15,000 was received by him in this regard. His average salary may be taken as Rs. 24,500.
(5)	After retirement, he ventured into textile business and incurred a loss of Rs. 80,000 for the period upto 31.3.05.
(6)	Mr. X has invested Rs. 22,500 in recognised Provident fund, Rs. 40,000 in public provident fund and Rs. 37,500 in National Savings Certificates.

P.T.O.

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Marks

(b)

Mr. Y submits the following information pertaining to the year ended 31st March, 2005:

(1)	On 30.11.2004, when he attained the age of 60, his friends in India gave a flat at Surat as a gift, each contributing a sum of Rs. 20,000 in cash. The cost of the flat purchased using the various gifts was Rs. 3.4 lacs.
(2)	His close friend abroad sent him a cash gift of Rs. 75,000 through his relative, for the above occasion.
(3)	Mr. Y sold the above flat on 30.1.2005 for Rs. 3.60 lacs. The Registrar's valuation for stamp duty purposes was Rs. 3.7 lacks. Neither Mr. Y nor the buyer, questioned the value fixed by the Registrar.
(4)	He had purchased some equity shares in X Pvt. Ltd. on 5.2.2004 for Rs. 3.5 lacs. These shares were sold on 15.3.2005 for Rs. 2.8 lacs.

You are requested to calculate the total income of Mr. Y for the assessment year 2005-06 [cost inflation index for F.Y. 2003-04 —463 and F.Y. 2004-05—480].

(c)

Total income of Mrs. Priti, aged 64, a resident of Mumbai for the financial year 2004-05 is Rs. 1,10,500. It includes an income of Rs. 22,000 from the business of dealing in shares on which she has paid securities transaction tax of Rs. 1,500. She has also deposited Rs. 15,000 in her P.P.F. account with the State Bank of India. Compute her tax liability for the A.Y. 2005-2006.

EITHER

(a)

Explain briefly the tax treatment of compensation received in restraint of trade, under Section 28 (va).

(b)

What are Intangible assets? Give four examples. What is the rate of depreciation on a block of intangible assets?

(a)

Briefly explain about aggregation of Agricultural income for rate purposes. How will income-tax be computed where an individual derives agricultural as well as non-agricultural income?

P.T.O.

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Marks

(b)

Explain whether any deduction is available from the gross total income of a company in respect of any contribution given to a Political party.

(c)

How is "dividend stripping" enforced by Section 94(7) of the Income-tax Act, 1961?

(a)

Mr. Sukhvinder is engaged in the business of plying goods carriages. On 1st April, 2004, he owns 10 trucks (out of which 6 are heavy goods vehicles). On 2nd May, 2004, he sold one of the heavy goods vehicles and purchased a light goods vehicle on 6th May, 2004. This new vehicle could however be put to use only on 15th June, 2004.

Compute the total income of Mr. Sukhvinder for the assessment year 2005-06, taking note of the following data:

		Rs.	Rs.
Freight Charges collected			8,70,000
Less:	Operational expenses	6,25,000
	Depreciation as per Sec. 32	1,85,000
	Other office expenses	15,000	8,25,000
Net Profit			45,000
Other business and non-business income			70,000

(b)

Choose the correct answer with reference to the provisions of the Income-tax Act, 1961 (All sub-divisions relate to the assessment year 2005-06):

11x1=11

(i)	Surcharge of 10% is payable by an individual where the total income exceeds:
	(a) Rs. 7,50,000 (b) Rs. 8,50,000 (c) Rs. 10,00,000 (d) None of the three.

P.T.O.

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Marks

(ii)	Additional surcharge (Education cess) of 2% is payable on
	(a) Income-tax (b) Income-tax plus surcharge, if any (c) Surcharge (d) Not payable by any assessee.
(iii)	Family pension received by a widow of a member of the armed forces where the death of the member has occurred in the course of the operational duties in the circumstances and subject to prescribed conditions, is
	(a) Exempt upto Rs. 3,00,000 (b) Exempt upto Rs. 3,50,000 (c) Totally exempt under Section 10(19) (d) Totally chargeable to tax.
(iv)	In respect of shares held as investment, while computing the capital gains, securities transaction tax paid in respect of sale of listed shares sold in a recognized stock exchange.
	(a) Is deductible upto Rs. 1,00,000 (b) Is deductible upto Rs. 2,00,000 (c) Is deductible where capital gains is below Rs. 5,00,000 (d) Is not deductible at all.
(v)	Gift of Rs. 5,00,000 received on 10th July, 2004 through account payee cheque from a non-relative regularly assessed to income-tax, is
	(a) A capital receipt not chargeable to tax (b) Chargeable to tax as income from other sources (c) Chargeable to tax as business income (d) Exempt upto Rs. 25,000 and balance chargeable to tax as income from other sources.

P.T.O.

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Marks

(vi)	For an individual deriving total income of Rs. 1,01,000 tax rebate under Section 88D is
	(a) Rs. 83,000 (b) Rs. 82,000 (c) Rs. 84,000 (d) None of the above.
(vii)	The maximum rebate allowable under Section 88E to an individual deriving income of Rs. 2,00,000 from taxable securities transactions, who has paid securities transactions tax of Rs. 14,600 and whose average rate of income-tax is 8% is
	(a) Rs. 16,000 (b) Rs. 20,600 (c) Rs. 14,600 (d) None of the above.
(viii)	For an individual who has derived short-term capital gains of Rs. 40,000 from transfer of listed equity shares after 1.10.2004, with other income of Rs. 20,000 (these two items above making up his total income), income-tax payable in respect of short-term capital gains is
	(a) Rs. 4,000 (b) Rs. 8,000 (c) Rs. 1,000 (d) None of the above.
(ix)	For an employee in receipt of hotel expenditure allowance for his three children, the maximum annual allowance exempt under Section 10(14) is
	(a) Rs. 10,800 (b) Rs. 7,200 (c) Rs. 9,600 (d) Rs. 3,600

P.T.O.

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Marks

(x)	For an eligible new industrial undertaking fulfilling the conditions, additional depreciation in respect of a machinery costing Rs. 10 lacs acquired and installed on 3.10.2004 is
	(a) Rs. 75,000 (b) Rs. 1,50,000 (c) Rs. 1,00,000 (d) None of the above.
(xi)	The time limit for passing an order of revision under Section 263 by the Commissioner of income-tax, where the same is to give effect to a direction by the High Court is
	(a) Two years from the date of direction (b) Three years from the date of direction (c) Two years from the end of the financial year in the direction is given (d) There is no time limit.

Write short notes on any three of the following:

3x6=18

(a)

Additional depreciation

(b)

Signatory to return of income filed by an individual and partnership firm

(c)

"Income accruing" and "Income due". Can an income which has been taxed on accrual basis be assessed again on receipt basis?

(d)

Exceptions under Section 10D as regards exemption of any sum received under a life insurance policy.

(a)

Explain the term "declared goods". Furnish any eight items of such declared goods under the CST Act.

(b)

Briefly discuss about transactions involving inter-state transfer of goods otherwise than by way of sale. What is the proof to be submitted in this regard under the CST Act?

(c)

What is the extent of liability of Director of a Private Company in liquidation?

P.T.O.

(7)

Marks

(a)

Discuss whether the following statements are true and false, under the CST Act:

4x2=8

(i)	An Adtiya who brings together the buyer and seller of goods for commission and does not effect sale on his own account but brokers between the buyers and sellers for setting the price is not liable to be registered under the CST Act.
(ii)	An Insurance Company, which has taken possession of damaged goods of the insured is a dealer if such goods are sold by the insurance company later on.
(iii)	Profit motive is essential to call an activity a "Business" under the CST Act.
(iv)	CST is leviable on transactions of leasing/hiring of assets for a defined period.

(b)

Choose the correct answer with reference to the provisions of the CST Act :

4x1=4

(i)	The collection of Central Sales Tax is done by (a) the State in which the movement of goods has first taken place; (b) the State in which the movement of goods ends; (c) the Central Government directly (d) none of the agencies above.
(ii)	R Oils Ltd., New Delhi sent via its pipeline special purified oil to B Ltd. in Noida, Uttar Pradesh, through its branch at Noida. This transaction has to be regarded as : (a) Branch transfer by HO to branch (b) Branch transfer by HO to branch and then sale within State by the branch of R Oils Ltd. to B Ltd. (c) Inter-state sale (d) Intra-state sale

P.T.O.

(8)

Marks

	(iii)	X effected his first inter-state sale on 12.3.2005 and applied for registration on 10.4.2005. The effective date of registration will be : (a) 10.4.2005 (b) 12.3.2005 (c) 12.4.2005 (d) Date on which the registering authority issues the registration certificate.
	(iv)	In case of inter-state sale to Government, the applicable rate of tax is (a) Nil (b) Always 4% (c) 4% or the sales tax rate for the concerned goods in the appropriate State, whichever is higher. (d) 4% or the sales tax rate for the concerned goods in the appropriate State, whichever is lower.