CWA/ICWA Inter :: Business Taxation: December 2006

I—8(BTN)
Revised Syllabus

Time Allowed : 3 Hours Full Marks : 100
The figures in the margin on the right side indicate full marks
Section — I(50 marks)
Answer Question No. 1 which is compulsory and any two from the rest
from this Section.
Marks
1.

All answers should be on basis of provision relating to Income Tax assessment year 2006-07.
(a) Choose the correct answer:
(i)

Validity period of stay of recovery granted by ITAT is
(A)180 days
(B)One Year
(C)Till final order is passed by Tribunal
(D)Three years.

(ii)

Expenditure incurred in carrying out illegal business is
(A)Not allowable as deduction in any case.
(B)Allowable as deduction, if gross total income is less than Rs. 5 lakhs.
(C)Allowable as deduction in all cases.
(D)Allowable as deduction, if income from illegal business is offered to tax.

(iii)

Any income chargeable under the head "Salaries" is exempt from tax under section 10(6) (viii), if it is received by any non-resident individual as remuneration for services rendered in connection with his employment in a foreign ship where his total stay in India does not exceed a period of _______ days in that previous year.
(A)90
(B)182
(C)60
(D)120.

(iv)

If any expenditure is incurred by an Indian company wholly and exclusively for the purpose of amalgamation or demerger, the said expenditure is:
(A)Not allowable as a deduction in computing "Profits and gains from business or profession".
(B)Fully deductible as revenue expenditure in the year in which it is incurred.
(C)

Allowable as a deduction, spread over eight successive previous years beginning with the previous year in which the amalgamation or demerger taken place.

(D)

Allowable as a deduction, spread over five successive previous years beginning with the previous year in which the amalgamation or demerge taken place.

 1x4

 
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( 2 )

I—8(BTN)
Revised syllabus
Marks
(b) Fill up the blanks:
(i)

The additional or accelerated depreciation, for an eligible assessee, for machinery installed and used after 31.03.2005 is ______% of _______ of the machinery.

 ½+½
(ii)

While Fringe Benefit Tax _______ (is/is not) a permissible business expenditure, Banking Cash Transaction Tax _______ (is/is not).

 ½+½
(iii)

The maximum amount of permissible deduction under section 89C, subject to overall ceiling of Rs. 1,00,000, for repayment of principal part of eligible housing loan is Rs. ______ and that of interest is Rs._______.

 ½+½
(iv)

The basic exemption limit in case of non-resident individual being a senior citizen is Rs. _______.

 ½
(v)

To claim the benefit under section 10A, SEZ undertaking having a turnover of Rupees two crores, should file the return of income on or before_________.

 ½
(C) State true or false with reasons:
(i)

Rental income from residential property owned by a company carrying on business of property rentals is taxable under the head "Income from house property".

(ii)

Surplus on sale of motor car on which depreciation has been allowed for 4 years by proprietor of a business will be taxed as long-term capital gain.

(iii)

Business expenses are allowed to be deducted from business income even if they are in the nature of personal expenditure of the assessee, as long as they are reasonable.

 2x3
2. Write short notes on:
(a) Exemption of income from international sporting event; 5
(b) Tax treatment of Zero coupon bonds: 4
(c) Please advise, with reasons, regarding admissibility of the following expenditure in computing the business income:
(i)Interest for late payment/non-payment of advance tax;
(ii)Legal charges for obtaining loan from financial institutions;
(iii)Expenses incurred in developing software program.
(iv)Fess paid to obtain licence to investigate and search minerals;
(v)
(A)Penalty paid for contravening provisions of Central Excise Act;
(B)Penalty of a compensatory nature paid for breach of a contract;
(vi)Royalty paid by the assessee for user of trademark of another company;
(vii)Annual listing fees paid to stock exchanges;
(viii)Insurance premia paid by a firm on life insurance policies of its partners.
 9
3. (a)

Should partnership firms compulsorily file return of income from assessment year 2006-07 onwards? Briefly explain. What is the obligation in case of individual, HUF, AOP or BOI?

 5
(b)

Under the Wealth-tax Act, 1957, what is the effect of transfer of assets to an AOP otherwise than under an irrevocable transfer?

 6
(c)

How are residential status and citizenship status determined under the Wealth-tax Act, 1957?

 7

 
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( 3 )

I—8(BTN)
Revised syllabus
Marks
4. (a)

For the assessment year 2006-07, net agricultural income of Mrs. X (aged 47 years) is Rs. 8,10,000, non-agricultural income is Rs. 2,28,300, Mrs. X pays Rs. 27,000 as life insurance premium for an assured sum of Rs. 3,00,000 on the life of her major son, who is not dependent on her and has his own sources of income. Determine her tax liability.

 8
(b)

Please state the time limit and conditions for issue of notice of reassessment under sections 148 and 149 of the Income-tax Act, 1961.

 5
(c)

'Y', a foreign citizen (not being a person of Indian origin), comes to India, for the first time in the last thirty years on March 20, 2005. On September 1, 2005, he leaves India for Nepal on a business trip. He comes back on February 20, 2006. Determine his residential status under the Income-tax Act, 1961 for the asst. year 2006-07.

 5
Section — II
(50 marks)
Answer Question No. 5 which is compulsory and any two from the rest
in this Section
5. (a) Answer the following giving brief comments where applicable:
(i)

Fill in the blanks:
Captive Consumption means________.

(ii)

An SSI unit manufacturing goods with other's brand name is not entitled to any exemption from duty. However, it can avail SSI exemption, if goods are manufactured in a specific area. Which is that area?

(iii)

A dealer in Patna sold to a ship, goods for consumption on board the ship at Mumbai port. The sale will be
(A)Inter-State sale
(B)Sale in course of export
(C)Inter-State sale within Maharashtra
(D)None of above.

(iv)

VAT rate of gold, if sold within State of Gujarat, is 1%. If gold is sold to a unregistered buyer in Delhi, the CST rate will be
(A)Nil
(B)1%
(C)4%
(D)10%.

(v)

An assessee was availing SSI exemption from 1-4-2005. He crossed turnover Rs. 100 lakhs on 15-11-2005 and started payment of excise duty. He had received machinery on 10-11-2005 one which excise duty paid was Rs. 3,20,000. He intends to avail Cenvat credit of this duty. Can he do so?

(vi)

State true or False:
Trade discount is permissible as deduction from assessable value for Central Excise, only if it is given before removal from factory. Discount given later is not allowable as deduction.

(vii)

State True or False:
Dharmada (Charity) charged in invoice is required to be included while calculating Assessable Value for purpose of Central Excise.

(viii)

Fill up the blanks:
A SSI unit is eligible for exemption up to Rs. _______ lakhs. However, if its turnover in the previous financial year was more than Rs. _______ lakhs, it is ineligible for exemption from duty in current year.

 1x8

 
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( 4 )

I—8(BTN)
Revised syllabus
Marks
5. (b) Following transactions took place in a month:
(i)

The manufacturer received inputs with Invoice evidencing payment of duty of Rs. 42,800 on 2nd. The invoice was marked 'Original for Buyer'.

(ii)

400 pieces of Final products were dispatched under Invoice on 6th. Assessable value was Rs. 80 per piece and excise duty rate was 16%.

(iii)

1,000 pieces of input 'I' were sent outside for job work on 10th. When the inputs were received, credit of duty of Rs. 15,000 was taken on those inputs.

(iv)

Some inputs were purchased from a manufacturer in Chennai in March, 2004. These were directly dispatched from factory of the supplier to factory of job worker. Duty paid on the inputs is Rs. 40,000. Out of those inputs, 45% on inputs were received after carrying out the job work, on 18th.

(v)

An imported consignment of raw materials was received on 19th. The materials were not imported directly, but was purchased from an importer. The invoice of importer showed that customs duty paid was Rs. 26,000, special duty of Rs. 3,000, additional customs duty paid was Rs. 13,200 and anti dumping duty paid was Rs. 5,400. The importer is registered with Central Excise authorities.

(vi)

Goods worth Rs. 2,00,000 were dispatched on 24th. Rate of duty was 16%.

There was no opening balance in PLA or Cenvat Credit account at the beginning of the month. Calculate the amount of excise duty payable.
 1x6
6. (a)

Elaborate the concept of transaction values as assessable value under Central Excise Act, 1944.

 13
(b)

Enumerate the circumstances when raw material supplier will be treated as manufacturer of goods.

 5
7. (a)
(i)

500 pieces of inputs were received. Duty paid on these goods was Rs. 2,500. These were issued to production. While on production line, a fire broke out and 200 pieces of inputs lying on the shop floor were destroyed.

(ii)

1000 litres were received on which duty paid was Rs. 18,000. These were issued to production. Out of these, 940 litres of final products were manufactured. 60 litres of inputs were lost in process
Discuss eligibility of Cenvat credit in the above cases.

 2+2
(b) A manufacturing unit undertook the following job work:
(i)

Machining of raw material supplied by the customer: The material was sent under Cenvat challan. Job work charges were Rs. 30,000. Cost of the raw material was Rs. 3,50,000. These were returned after job work.

(ii)

Repairs of a component: Original cost of component was Rs. 25,000 Repair charges were Rs. 3,000. The component was sent by customer under cover of his letter.
If excise duty is payable @ 15%, find out total duty payable and procedure to be followed by manufacturer for dispatch in each case after carrying out the work.

 4+4
(c)

An Indian company imported certain consumer goods from abroad with MRP printed in packing cartons. In respect of similar goods manufactured in India, excise duty is payable on basis of MRP. The importer will be using the goods for further processing. Customs authorities contend that CVD will be calculated based on the MRP printed in the goods. Is this proper? Will your answer be different, if the goods are imported for retail sales?

 6
8. (a)

Explain how Cenvat provisions are used for providing duty relief to exported goods.

 5
(b) Write a note on first appraisement and second appraisement systems under the Customs Act, 1962. 5
(c)

The gross turnover of a dealer for the financial year 2005-06 is Rs. 54 lakhs (including 'CST). The CST on goods transacted by the company are subject to local State Sales-tax @ 7%.
The dealer made inter-State sales of Rs. 24 lakhs to registered dealers, which includes erection charges of Rs. 3 lakhs, excise duty of Rs. 1,50 lakhs and packing charges of Rs. 60,000. Freight and delivery charges shown separately in the invoice is Rs. 60,000.
The dealer also made inter-State sales aggregating to Rs. 30 lakhs to unregistered dealers, which included excise duty of Rs. 2.50 lakhs and transport charges of Rs. 1 lakh charged separately in the invoice. There was a sales return of goods worth Rs. 50,000 (invoice value) within 6 months in respect of sales to unregistered dealers.
Calculate the CST payable and turnover of the company.

 8

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