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IPCC Taxation (Income-tax) November 2014 - Solution

IPCC Taxation (Income-tax)


November 2014 - Solution
Answer 1(a) 10 marks
Computation of Total Income of Mr. Devansh for AY 2014-15
Particulars
Amount
Amount
Rs.
Rs.
Income u/h Income from House Property
50% portion let out
Gross Annual Value (Actual rent assumed to be GAV in absence of
1,65,000
information)
Less: Municipal Taxes (36,000 x 50%)
18,000
Net Annual Value
1,47,000
Less: Deductions u/s 24
Standard deduction @ 30% of NAV
44,100
Interest on borrowed capital
Nil
44,100
1,02,900
25% portion self-occupied
Nil
Income u/h Profits & Gains of Business or Profession
Net Profit as per P&L A/c
Add: Fire Insurance (for let out & self-occupied portion) (10,000 x
75%)
Add: Income-tax & Wealth-tax (not allowed as business expense as
per section 40(a))
Add: Household expenses (being personal expenses)
Less: Weighted deduction for contribution to university (75% of
1,00,000)
Add: Municipal Taxes (for let out & self-occupied portion) (36,000
x 75%)
Less: Cash gift (part of Income u/h Income from Other Sources)
Less: Interest on debentures (part of Income u/h Income from
Other Sources)
Income u/h Capital Gains - Sale of 5,000 bonus shares
Full Value of Consideration
Less: Indexed Cost of Acquisition
Long-term Capital Gains (Period of Holding more than 12 months)
CA. Pankaj Saraogi
(98108 08129; tax@saraogi.co.in; www.saraogi.co.in)

Amount
Rs.

1,02,900

1,32,200
7,500
27,000
42,500
(75,000)
27,000
(1,20,000)
(3,600)

37,600

2,20,000
Nil
2,20,000

IPCC Taxation (Income-tax) November 2014 - Solution


Particulars
Income u/h Income from Other Sources
Cash Gift (not taxable because received on the occasion of marriage)
Interest on debentures (3,600 / 90%)
Acquisition of vacant site (2,80,000 1,05,000)
Interest on Post Office SB A/c

Amount
Rs.

Amount
Rs.

Amount
Rs.

Nil
4,000
1,75,000
Exempt

1,79,000

Gross Total Income


Less: Deductions u/c VI-A
80C Life Insurance Premium (restricted to 15% of Rs.
3,00,000)
Total Income

5,39,500
45,000
4,94,500

Computation of tax payable by Mr. Devansh for AY 2014-15


Particulars
Amount
Rs.
Long-term Capital Gains (2,20,000 @ 20%)
Balalnce Rs. 2,74,500 at slab rates of Rs. 2,00,000
On first Rs. 2,00,000
Nil
On balance Rs. 74,500 @ 10%
7,450.00
Less:

Rebate u/s 87A

Add: Education Cess @ 2%

989.00
494.50

Total tax payable


Less: TDS on Interest on Debentures
Net Tax Payable
Net Tax Payable (R/o)

Amount
Rs.
44,000.00

7,450.00
51,450.00
2,000.00
49,450.00
1,483.50
50,933.50
400
50,533.50
50,530.00

Answer 2(a) 8 marks


Computation of Total Income for the A.Y. 2014-15
Particulars
Mrs. Geetha
(Non-resident)
1. Income from profession in Malaysia (set up in India) received there
(Note 2)
2. Profit from business in Delhi, but managed directly from Malaysia
40,000
(Note 2)
3. Rent from property in Malaysia deposited in a Bank at Malaysia, and
later on remitted to India through approved banking channels (Note
2)
4. Dividend from PQR Ltd, an Indian company [Exempt u/s 10(34)]
5. Dividend from a Malaysian company received in Malaysia (Note 2)
6. Cash gift received from her friend on her birthday (Note 3)
CA. Pankaj Saraogi
(98108 08129; tax@saraogi.co.in; www.saraogi.co.in)

Mrs. Leena
(Resident)
-

8,000
51,000

CA. PANKAJ SARAOGI


FCA 10th Rank, B.Com.(H)-SRCC, CS Final, M.Com.,
DISA (ICAI), B.Ed., PWC Ex-employee, Corporate Trainer
+91 98108 08129; tax@saraogi.co.in; www.saraogi.co.in;
Facebook: https://www.facebook.com/Tax.Saraogi

UPCOMING BATCHES SCHEDULE

CA FINAL DIRECT TAX LAWS


Batch

I
II
III
IV

Conducted
by

Days & Timings

MWF 6 pm to 9 pm
Sun. 10 am to 3 pm
Tue. Thu. Sat. Sun. 6.00pm
ICAI-NIRC
to 9.00pm
Mon. to Fri.
ICAI-NIRC
6.30am to 9.30am
Mon. to Fri.
Pro Education
6.30am to 9.30am
ICAI-NIRC

Starting Date

Completion
Date

Fees

Venue

01/12/2014

06/04/2015

6,000

02/12/2014

07/04/2015

6,000

01/12/2014

20/03/2015

5,500

01/12/2014

20/03/2015

Vary from
city to city

Shakarpur,
Delhi
Prashant
Vihar, Delhi
Vishwas
Nagar, Delhi
28 centres
across India

Fees

Venue

Vary from
city to city
Vary from
city to city

28 centres
across India
28 centres
across India

CA IPCC TAXATION
Batch

Conducted
by

Pro Education

II

Pro Education

Days & Timings


TTS 10 am to 1 pm
Sun. 7am to 9.30am
TTS 10 am to 1 pm
Sun. 7am to 9.30am

Starting Date

Completion
Date

25/11/2014

11/04/2015

31/01/2015

31/05/2015

VENUE DETAILS
1. ICAI NIRC, Shakarpur, Delhi U-37, 38, Shakarpur, Delhi 110092. Near Laxmi Nagar Metro
Station. Ph.: 95409 99195, 95409 99189, 3010 0500. Web: www.nircstudent.org
2. ICAI NIRC, Prashant Vihar, Delhi E-52, Prashant Vihar, Sector-14, Rohini. Near Pitampura
Metro Station. Ph.: 95409 99195, 95409 99189, 3010 0500. Web: www.nircstudent.org
3. ICAI NIRC, Vishwas Nagar, Delhi ICAI Bhawan, Near KarkardoomaCourt, Vishwas Nagar,
Delhi. Ph.: Rakesh - 9873214147, 9540993436. Web: www.nircstudent.org
4. Pro Education: Delhi Nirman Vihar, Pitampura, Paschim Vihar, South Extn., North Campus,
Uttam Nagar, Dwarka, C.R. Park; Rajasthan Jaipur Lalkothi, Jaipur Subhash Nagar, Jaipur
Mansarover, Jaipur Sodala, Alwar; Haryana Faridabad, Rohtak, Panchkula, Yamuna Nagar; Uttar
Pradesh Lucknow, Kanpur, Mathura; West Bengal Kolkata Hazra, Kolkata Sealdah; Punjab
Patiala, Chandigarh; Uttarakhand Dehradun; Odisha Bhubaneswar; Chhattisgarh Raipur;
Madhya Pradesh Jabalpur. Ph.: 8826 8825 00. Web: www.proeducation.in

IPCC Taxation (Income-tax) November 2014 - Solution


Particulars
7.
8.
9.
10.
11.
12.
13.

Mrs. Geetha
(Non-resident)
Agricultural income from land in Maharashtra (Note 4)
Past foreign untaxed income brought to India during the previous
year (Note 5)
Fees for technical services rendered in India, but received in Malaysia
25,000
(Note 2)
Income from a business in Pune (Note 2)
12,000
Interest on debentures in an Indian company (Note 2)
18,500
Short term capital gain on sale of shares of an Indian company (Note
15,000
2)
Interest on savings account with SBI
12,000
Gross Total Income
Less: Deductions u/c VI-A
- Deduction u/s 80C - Life insurance premium paid (assuming that
the same is less than 10% of actual capital sum assured).
- Deduction u/s 80TTA Interest on savings bank account (Note
6)
Total Income

Mrs. Leena
(Resident)
15,000
14,000
25,500
8,000

1,22,500

1,21,500

30,000

10,000

8,000

1,12,500

83,500

Notes:
1. Mrs. Geetha is a non-resident since she has been living in Malaysia since 1985. Her sister, Mrs. Leena, who
is settled in Indore, is a resident.
2. In case of residents, their global income is taxable as per section 5(1). However, as per section 5(2), in case
of a non-resident, only the following incomes are chargeable to tax:
(i) Income received or deemed to be received in India in such year; and
(ii) Income accruing or arising or deemed to accrue or arise in India during such year.
Therefore, income from profession in Malaysia, rent from property in Malaysia and dividend from
Malaysian company would not be taxable in the hands of Mrs. Geetha in India, since she is a non-resident
and such income was earned and received outside India. However, profit from business in Delhi, fees for
technical services rendered in India, income from business in Pune, interest on debentures in an Indian
company, short-term capital gain on sale of shares of an Indian company would be fully taxable in the
hands of Mrs. Geetha, even though she is a non-resident, since such income accrues in India.
3. Receipt of cash exceeding Rs. 50,000 from a non-relative is taxable u/s 56(2)(vii). Therefore, the sum of Rs.
51,000 received by Mrs. Leena from her friend on her birthday is taxable u/s 56(2)(vii).
4. Agricultural income from a land situated in India is exempt u/s 10(1) in the case of both residents and
non-residents.
5. Rs. 5,000 brought to India is not taxable in the previous year 2013-14 because it does not amount to
receipt of income in the previous year 2013-14.
6. Deduction u/s 80TTA is available to both residents and non-residents in respect of interest on savings
bank account, subject to a maximum of Rs. 10,000.

CA. Pankaj Saraogi


(98108 08129; tax@saraogi.co.in; www.saraogi.co.in)

IPCC Taxation (Income-tax) November 2014 - Solution


Answer 3(a)(i) 4 marks
Particulars

Rs.
in lacs

Bad debts written off (for the first time) in the books of account
Less: Credit balance in the Provision for bad and doubtful debts u/s 36(1)(viia) as on
31.3.2014
(i) Provision for bad and doubtful debts u/s 36(1)(viia) upto AY 2013-14
100
(ii) Current year provision for bad and doubtful debts u/s 36(1)(viia) [7.5% of Rs. 800
lakhs + 10% of Rs. 300 lakhs]
90
Deduction u/s 36(1)(vii) in respect of bad debts written off for A.Y.2014-15

210

190
20

Answer 3(a)(ii) 4 marks


Computation of Taxable Income of Charitable Trust for AY 2014-15
Particulars
Amount
Amount
Rs.
Rs.
Voluntary Contributions with specific direction that they shall form
part of corpus of the trust
Voluntary contribution without any specific direction
Income from Property held in trust
Less: Exemptions
Income applied in India
Donation to other trusts
Accumulation for Charitable Hospital
Accumulation upto 15% without any condition or balance
amount (whichever is less)
Taxable Income

Amount
Rs.
Exempt
19,20,000
8,16,000
27,36,000
8,50,000
84,560
14,00,000
4,01,440
Nil

Answer 4(a) 8 marks


Computation of Income u/h Salaries of Mr. Anand for the Assessment Year 2014-15
Particulars
Amount
(Rs.)
Basic salary
Bonus
House rent allowance
1,35,000
Less: Exempt (See Note 1)
18,000
Employer's contribution towards recognised provident fund in excess of 12% of
salary (i.e., Rs.1,10,000 -12% of Rs.7,20,000)
Gratuity
20,51,640
Less: Exempt (See Note 2)
10,00,000
Uncommuted pension [Rs.8,000 + (25% of Rs.8,000 x 2)]
Commuted pension
Less: Exempt (See Note 3)
Gross salary
CA. Pankaj Saraogi
(98108 08129; tax@saraogi.co.in; www.saraogi.co.in)

Amount
(Rs.)
7,20,000
36,000
1,17,000
23,600

10,51,640
12,000

4,50,000
2,00,000

2,50,000
22,10,240

IPCC Taxation (Income-tax) November 2014 - Solution


Less: Deduction u/s 16(iii) - Professional tax
Income from salary
Notes:
1.
HRA is exempt to the extent of least of the following:
Particulars
(i) Actual HRA received
(ii) Rent paid 10% of salary (Rs.10,000 10% Rs.80,000)
(iii) 40% of salary (40% of Rs.80,000)
2.

3.

4.

2,000
22,08,240

Amount
(Rs.)
1,35,000
2,000
32,000

Therefore, Rs.18,000 (Rs.2,000 x 9), being the least amount, is exempt u/s10(13A).
Anand is a private sector employee, covered by the Payment of Gratuity Act. Number of completed
years of service is 34 years. Gratuity is exempt to the extent of minimum of the following:
Particulars
Amount
(Rs.)
(i) Statutory limit
10,00,000
(ii) 15 days salary for every completed year of service (Rs.80,0003415/26)
15,69,231
(iii) Actual gratuity received
20,51,640
Therefore, Rs.10,00,000 is exempt u/s 10(10).
Commuted pension is exempt from tax as under:
Commuted value of 75% of usual pension: Rs.4,50,000
Commuted value of full pension: Rs.6,00,000 (i.e., Rs.4,50,000 / 0.75)
Amount exempt from tax is one-third of commuted value of full pension, i.e., 1/3 of Rs.6,00,000 =
Rs.2,00,000, as Anand is in receipt of gratuity at the time of retirement.
Accumulated balance of recognised provident fund is exempt from tax as Anand has rendered
continuous service of more than 5 years with his employer.

Answer 5(a)(i) 4 marks


Asset

Depreciation for whole


Mr. Gopi
year
No. of days
365
91
Plant & Machinery (Op.
12,00,000 x 15% =
1,80,000 x 91/365 = 44,877
WDV)
1,80,000
Plant & machinery (New
10,00,000 x 15%/2 =
Nil
Additions)
75,000
Building (Op. WDV)
25,00,000 x 10% =
2,50,000 x 91/365 = 62,329
2,50,000
Depreciation allowable for
5,05,000
1,07,206
AY 2014-15

Answer 5(a)(ii) 4 marks


Specified Business
1. setting up and operating a cold chain facility;
2. setting up and operating a warehousing facility for storage of agricultural produce;
3. production of fertilizer in India;
CA. Pankaj Saraogi
(98108 08129; tax@saraogi.co.in; www.saraogi.co.in)

Gopi Pipes (P) Ltd.


274
1,80,000 x 274/365 =
1,35,123
75,000
2,50,000 x 274/365 =
1,87,671
3,97,794

IPCC Taxation (Income-tax) November 2014 - Solution


4. setting up and operating a warehousing facility for storage of sugar;

Fiscal Incentives avaibale u/s 35AD


1. Capital expenditure incurred for these business can be claimed as expenditure of the year in which such
expenditure is incurred. In that case depreciation u/s 32 shall not be allowed on these capital expenditures.
2. Further, any capital expenditure incurred prior to commencement of business can be claimed as business
expense of the year in which such business is commenced provided same has been capitalised in the books
of accounts on the first day of the business.
3. Deduction shall be 100% or 150% of the capital expenditure incurred depending upon date of
commencement of business.
4. Capital expenditure, for this purpose, shall not include any expenditure incurred on the acquisition of any
land or goodwill or financial instrument

Answer 6(a)(i) 4 marks


1. Deduction for Subscription to notified Long-term Infrastructures Bonds was available u/s 80CCF but has
been discontinued. Therefore, no deduction avaible under chapter VI-A for AY 2014-15.
Deduction for Life Insurance Premium shall be available u/s 80C to the tune of Rs. 70,000 (being
maximum 20% of Rs. 3,50,000). For old policies, limit of 20% shall continue.
2. Emplyee can claim deduction u/s 80CCD of Rs. 30,000 (10% of Rs. 3,00,000 or actual contribution by
employer Rs. 40,000 whichever is lower). Rs. 40,000 shall be first included as income under head salaries
of employee.
Note: Limit of Rs. 1,00,000 u/s 80CCE shall not apply because deduction on account of employers
contribution to pension scheme u/s 80CCD is not counted towards limit provided u/s 80CCE.

Answer 6(a)(ii) 4 marks


Particulars
First Daughter
Less: Exempt u/s 10(16) scholarship (assumed received for education)
Less: Exempt u/s 10(32)
Second Daughter
Less: Exempt u/s 10(32)

Amount
(Rs.)
10,000
5,000
1,500
8,500
1,500

Third Daughter (since suffering from disability, therefore no clubbing)


Minor son
Less: Exempt u/s 10(32)
Income to be clubbed in the hands of Mr. Mittal

Amount
(Rs.)

3,500

7,000
Nil

40,000
1,500

38,500
49,000

Note: Gift by Mr. Mittal to his minor son and income therefrom of Rs. 20,000 shall not have any impact. Even
that income shall be clubbed in the hands of Mr. Mittal.

CA. Pankaj Saraogi


(98108 08129; tax@saraogi.co.in; www.saraogi.co.in)

IPCC Taxation (Income-tax) November 2014 - Solution

Answer 7(a)(i) 4 marks


1. TDS shall be deducted u/s 194E @ 20%. TDS shall be 20% of Rs. 27,000 = Rs. 5,400 + cess @ 3% = Rs.
5,562.
2. There shall be no TDS u/s 194-I because rent for the whole year does not exceed Rs. 1,80,000.
3. TDS shall be deducted u/s 194BB @ 30%. TDS shall be 30% of Rs. 1,50,000 = Rs. 45,000.
4. No TDS deductible u/s 194LA be State of Uttar Pradesh because amount paid does not exceed Rs.
2,00,000.

Answer 7(a)(ii) 4 marks


Filing of Return of Income on or before due date is necessary for carry forward of losses. This statement is
partially correct in terms of section 139(3) which states that to carry forward the losses under section 72, 73,
74 & 74A, assessee shall file Return of Income on or before due date specified u/s 139(1).
Section 139(3) covers up only for specified sections related to carry forward of losses. There are some other
sections viz,; which talsk about carry forward of losses but are not covered up by section 139(3), viz,; section
71B, 73A & 32(2), which menas that losses under thses sections can be carried forward even if Return of
Income is not filed on or before due date.

Restriction is in respect of losses under following sections only:


Section Nature
72
73
74
74A

Carry forward and set off of business losses


Losses in speculation business
Losses under the head "Capital gains"
Losses from certain specified sources falling under the head "income from other sources" (i.e.
loss in the activity of owning & maintaining race horses)

It means that following losses can be carried forward even if ROI is not filed on time:
Section Nature
71B
73A
32(2)

Carry forward and set off of loss from house property


Carry forward and set off of losses by specified business referred u/s 35AD
Unabsorbed depreciation

Answer 7(a)(iii) 4 marks


Yes, a political party is required to file Return of Income.
Section 139(4B) provides the provisions for filing of Return of Income by a political party.
If total income of political party (without claiming any exemption u/s 13A) is greater than maximum amount
which is not chargeable to tax i.e. Rs. 2,00,000, then filing of Return of Income by Chief Executive Officer of
such Political Party is mandatory and that too on or before due date of furnishing of Return of Income, which
shall always be 30th September (being audit compulsory).

CA. Pankaj Saraogi


(98108 08129; tax@saraogi.co.in; www.saraogi.co.in)