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Particulars Rs.
I. Income from Mr. Balu’s own business 48,000
II. Salary of Mrs. Balu, a dermatologist 80,000
III. Minor son Deepak (earning interest on fixed deposits with ABC Ltd.,
which were gifted to him by his grand father) 15,000
IV. Minor daughter Priya gave a dance performance and received
remuneration 1,00,000
V. Deepak got winnings from lottery (Gross) 2,00,000
The total income of the Mrs. Balu for the assessment year 2007-08 is
(a) Rs.2,93,500
(b) Rs.2,39,500
(c) Rs.4,43,000
(d) Rs.3,43,000
(e) Rs.2,43,000.
(2 marks)
< Answer >
62. Mr. Dhananjay, a 67 year old resident Indian has disclosed his taxable income of previous year 2006-07
as Rs.7,00,000. His tax liability for the assessment year 2007-08 is
(a) Rs.1,56,500
(b) Rs.1,35,000
(c) Rs.1,50,960
(d) Rs.1,48,000
(e) Rs.1,75,593.
(2 marks)
< Answer >
63. Section 4 of the Central Excise Act, 1944 provides for exclusion of some expenses in assessable value.
Which of the following expenses is excluded?
(a) Packing cost
(b) After sales service in warranty period
(c) Interest on receivables
(d) Design and consultancy charges
(e) Expenses incurred by buyer on behalf of manufacturer.
(1 mark)
< Answer >
64. Axle Ltd. declares a bonus of Rs.1,75,000 to its employees for the previous year 2006-07. Out of this,
an amount of Rs.75,000 is paid in the month of July, 2007, Rs.50,000 in the month of September, 2007
and the balance in the month of December 2007. The amount that can be claimed by Axle Ltd. in its
return of income for the assessment year 2007-08 is
(a) Rs.1,75,000
(b) Rs.1,25,000
(c) Rs. 75,000
(d) Rs. 50,000
(e) Nil.
(2 marks)
< Answer >
65. The indexed cost of the acquisition is applicable to
(a) Sale of the long term debentures
(b) Sale of long term assets like house property
(c) Sale of depreciable asset
(d) Sale of the shares in an Indian company by a non-resident
(e) Sale of goodwill of a business.
(1 mark)
< Answer >
66. Which of the following statements is false regarding valuation of medical facilities provided to
employees under the Income Tax Act, 1961?
(a) Cost of medical facility incurred in a hospital maintained by the employer is not taxable
(b) Cost of medical facility incurred or reimbursed by an employer where the hospital is
maintained by the Central Government is not taxable
(c) Medical insurance premium reimbursed by the employer is chargeable to tax
(d) Cost of medical facility amounting to Rs.14,000 incurred in a private clinic by the
employee, reimbursed by the employer is not taxable
(e) Cost of medical facility incurred for a dependent brother in a hospital maintained by
State Government is not taxable.
(1 mark)
< Answer >
67. Mr. Prabhu, who is 22 years of age received rent of Rs.1,00,000 from his tenant, Mr. Sukanth for the
year 2006-07. Income of Mr. Prabhu from business is Rs.3,50,000. The taxable income of Mr. Prabhu
for the assessment year 2007-08 is
(a) Rs.3,50,000
(b) Rs.1,00,000
(c) Rs.4,20,000
(d) Rs.4,50,000
(e) Rs.2,50,000.
(2 marks)
< Answer >
68. Redhills School, Faridabad is owned and maintained by Axion Ltd., a manufacturing company. The
books of account of the school and Axion Ltd. are maintained separately.
Mr. Neelam is an employee of the company and his dependant brother is a student in the said school.
The cost of education of his dependent brother in similar institution is Rs.7,000 per month and the
amount charged to him towards the same is Rs.2,600 per month. What is the taxable value of the
perquisite for the assessment year 2007-08?
(a) Rs.52,800
(b) Rs.31,200
(c) Rs.84,000
(d) Rs.72,000
(e) Rs.40,800.
(2 marks)
< Answer >
69. Mr.Pranay, an individual, is the holder of the following properties as on March 31, 2007:
Particulars Amount (Rs.)
Vehicles for personal use 12,50,000
Cash on hand 1,20,000
Jewellery 7,50,000
House property (400 square meters) gifted to the smaller HUF consisting of
himself, wife and children 9,50,000
The gross wealth of Mr. Pranay as on March 31, 2007 was
(a) Rs.20,70,000
(b) Rs.22,70,000
(c) Rs.30,20,000
(d) Rs. 5,70,000
(e) Rs.15,20,000.
(2 marks)
< Answer >
70. The deduction under section 37(2B) of the Income Tax Act, 1961 in respect of expenditure incurred by
an assesee on advertisement in any souvenir, brochure, pamphlet or the like published by a political
party is
(a) 100 percent
(b) 50 percent
(c) 25 percent
(d) 10 percent
(e) Nil.
(1 mark)
< Answer >
71. Sunny Limited of Bangalore sent spare parts to Twinkle Limited of Mumbai through its branch office in
Mumbai. Under the Central Sales Tax Act, 1956, the transaction has to be regarded as
(a) Branch transfer by Head office
(b) Interstate sale
(c) Intrastate sale
(d) Sale by transfer of document of title
(e) Penultimate sale.
(1 mark)
Suggested Answers
Business Law - II (MB262): October 2007
1. Answer : (b) < TOP >
Reason : Income from farm house is exempt from tax under the head “Income from House Property. Hence (b) is
the correct answer. All other statements are true.
2. Answer : (a) < TOP >
Reason : National Defence Gold Bonds, 1980 is not a capital asset. All others are capital assets. Hence option (a) is
the correct answer.
3. Answer : (b) < TOP >
Reason : A person who is disabled is eligible for a deduction under section 80-U only if the disability is not less
than 40%. Hence the option (b), where the person has a Locomotor disability to the extent of 25% is not
eligible for the deduction.
4. Answer : (d) < TOP >
Reason : Annuity payable by an employer is chargeable under the head salaries. Hence, (d) is the correct answer.
All others are chargeable under income from other sources.
5. Answer : (e) < TOP >
Reason : The rent is taxable even if the assessee is not the owner of that property in that year. Hence (e) is the
correct answer.
6. Answer : (b) < TOP >
Reason : In the case of the transfer of the property to a wife with an agreement to live apart, the income from the
said property is taxable in the hands of the transferee (wife).
7. Answer : (c) < TOP >
Reason : Income from Profession 11,00,000
Salary and other income 3,10,000
Gross Total Income 14,10,000
Less: Deduction under 80C 1,00,000
Net Taxable Income 13,10,000
Gross qualifying amount for deduction under section 80C
Contribution toward National Savings
Certificate VIII issue 1,55,000
Public Provident Fund 15,000
Total 1,70,000
Net qualifying amount 1,00,000
8. Answer : (b) < TOP >
Reason : Long term capital loss can be set off only against long term capital gain. All the other statements are true
statements. Hence option (b) is the correct answer.
9. Answer : (c) < TOP >
Reason : Any capital gain arising from transfer of a house property by an individual or a HUF, which has been held
by the assessee for a period of more than 36 months before the sale or transfer and where the income from
such house property is taxable under the head ‘Income from House Property’ – is exempted under section
54. The house property may be let-out or self-occupied.
The only condition for availing this exemption is that the assessee should have purchased residential
house (whether old or new) within a period of one year before the transfer or within a period three years
after the date of transfer. The construction of such house should have been completed within 3 years from
the date of transfer. Date of commencement of construction is immaterial.
If such a new house is transferred within a period of three years from the date of its purchase or date of
completion of construction, the amount of capital gains arising therefrom, together with the amount of
capital gains exempted earlier, will be chargeable to tax in the year of sale of the new house property as
short-term capital gain.
10. Answer : (d) < TOP >
Reason : The annual value in case of the self occupied property is taken to be nil. Only the interest on the house
loan can be claimed by an assessee and he is not entitled to claim any deduction in respect of the municipal
taxes or the standard deduction. There is no separate deduction allowed in respect of the repairs and
insurance. Hence the option (d) is correct.
11. Answer : (e) < TOP >
Reason : Calculation of the tax liability of Mr.Ramana for the assessment year 2007-08: Taxable Income:
Particulars Rs.
Income from salaries 4,25,000
Income from Business 1,15,000
Income from lotteries (gross) 1,40,000
Taxable income 6,80,000
12. Answer : (d) < TOP >
Reason : As per the definition of the manufacture as per the Central Excise Act, 1944 a new and different article
must emerge having a distinct name and character or use. The following have been held as not amounting
to manufacture under the Central Excise Act:
• Printing and lacquering plain tubes and containers of aluminium bought from the market
• Straightening of steel wires and cutting them into the required sizes
• The processes of cleaning, cutting, deep freezing and packing green peas
• Tanned leather cut into straps.
De-husking of paddy to rice is treated as manufacture as a new and different article has emerged. In State
of Karnataka v. Raghurama Shetty, it was rightly held that de-husking of paddy into rice is a
manufacturing process as rice is a distinct commercially different commodity from paddy. Hence, (d) is
correct answer.
13. Answer : (d) < TOP >
Reason : Inclusion of assets held by minors in the parent’s wealth is dealt by section 4(1) (a) (ii) of the Wealth Tax
Act, 1957. According to this section the assets acquired by minor shall be included in the wealth of parent
if the assets are held by a minor son of the parent (d). It shall not be included if assets held by a minor who
is suffering from any disability as specified u/s 80U of the Income Tax Act (a); Assets held by a married
minor daughter (b) shall not be included in the wealth of the parent. The assets of a minor acquired by
him/her out of his/her abilities, skill, knowledge and experience (c) will not be clubbed with the assets of
the parent. The assets acquired by a minor from manual work (e) shall not be included in the net wealth of
a parent.
14. Answer : (d) < TOP >
Reason : A return filed by an assessee for any previous year at any time before one year from the end of the
assessment year or before the assessment is completed, whichever is earlier in case he has failed to file a
return within the time allowed under section 139(1) is known as belated return.
15. Answer : (d) < TOP >
Reason :
Sales CST Gross sales
Sale to B (Including taxes) 1,75,000 7,000 1,82,000
Sale to C 1,64,000 6,560 1,70,560
3,39,000 13,560 3,52,560
Sales returns within 6
40,000 1,600 41,600
months