Income Tax

Part A Part B

Amendments Vital Notes Income Tax

2-8 9-82

Part A Amendment
1. Definition of Charitable Purpose
Any trust having charitable or religious purpose, shall be considered as charitable or religious trust. As per section 2(15), Charitable purpose includes, Relief of the poor, Spread of education, Providing medical relief, Preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest. The advancement of any other object of general public utility.

Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity;
Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is Rs. 25 lakhs or less in the previous year.

2. SEZ Developer / undertaking located in SEZ Dividend distributed by SEZ Developer covered by section 80-IAB / Undertaking located in SEZ covered by section 10AA Old provision: No CDT was payable by company; and Same is exempt from tax in the hand of Shareholders New provision: CDT will be payable by company; and Same is payable from tax in the hand of Shareholders 3. New business covered by section 35AD Eligible business: a) Setting up and operating cold chain facility b) Setting up and operating warehousing facility for storage of agricultural produce c) Laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network. d) Building and operating hotel of 2 stars or above anywhere in India. e) Building and operating any hospital with at least 100 beds anywhere in India. f) Developing and building a housing project under scheme for slum redevelopment. g) Developing and building a housing scheme for affordable housing framed by CG or SG and notified. (w.e.f. AY 2012-13) h) Production of fertilizer in India (w.e.f. AY 2012-13)

4. Weighted deduction for donation for Research 200% deduction will be allowed in respect of Donation made to National Laboratory. 5. Interest on RPF Exempt up to 9.5% p.a. of balance of RPF 6. Under IFOS [See Section 10(15)] Old provision : interest on Post office saving bank account will be fully exempted. New provision: Interest on Post office saving bank account will be exempted up to For individual account : Rs. 3,500 For joint account : Rs. 7,000 7. Section 10(45): Following allowances and perquisites will be exempt from tax in the hand of serving or retired chairman and members of UPSC: a) Value of RFA b) Value of conveyance facilities (car facility) c) Transport allowance d) Sumptuary allowance e) Leave travel concession 8. Section 80CCF: Notified infrastructure bond for the year 2011-12: Industrial Finance Corporation of India (IFCI) The Life Insurance Corporation of India (LIC) The Infrastructure Development and Finance Company Ltd. (IDFCL) The India Infrastructure Finance Company Ltd. (IIFCL) Non-banking Company classified as an Infrastructure Finance company by RBI

Minimum tenure of the bond shall be 10 years and minimum lock-in-period for investors shall be 5 years. 9. Following interest shall also be exempt from tax under section 10(15) Interest Interest Interest Interest on on on on bonds bonds bonds bonds of of of of NHAI Indian Railways Finance Corporation Ltd. (IRFCL) Housing and Urban Development Corporation Ltd. (HUDCL) Power Finance Corporation (PFC)

Minimum tenure of the bond shall be 10 to 15 years. It shall be mandatory for the subscribers to furnish their PAN. 10. Rule 31A: Statement of deduction of tax under section 200(3) (TDS return filing due date) 1st Quarter (01-04-2011 to 30-06-2011) 2nd Quarter (01-07-2011 to 30-09-2011) 3rd Quarter (01-10-2011 to 31-12-2011) 4th Quarter (01-01-2012 to 31-03-2012) 31st July 2011 31st Oct 2011 31st Jan 2012 31st May 2012

11. New Notified Pension Scheme for All For salaried employee: Deduction u/s 80CCD Subsection (1) Employees contribution to notified pension scheme (10% of salary) Plus Subsection (2) Employees contribution to notified pension scheme (10% of salary) Salary means: Basic and forming part of D.A. Deduction u/s 80C Employees contribution to notified pension scheme (10% of salary) Plus Employees contribution to notified pension scheme (10% of salary) By virtue of section 80CCE, employee has option to claim deduction in respect of own contribution to NPS either u/s 80CCD (1) or u/s 80C In addition to above he will be entitled to claim employers contribution u/s 80CCD(2) For non-salaried assessee or employee not covered by NPS Deduction u/s 80CCD Own contribution to NPS (max. 10% of GTI) Section 80C Vs. 80CCC: Both section gives deduction in respect of premium paid for retirement or pension plan. However by virtue of section 80CCE, assessee will not be allowed to claim deduction in both section and above 1,00,000. Therefore it is advisable for student to claim deduction in respect of premium paid towards retirement or pension plan under section 80C. Section 80C Vs. 80CCD For salaried employee Own contribution to NPS (max 10% of salary) should be claimed u/s 80C Employers contribution to NPS (max 10% of salary) should be claimed u/s 80CCD For other assessee Own contribution to NPS (max 10% of GTI) will only be allowed to be claimed u/s 80CCD. Section 80C Vs. 80CCF For infrastructure bond, assessee should claim first in section 80C to the extent balance available to maximum limit of Rs. 1,00,000 Balance investment if any in infrastructure bond will be claimed in section 80CCF to the extent Rs. 20,000.

Example 1: Mr. Ramcharan employee of ABS Ltd. furnishes you following detail for the year 2011-12: Basic salary Rs. 20,000 p.m. Dearness allowance (60% forming part) Rs. 5,000 p.m. Medical allowance Rs. 2,000 p.a. HRA Rs. 6,000 p.m. Conveyance allowance (30% is unutilized) Rs. 1,200 p.m. Children education and hostel allowance Rs. 1,050 p.m. for 3 children He and his employer each contribute 12% of Basic and D.A. towards RPF. Interest accrued @ 9% p.a. He and his employer (each) also contribute 10 % of salary towards notified pension. Interest on bank fixed deposit Rs. 15,000 Interest on listed debentures received Rs. 13,500 (Debentures are held in DEMATE a/c) Interest on bond of NHAI Rs. 10,000 Interest on post office saving a/s Rs. 5,000 Investments and payments for the year 2011-12 as under: (a) LIP for his independent son Rs. 12,000 (b) Premium paid towards retirement plan ( in the name of his wife) Rs. 10,000 (c) Infrastructure bond of IFCI Rs. 30,000 (d) Rent paid at Patna Rs. 5,000 p.m. (e) Repayment of educational loan Rs. 42,000 (including principal amount Rs. 25,000) (f) Premium paid towards medical insurance: i. Own health Rs. 12,000 ii. Independent son Rs. 5,000 iii. Independent father (62 years) Rs. 18,000 Compute taxable income and tax liabilities for AY 2012-13 Ans: Computation of taxable income from Salary Basic salary 20,000 X 12 Dearness allowance 5,000 X 12 Medical allowance HRA 6,000 X 12 = Rs. 72,000 Less: Exempt u/s 10(13A) (w.n.1) (32,400) Conveyance allowance 1,200 X 12 = Rs. 14,400 Less: Exempt up to 70% used for office (10,080) Children education and hostel allowance 350 X 3C X 12m Less: exempt 350 X 2C X 12m Employers contribution to RPF 12% of 3,00,000 = 36,000 Less: Exempt (w.n. 2) (33,120) Interest on balance of RPF exempt up to 9.5% Employers contribution to Notified pension fund (fully taxable) Gross salary Less: deduction u/s 16 Taxable salary Amount (Rs.) = 2,40,000 = 60,000 = 2,000 = 39,600 4,320 4,200 = = 2,880 Nil 27,600 3,80,600 nil 1 3,80,600

Working note 1 Salary for HRA 2,40,000 + 36,000 = 2,76,000 Least of following will be exempted (a) Actual HRA (b) 40% of salary of Rs. 2,76,000 = (c) Rent paid (Rs. 60,000) less 10% of salary (2,76,000) = Working note 2 12% of 2,76,000 = Rs. 33,120

Rs. 72,000 Rs. 1,10,400 Rs. 32,400

Computation of Total Taxable income and tax liabilities Income from Salary Income from other sources Interest on bank fixed deposit Interest on listed debentures received Interest on bond of NHAI(exempt u/s 10(15) Interest on post office saving a/s Rs. 5,000 Less Exempt Rs. 3,500 Rs. 3,80,600 Rs. 15,000 Rs. 13,500 Nil 1,500 30,000 4,10,600

Gross Total Income Less: Deduction u/s 80C to 80U (a) Under section 80C LIP Rs. 12,000 Premium for retirement plan Rs. 10,000 Own contribution to RPF Rs. 36,000 Own contribution to NPS Rs. 27,600 Infrastructure bond Rs. 14,400 (balance towards max. limit) (b) Under section 80CCF (30,000 14,400) (c) Under section 80CCD Employers contribution to NPS (d) Under section 80D Own health Rs. 12,000 12,000 Independent son not allowed + Fathers health Rs.18,000 15,000 (e) Under section 80E (only interest) Total Taxable Income Tax liabilities Example no. 2: Mr. Gopikant furnishes you following information regarding PY 2011-12: Income from PGBP Rs. 2,30,000 Income from House property (self-occupied) (-) 40,000 Income from STCG on Jewellery Rs. 1,30,000 Income from other source Rs. 50,000

(1,00,000) (15,600) (27,600)

(27,000) (17,000) 2,23,400 4,470

Investments and payments are: (a) Repayment of housing loan along with interest 10,000 p.m. (b) Infrastructure bond of IIFCL Rs. 50,000 (c) Contribution towards Notified pension fund Rs. 40,000 (d) Donation to PM national relief fund Rs. 15,000 Compute taxable income and tax liability for AY 2012-13 Ans: Computation of Total Taxable Income and Tax liab. Income from PGBP Less: set-off of loss under H/P Income from Capital gain STCG on Jewellery Income from other source 2,30,000 (40,000)

1,90,000 1,30,000 50,000 3,70,000

Gross total Income Less: Deduction u/s 80C to 80U (a) Under section 80C Repayment of housing loan Rs. 80,000 (Principal amount) Infrastructure bond Rs. 20,000 (b) Under section 80CCF (c) Under section 80CCD (max. 10% of GTI) (d) Under section 80G @ 100% of donation Total Taxable Income Tax liab.

(1,00,000) (20,000) (37,000) (15,000) 1,98,000 1,854/ 1,850

Part B Vital Notes on Income Tax

Definitions
India [Section 2(25A)] The term 'India' means (i) the territory of India as per article 1 of the Constitution, (ii) its territorial waters, seabed and subsoil underlying such waters, (iii) continental shelf, (iv) exclusive economic zone or (v) any other specified maritime zone and the air space above its territory and territorial waters. Note:- Specified maritime zone means the maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976. Infrastructure Capital Company [Section 2(26A)] Infrastructure capital company" means such company which makes investments in following Business (by way of acquiring shares or providing long-term finance) (1) any business of (i) developing/operating and maintaining any infrastructure facility (ii) providing telecom services, whether basic or cellular (iii) developing, operating or maintaining an industrial park or special economic zone (iv) generating, transmitting or distributing power. (v) developing a SEZ. (2) an undertaking developing and building a housing project referred to in section 80-IB (3) a project for constructing a hotel of not less than three-star category as classified by the Central Government or (4) a project for constructing a hospital with at least 100 beds for patients. Infrastructure Capital Fund [Section 2(26B)] Infrastructure capital fund means such fund operating under a trust deed registered under the provisions of the Registration Act, 1908 established to raise monies by the trustees for investment by way of acquiring shares or providing long-term finance to (1) any enterprise or undertaking wholly engaged in the business referred to in section 80IA(4) or section 80-IAB(1) or (2) an undertaking developing and building a housing project referred to in section 80-IB(10) or (3) a project for constructing a hotel of not less than three star category as classified by the Central Government or (4) a project for constructing a hospital with at least 100 beds for patients.

Residential Status

Question 1: Mrs. Asmi was born in 1976 in Delhi. Her father and mother were also born in India in 1949. Her grandparents were however born in London. Mrs. Asmi left India first time in last 32 years on 15-06-2008 and migrated to England. She took the citizenship of UK. She visits India during 2011-12 for 60 days. Determine the residential status of Mrs. Asmi for AT 2012-13.

Question 2: Mr. Rajveer, an Indian citizen, who is appointed as senior research officier in UK. He leaves India, for first time, on September 20, 2010 for joining his duties in UK. During the previous year 2011-12. He comes to india for 60 days. Determine the residential status of Mr. Rajveer for the AY 2011-12 and AY 2012-13. Ans: 1. Residential Status : For AY 2011-12 : He is Non-resident For AY 2012-12 : He is Non-residen 2. Reason: During the previous year 2010-11, Mr. Rajveer is special person as he is citizen of India and leaves India for employment outside India. Mr. Rajveer is in India for 173 (30+31+30+31+31+20) during previous year 2010-11. He is non-resident for AY 2011-12 since a special person will be treated as resident in India only if he has been in India in that year for at least 182 days. Mr. Rajveen is special person for the previous year 2011-12 also, as he is citizen of India and comes to India on visit. Thus he will be treated as non-resident for AY 2012-13 also, since he is present in India during 2011-12 only for 60 days.

Question 3. Mr Hariom, settled in UK, comes back to India on 25 August 2011 to settle down here permanently. He purchased a house property on 3 October 2011. He started business on 1 November 2011. He furnishes following information for financial year 2011-2012. Rs (i) Income from house property 2,20,000 (ii) Business profits (iii) Loss from speculation business (iv) Dividends from UK companies received there (v) Profits from business situated in Nepal, controlled from India but received there (vi) Deposit in public provident fund 1,40,000 (-) 50,000 20,000 1,20,000 40,000

Determine the residential status, total income and tax liability for the previous year 2011-2012. Would you change your answer if house property is purchased on 2 October 2011? Answer: For the purpose of Income from house property: Meaning of previous year; starting from 3nd October, 2011 and ending with 31st march 2012; Mr. Hariom is present in India for 181 days. Therefore, he is Non- Resident in India. For the purpose of Income from Business setup in India: Meaning of previous year: starting from 1st Nov 2011 and ending with 31st march 2012; Mr. Hariom is present in India for 152 days. Residential Status of Mr. Hariom for AY 2012-13: He is non-resident in India;

Computation of Total Taxable Income for AY 2012-13: (i) Income from house property (ii) Profits and gains from business or profession: (a) Profits from Indian business (b) Profits from Nepal business, controlled from India but received there (c) Loss from speculation business cannot be set off (Sec. 73). It will be carried forward to be set off against speculation business during next 4 assessment years. (iii) Income from other sources: Dividend from UK Company received there GTI Less; Deduction under Sec. 80C Deposit in PPF TTI Part II : If House property is purchased on 2nd Oct, 2011; His residential status will be changed: Meaning of PY : starting from 2nd Oct, 2011 and ending with 31st march 2012 (182 days). Therefore he is resident and not ordinary resident in India. Residential Status of Mr. Hariom for AY 2012-13: He is resident and not ordinary resident in India; Computation of Total Taxable Income for AY 2012-13: (i) Income from house property (ii) Profits and gains from business or profession: (a) Profits from Indian business (b) Profits from Nepal business, controlled from India but received there (c) Loss from speculation business cannot be set off (Sec. 73). It will be carried forward to be set off against speculation business during next 4 assessment years. (iii) Income from other sources: Dividend from UK Company received there GTI Less; Deduction under Sec. 80C Deposit in PPF TTI 2,20,000 1,40,000 not taxable ----2,20,000 1,40,000 1,20,000 -----

not taxable 4,80,000 40,000 4,40,000

not taxable 3,60,000 40,000 3,20,000

Tax Rates, Deduction, Setoff, and Clubbing of Income

Taxation by Ranjeet Kunwar

Taxation by Ranjeet Kunwar

1. From the following information, compute taxable income and Tax Liab. of Mr. Haridas (Resident 80 yrs. old) for the assessment year 2012-13: Rs. Income from business-letting motor car on hire 4,40,000 Lease rent received from lands given to tenants for agricultural operations 48,000 Sale of agricultural produce (landlord's share) 30,000 Sale proceeds of agricultural lands situated in a village 1,20,000 Fixed deposit interest received from companies on deposits made of Sale proceeds of land 88,000 Dividends (received in April, 2011) from an Indian company having Rubber plantations 6,000 Salary received as a partner from a firm manufacturing tea 36,000 Payment of government tax on agricultural lands 6,000 Expenses on power, irrigation cess and farm labour 10,000 Purchase of seeds 1,000 Tractor hire charges (for agricultural operations) 2,500
Your answer must indicate reasons for the treatment given to the items mentioned above. Ans: Computation of Total Taxable Income Assessee: Income from PGBP Income from Business 4,40,000 Salary received as partner from firm 36,000 Income from Capital Gain [As Agricultural Land is rural area in India is not a Capital Asset as per u/s 2(14)] Income from Other Sources Dividend from Indian Co. Exempt u/s 10(34) Interest on Co. deposit 88,000 Agricultural Income Exempt u/s 10(1) Gross Total Income Less: Deduction u/c VI A Total Taxable Income Calculation of Agricultural Income; Lease Rent Sale of agricultural produce Gross Receipt Less: - Expenses: Govt. tax on land Expenses on power Purchase of seeds Tractor hire charges Net Agricultural Income 48,000 30,000 78,000 (6000) (10,000) (1,000) (2,500) 58,500 AY 2012-13 Rs.

4,76,000 nil

88,000 5,64,000 nil 5,64,000

Agricultural income in India is Exempt from tax u/s 10(1), however in case of Individual, where, Agricultural Income u/s 10(1) exceeds Rs 5,000 AND Non Agricultural Income exceeds MEL i.e. 5,00,000 , then; Tax Liability will be computed as under; Tax on [Agricultural income + Non Agricultural income] Tax on Rs 5,64,000 + Rs 58,500 Less: - Tax on [Agricultural income + MEL] Tax on Rs 58,500 + Rs 5,00,000 = = 24,500 (11,700) 12,800 384 13,184 13,180

Basic Tax Add: - Education cess @ 3% Tax Liability r/off

Note:1. Salary received from Partnership Firm by partner is taxable as PGBP u/s 28. 2. Where any partner receives a salary from firm engaged in growing and manufacturing tea in India; 60% of salary will be considered as Agricultural income, Exempt u/s 10(1) 40% of salary will be taxable as PGBP (CIT vs Khan Bahadur Waliur Rahman [1946] [Cal.]) 3. In the given question assessee receives salary from partnership firm engaged in only manufacturing of tea (not growing as well as manufacturing), the entire salary is taxable as PGBP.

2.

From the following particulars, you are required to work out the tax payable by Mrs. Kapoor (resident in India), aged 70 years; in respect of Assessment Year, 2012-13: . (i) Family Pension Gross Rs. 75,000 (ii) Income from House Property (Net) Rs. 1,90,000 (iii) Income from Other Sources: (a) Interest on Bank Deposits Rs. 25,000 (b) Income from Horse Racing Rs. 20,000 (iv) Capital gains on transfer of Land-Long-term Rs. 15,000 (v) Agricultural Income Rs, 25,000 Computation of Total Taxable Income and Tax Liability Assessee: - Mrs. Kapoor [Resident] [70 yrs] AY 2012-13 Rs. Income from House Property 1,90,000 Income from Capital Gain LTCG 15,000 Income from Other Sources Interest on bank deposit 25,000 Income from Horse race 20,000 Agricultural income exempt u/s 10(1) Family pension 75,000 Less: Deduction u/s 57 (lower of 1/3 of 75,000 or 15,000) (15,000) 60,000 1,05,000 Gross Total Income 3,10,000 Less: Deduction u/c VI A nil Total Taxable Income 3,10,000 Tax on TTI

Ans:

Tax on [Non Agri + Agri income] i.e. tax on Rs. 3,35,000 Tax on normal income of Rs. 3,00,000 Tax on LTCG @ 20% of Rs. 15,000 Tax on Race income @ 30% of Rs. 20,000 Less: Tax on [Agri income + MEL i.e. 2,50,000] 2,75,000 Basic Tax on TTI Add: Education cess @ 3% Tax Liability

= 5,000 = 3,000 = 6,000 14,000 (2,500) 11,500 345 11,845/11,850

3.

Mr. Prabhat, a writer and a professional furnishes the following particulars for the Previous Year ended 31.3.2012: (a) Royalty on books in scientific nature (18% of Book Sold) 2,70,000 (b) STCG on listed shares 25,000 (c) Income from profession 250,000 (d) Deposited in Public Provident Fund (15.3.2012) 80,000 You are required to compute (i) Taxable income, (ii) Tax payable for Assessment Year 2012-13. Computation of Total Taxable Income and Tax Liability Assessee: - Mr. Prabhat (Resident) AY 2012-13

Ans:

Income from PGBP Royalty income 2,70,000 Income from Profession 2,50,000 Income from STCG on listed shares Gross Total Income Less: Deduction u/c VI A Under Sec 80 C Deposit in PPF Under Sec 80 QQB (w.n. 1) Total Taxable Income Tax on TTI of Rs. 2,20000 Tax on normal income of Rs. 2,15,000 Tax on STCG on listed shares of Rs. 25,000 @15% Basic Tax Add: Edu cess @ 3% Tax Liability

5,20,000 25,000 5,45,000

(80,000) (2,25,000) 2,40,000

= Rs. 3,500 = Rs. 3,750 = Rs. 7,250 218 7,468/ 7,470 (r/off)

W.N. 1 least of following will be allowed as deduction u/s 80QQB: (a) Eligible Income (2,70,00018) 15) = 2,25,000 (b) Max. limit Rs. 3,00,000 Note: it is assumed that assessee deposited amount in PPF a/c with more than one bank as the max. limit with one bank is Rs. 70,000.

4.

From the following particulars of Mr. Dharm das for the previous year ending 31.3.2012, compute the income under each head, and the taxable income with reasons and also explain the provisions of carry forward of such loss, that could not be absorbed:

I.

Income from business (Proprietary concerns): (a) Net adjusted Profit from Textile Trade (b) Net adjusted Loss from Automotive Trade (c) Loss in shares trade (Shares were never taken delivery) Negative income from house property: Capital gains: (a) Short-term loss (b) Long-term gain Interest on bank FD earned Computation of Total Taxable Income

20,000 (-) 30,000 (-) 40,000 (-) 25,000 (-) 20,000 15,000 6,000

II. III.

III. Ans:

Assessee Mr. Dharmdas Income from HOUSE PROPERTY Income from PGBP Loss from Automotive Trade Profit from Textile Trade Less: Set off of loss of Automotive business (25,000) (30,000) 20,000 (20,000) Nil

AY 2012-13 Rs. Nil

Nil

Loss from Speculation Business (not allowed

to set off against any other income) Income from CAPITAL GAIN LTCG Less: Set off of STCG loss Balance STCG loss 5,000 will be C/F Income from OTHER SOURCES Back Interest Less: Set off of business (normal) loss TOTAL TAXABLE INCOME (40,000) Nil

15,000 (15,000)

Nil

6,000 (6,000)

Nil Nil

NOTES: 1. The Loss under Speculation Business can only be set off against speculation profit; any Unabsorbed Loss will be C/f for next 4 years and allowed to set off against speculation profit. Therefore Loss of Rs. 40,000 will be C/F. 2. The Unabsorbed Loss under business other than Speculation (Rs.4,000) will be c/f for next 8 years and allowed to set off against profit from business/ Profession (including Speculation business). 3. The unabsorbed loss under STCG (Rs.5,000) will be allowed to C/f for next 8 years and allowed to set off against profit from Capital Gain (any).

5.

Compute the total income of Mr. & Mrs. R from the following information: Rs. Salary Income (Computed) of Mrs. R 2,30,000

Income from profession of Mr. R . Income of minor son Arihant from company deposit Income of minor daughter Ananya from special talent Interest from bank received by Ananya on deposit made out of her special talent Gift received by Ananya on 30.09.2012 from friend of Mrs. R Ans: Income from Salary Income from Profession Income of Arihant (clubbed) Less: Exemption u/s 10(32) Income of daughter (no clubbing as personal talent Interest on deposit (clubbed) Less: Exemption u/s 10(32) Gift received by daughter Total taxable income

3,90,000 15,000 82,000 3,000 72,500

Mr. R ---3,90,000 15,000 (1500) ---3,000 (1,500) 72,500 4,77,500

Mrs. R 2,30,000 -------------------2,30,000

Note: Rs. 82,500 earned by Ananya from personal tenant will not be clubbed and the same will be taxable in the hand of Ananya.

1. Mrs. Aruna Devi aged 80 years furnishes, the following details for the assessment year 201213: Rs. Family pension (gross) Income from house property (computed) Income from horse racing (gross)(TDS deducted @ 30%) Bank deposit interest Short term capital loss from shares Agricultural income in India Compute total income of Mrs. Aruna Devi and her tax liability. 2,32,000 (62,000) 2,40,000 17,000 (1,00,000) 75,000

2. During the year ended 31.3.2012, Mr. Surya has following income and the brought forward losses: Particulars Rs. Shortterm capital gain on sale of shares Longterm capital loss of A.Y.201011 Shortterm capital loss of A.Y.201112 Longterm capital gain Income from lotteries Cost of lottery tickets purchased Loss from betting Income from card games 2,60,000 90,000 80,000 78,000 3,10,000 2,000 1,20,000 80,000

Briefly compute the gross total income and loss eligible for carry forward in the hands of Mr. Surya for the A.Y. 201213.

Income from Salary

Q 1.
Jaydev is an employee of a private limited company at Pune. The following particulars of his income for st the year ended 31 March, 2012 have been ascertained: Rs. 12,000 10,000 10,000 20,000 20,000 7,400

(i) (ii) (iii) (iv) (v) (vi) (vii)

(viii) (ix) (x) (xi) (xii)

Basic salary per month Dearness allowance per annum (adhoc basis, i.e., not provided in the terms of employment) Entertainment allowance per annum Employers annual contribution to the provident fund His own annual contribution to the provident fund Educational allowance per annum for his two sons (for meeting the cost of their higher education) The company has hired a residential flat (unfurnished) and allotted it to the assessee for his stay (no rent is charged from him). Rent per month Salary of domestic servant appointed by the employee is paid for the year by the employer Gas and electricity bills paid during the year by the company on his behalf The company provided a sweeper at the assessees residence. Monthly wages paid by the company Interest from a nationalised bank received during the year Jaydev also received gross income on units of a mutual fund during the year

3,500 4,000 6,000 200 4,000 10,000

A small motor car belonging to the company has been provided to the assessee both for official and personal use and the company meets the entire expenses on the cars maintenance and running. Jaydev had an insurance policy on his life for Rs. 50,000. He had paid the annual premium of Rs.6,000 for this policy during the year. Compute the total income and tax liability of Jaydev for the assessment year 2012-13 giving full reasons for the treatment of each item. Also determine his tax liability. Ans:-

Q 2.

Ram, a director of Ayodhya (P) Ltd., receives the following emoluments during the previous year relevant for the assessment year 2012-13: Basic salary: Rs. 1,80,000, dearness allowance: Rs. 24,000 (not forming part of basis pay), commission @ 1% percent of turnover (turnover achieved by X during the previous year 2011-12: Rs. 10,00,000), arrears of bonus of the previous year 2004-05: Rs. 6,000 (not taxed earlier), employer's contribution toward recognised provident fund : Rs. 30,000; interest credited in provident fund account @ 13.5 percent on December 3rd, 2011 : Rs. 24,300; conveyance allowance: Rs. 1,200 p.m.(60 per cent of which is unutilised for official purposes) Education allowance for three sons @ Rs. 183.33 per month per child: Rs. 6,600, rent-free furnished house in Patna (lease rent of unfurnished house paid by the employer : Rs. 90,000. rent of furniture : Rs. 12,000), free services of gardener, cook and watchman (Salary: Rs. 3,000, Rs. 4,000, Rs. 5,000 respectively). On March 10, 2012 Ayodhya (P) Ltd. sells imported furniture to Ram for Rs. 20,000 (The furniture was purchased by the company on June 30th, 2006 for Rs. 5,30,000 and since-then it was used for business purposes). He runs a business during the previous year, income from business is Rs. 2,80,000.

He makes the following payments during 2011-12: (a) Own contribution to recognised provident fund: Rs. 32,000. (b) Deposit in Home loan Account of National Housing Bank: Rs. 5,000 (including advance deposit of Rs. 1,000). (c) Contribution to N.S.C. VIII issue Rs. 34,000. Determine the net income and tax liability for assessment year 2012-13.

Ans:-

Q 3.
(i)

Mrs. Reeta, Finance Manager of D Ltd. New Delhi furnishes the following particulars for the previous year 2011-12: Basic Salary Rs. 16,000 p.m. Rs. 2,000 p.m. Rs. 1,000 p.m.

(ii) Dearness allowance (iii) Bonus 3 month's basic pay (iv) Commission (vi) Entertainment Allowance Rs. 18,000 p.a.

(v) Contribution of the employer and employee to Recognised Provident Fund is Rs. 28,000 each. (vii) Allowance to meet cost of education and hostel expenditure of three children @ Rs. 5,000 p.a. each. (viii) Rent free unfurnished accommodation in Delhi-provided by the company for which company pays a rent of Rs. 2,600 p.m.

(ix)

Housing loan of Rs. 5,00,000 at the interest rate of 4.5% p.a. was advanced on 1-10-2011 repayable in 15 years. (No repayment made during the year). (SBI lending rate 8% p.a.)

(x) A Titan watch costing Rs. 4,800 was gifted by the company oil the foundation day of the company. (xi) A Maruti Esteem car which was purchased by the company on 10-10-2008 for Rs. 4,00,000 was sold to the assessee on 16-9-2011 for Rs. 1,70,000. (xii) Her minor son earned an interest of Rs. 5,000 on the deposits made with Punjab National Bank. (xiii) Assessee earned dividends amounting to Rs. 10,000 from Indian companies. (xiv) Mrs. Reeta received a cash gift of Rs. 80,000 on her son's marriage from one of her friend. (xV) Mrs. Reeta is also doing a business in which she incurred a loss of Rs. 45,000. She made the following payments and investment during the previous year: (a) Medical insurance premium by cheque for self Rs. 5,000 and for spouse Rs. 7,000. (b) LIC pension Fund Rs. 11,000. (c) Premium paid to insure the life of her major son Rs. 20,000. (d) Infrastructure Bonds of ICICI Rs. 50,000. (e) Donation to a public charitable institution registered under Section 80G Rs. 40,000. Determine the taxable income and tax liability of Mrs, Reeta for the assessment year 2012-13.

Ans:

Q 4.

Mr. Gopi, Sales Officer of a company in Delhi, who retired from service on December 31, 2011 after 28 years and 7 months of service submits the following particulars of his income for the year ending March 31, 2012. Basic Salary Rs. 25,000 p.m.; House Rent Allowance Rs. 6,000 p.m. (rent paid by Gopi Rs. 5,400 p.m.); Lunch allowance Rs. 100 per day for 100 days when Gopi was on field duty; Reimbursement by the company of salary of a watchman and a sweeper s. 1,000 p.m. each who are the employees of Gopi. He contributes 20% of his salary to an unrecognized provident fund to which company contributes equally. He purchased a tractor from the company on December 31, 2011 for Rs. 70,000. The tractor was purchased by the company on January 5, 2009 for Rs. 2,00,000 The Company reimbrues expenditure of 1800 cc car amounting to Rs. 3,000 p.m. The car is owned by the employee and it is used for partly office and partly personal. He receives Rs. 1,80,000 (including Rs. 80,000 as interest) from the unrecognized provident fund which includes employers contribution and interest thereon. He also receive Rs. 1,10,000 gratuity and Rs. 60,000 for encasement of earned leave not availed by him. He has availed leave of 20 months. As per rules of the company Mr. Gopi is entitled to two months leave for every year of service. After retirement he is in receipt of pension @ Rs. 3,000 p.m. On March 1, 2012 he gets one-half pension commuted for Rs. 1,50,000. His other incomes are: He receives Rs. 50,000 (not taxed earlier) from a former employer in the PY 201112 Interest on Central Government securities Rs. 36,000 and Rs. 15,000 as his share of profit from Hindu Undivided Family. During the PY he deposited Rs. 70,000 in Public Provident Fund. Compute the total income and tax liability for the AY 201213

Ans:

Q 5.

Mr. Hariom is employed in a company in Kanpur. He furnishes the following particulars of his income/investment during the PY 201112 He draws salary @ Rs. 7,000 p.m. and dearness allowance @ Rs. 3,500 p.m. Dearness allowance amounting to Rs. 3,000 p.m. forms part of basic pay for retirement benefits. He is provided with a furnished flat at concessional rent of Rs. 16,440. The company pays Rs. 3,000 p.m. as rent for the flat. Cost of furnishing Rs. 1,39,400. W.D.V. of furniture as on 1-4-2011 Rs. 1,00,000. Neither he, nor any minor child nor his H.U.F. owns any residential house. He has been paid Rs. 11,600 on account of arrears of bonus for 2004-05 and salary in lieu of leave Rs. 5,000 for 2011-12. He has been provided with a chauffeur driven 1700 cc car for personal and official use. All expenses of its maintenance are met by the employer. However the employer recovers Rs. 400 p.m. from the employee for use of the car. Sonu, son of Hariom and Guru, nephew of Hariom studies in a school maintained by employer. Cost of education in a similar institute is Rs. 1,200 p.m. / child towards cost of education. Monu, daughter of Hariom studies in DPS Kanpur (a school not maintained by employer). The employer re-imbrues Rs. 20,000 annually towards cost of education. The employer also contribute Rs. 2,000 to staff group insurance scheme. He is a member of unrecognized provident fund to which he contributes 15% but the employer contrives @ 20% of salary. Interest from fixed deposit from SBI Rs. 33,000 (gross) He has received 1/3 share of the crop for leasing out agricultural land at Ambala. One-half of the crops have been consumed in domestic use and the rest has been sold for Rs. 30,000. He deposited this sum in Public Provident fund. He has purchased National Savings Certificates VIII issue for Rs.20,000 on 15-2-2012

He incurs an expenditure of Rs. 12,000 on maintaining his disabled dependent brother with severe disability. Compute his total income tax liability for the AY 201213.

Q 6.

Mr. Rajdev is employed in Ganesh Co. Ltd. Kanpur, w.e.f, 1-5-2009 in the grade of Rs. 15,000-500-17,000. He also received the following allowances and the perquisites. Dearness Allowance - 30% of Basic Salary (not forming part of salary for retirement benefits), Medical Allowance - Rs. 500 p.m. (entire amount has been spent on medical treatment), Bonus - 3 months of Basic Salary. House Rent Allowance @ Rs. 1,600 p.m. The company provides him with Rent Free Accomodation, w.e.f., July 1, 2011 and his house rent allowance is discontinued. The Rent of the house is Rs. 6,000 p.m. and cost of furniture - Rs. 60,000. The company has given a motor car both for personal and official use. The actual expenditure for running and maintenance of car is Rs. 25,000 plus Rs. 3,000 for salary of the driver. He as well as the company contributes 13% of the salary towards Recognised Provident Fund. Interest accruing on RPF is Rs. 9,000 @.10%.He is given free lunch facility in the office (value Rs. 60 per day for 15 days). He is given computer for official and private use (cost Rs. 80,000). The company pays electricity bills Rs. 3.000 and telephone bills Rs. 5,000. He paid Rs. 1,800 p.m. as house rent from April 1, 2009 to June 30, 2011. He makes the following contributions / payments during the year: a) Life insurance premium on the life of his major son of Rs. 6,000 (sum assured Rs. 40,000) b) Public Provided Fund contribution of Rs. 12,000. Salary becomes due on the last day of every month. Compute the total income and tax liability of Mr. Rajdev for the assessment year 2012-13 on the assumption that he makes Rs. 10,000 contribution to an approved University for education purpose.

Q 7.

Mr. Omveer is the General Manager of Surya Ltd. Which is covered under recognised provident fund scheme. He voluntarily retired on 31-12-2011 after 30 years of service. He submits the following particulars of his salary income and approved savings during the PY 2011-12 1. Salary @ Rs. 30,000 per month from 1-1-2011 2. Dearness allowance Rs. 5,000 per month from 1-1-2011, 50% of the D.A. forms part of superannuation benefits. 3. Pension @ Rs. 6,000 per month 4. House rent allowance @ Rs. 4,000 per month from 1-1-2011. Rent paid by him is Rs. 4,025 p.m. 5. A Maruti Esteem Car is provided by the company for official and personal use. Expenses of its running and maintenance and salary of the driver are borne by the company. 6. He contributed 20% of his salary to the fund. The company contribution is 15% of the salary to the fund. 7. The company paid Rs. 8,610 to Quick Gas Service for the use of cooking gas by him. 8. He received Rs. 6,00000 as gratuity 9. He received Rs. 2,05,000 for encashment of 7 months unutilized earned leave. As per rules of the company, he was entitled to 35 days leave for every year service. During his service, he has availed 28 months leave. 10. He has invested s. 1,000 in national Savings Certificates VIII issue 11. The company deducted Rs. 10,000 as tax at source. 12. Interest accrued on fixed deposits in banks is Rs. 3,50,000 Compute his total income and determine his tax liability for the AY 2012-13. Ans:-

Income from Capital Gains

Summary notes on Capital Gains

1. Krishmurti converted his Jewellery into stock in trade on 1.9.2011, when he commenced a sole proprietary business by name Krishna Jewellers. The jewellery were acquired on 1.4.1976 for Rs.2,00,000. The FMV on 1.4.1981 was Rs. 4 lakhs. The market value on 1.9.2011 was RS. 35 lakhs. He recorded the value at Rs. 38 lakhs in his books of account. Compute taxable capital gain chargeable to tax. If the entire jewellery stock so converted was sold for Rs. 32 lakhs before 31.03.2011, how much is taxable and under what head it is taxable? Clearly indicate the assessment years in which the above are taxable. Ans:-

2. The urban lands of Mr. A were required by the State Government 10 years back and compensation was paid. Mr. A took up the matter before the Court. Enhanced compensation of Rs.10 lakhs was awarded by the Court in Februaty, 2011 and the same was received in May, 2011. State the consequences under the Income-tax Act, 1961, showing clearly the year of taxability. What will happen if Mr. A dies and Mr. L, his legal heir receives the enhanced compensation? Ans:

3. Compute the net taxable capital gains of Smt. meeta on the basis of the following information A house was purchased on 1.5.2000 for Rs.4,50,000 and was used as a residence by the owner. The owner had contracted to sell this property in June, 2010 for Rs.10 lacs and had received an advance of Rs.70,000 towards sale. The intending purchaser did not proceed with the transaction and the advance was forfeited by the owner. The property was sold in April, 2011 for Rs.15,00,000. The owner, from out of sale proceeds, invested Rs.4 lacs in a new residential house in January, 2012. Ans:

4. Mr. Mohanjee purchased a house property on 14th April, 1979 for Rs.1,05,000. He entered into an agreement with Mr. Bharat for the sale of house on 15th September, 1983 and received an advance of Rs. 25,000. However, since Mr. Bharat did not remit the balance amount, Mr. Mohanjee forfeited the advance. Later on, he gifted the house property to his friend Mr. Ashok on 15th June, 1987. Following renovations were carried out by Mr. Mohanjee and Mr. Ashok to the house property: Amount By Mr. Mohanjee during FY 1980-81 By Mr. Mohanjee during FY 1984-85 By Mr. Ashok during FY 1994-95 The fair market value of the property as on 1.4.1981 is Rs.1,50,000. Mr. Ashok entered into an agreement with Mr. Chourangee for sale of the house on 1st June, 1996 and received an advance of Rs. 80,000. The said amount was forfeited by Mr. Ashok, since Mr. Chorangee could not fulfil the terms of the agreement. Finally, the house was sold by Mr. Ashok to Mr. Sanjay on 2nd January, 2012 for a consideration of Rs. 12,00,000. Compute the capital gains chargeable to tax in the hands of Mr. Ashok for the assessment year 2012-13. Ans: (Rs.) 10,000 50,000 1,90,000

5. Mahadev owned a land located in ChennaiBangalore highway in Municipal Corporation limits, which was acquired by NHAI in the financial year 201112 for Rs.10,00,000. The land had been purchased by Mahadev on 241980 for Rs.10,000. The fair market value of the land as on 14 1981 was Rs.19,000. Yet another piece of urban land located in Chennai purchased in April, 2008 for Rs.25 lakhs was sold by him in February, 2012 for Rs.35 lakhs, but the sale deed thereof, was not registered till 31 32012. The possession was given to the buyer on 31.1.2012 and the sale deed was finally registered on 1642012. The value adopted by the Stamp Valuation Authority was Rs.38 lakhs. Mahadev paid 2% of the sale consideration towards brokerage. Mahadev deposited Rs.10 lakhs in Capital Gain Deposit Account of SBI on 20112012 in order to avail exemption under section 54F of the Incometax Act, 1961 subsequently by constructing a residential house. Compute the capital gain chargeable to tax arising as a result of these transactions. Ans:

6. Discuss whether the expenditure incurred by an assessee to remove an encumbrance be claimed as a deduction under section 48, while computing the capital gains, in the following cases: (i) Ans: Where the mortgage was created by the assessee himself;

(ii) Where the mortgage was created by the previous owner.

7. Mr. Narayan sells a commercial house on December 15, 2011 for Rs. 27,00,000 (Cost of acquisition on 23rd April 1981 Rs. 2,30,000). FMV as on 1-4-81 is Rs. 2,40,000. Cost of transfer is Rs. 50,000. On 14th March 2012 he purchases a residential house for Rs. 7,00,000 and Bond of NHAI for Rs. 3,40,000 for claiming exemption under section 54F and 54EC respectively. He does not own any other house. He also incurred a short term capital loss amounting to Rs. 40,000 during the PY 200910. During the PY his only other income was from business amounting to Rs 80,000. He deposited Rs. 50,000 in public Provident Fund. Compute the total income of Mr. Narayan for the AY 2012-13 Ans:

Income from PGBP

1. Opening WDV of block of Plant and Machinery consisting 15 Plants as on 01-04-2011 is Rs. 10,00,000. A new plant is acquired and installed for put to use on 07-07-2011 for Rs. 6,00,000. Out of which 80% is received as subsidy from Sate Govt.one of old plant is destroyed by fire on 10-122011 and Rs. 14,00,000 is received from insurance company. Rs. 10,000 is incurred for getting compensation. Compute the amount of depreciation, closing WDV and capital gains. Rate of depreciation is 40%. Ans:

2. RAMDEV LTD. purchased a Plant on 01-04-2011 for Rs. 25,00,000 by availing loan of Rs. 18 lacs from SBI @ 10%. 20% of total cost was received by govt. as subsidy. This plant was first put to use on 01-01-12 in to production of company. Company seeks your advice on the treatment of interest payments made on this loan.

Ans:

3. Harish Jayaraj Pvt. Ltd. is converted into Harish Jayaraj LLP on 1.1.2012. The following particulars are available to you: (i) (ii) (iii) (iv) (v) (vi) WDV of land as on 1.4.2011 WDV of machinery as on 1.4.2011 Patents acquired on 1.6.2011 Building acquired on 12.3.2010 for which deduction was allowed under section 35AD. Above building was revalued as on the date of conversion into LLP as Unabsorbed business loss as on 1.4.2011 (A.Y. 2008-09) Amount (Rs.) 5,00,000 3,30,000 3,00,000 7,00,000 12,00,000 9,00,000

Though the conversion into LLP took place on 1.1.2012, there was disruption of business and the assets were put into use by the LLP only from 1st March, 2012 onwards. The company earned profits of Rs.8 lacs prior to computation of depreciation. Assuming that the necessary conditions laid down in section 47(xiiib) of the Income-tax Act, 1961 have been complied with, explain the tax treatment of the above in the hands of the LLP. Note WDV of land as on 1.4.2011 may be read as Cost of land. Ans: 1. Tax Treatment of Depreciation By virtue of 5th proviso to section 32(1); The aggregate depreciation allowable to the predecessor company and successor LLP shall not exceed, in any previous year, the depreciation calculated at the prescribed rates as if the conversion had not taken place. Such depreciation shall be apportioned between the predecessor company and the successor LLP in the ratio of the number of days for which the assets were used by them. First depreciation has to be calculated on the assumption that there is no succession. On block of Machinery @ 15% of 3,30,000 On block of patents @ 25% of 3,00,000 = = Rs. 49,500 Rs. 75,000

Allocation of Depreciation between Company and LLP (in the ratio of number of days used)

2. Actual Cost of Assets acquired by LLP from Company under succession For non- depreciable asset = actual cost of asset in the hand of previous owner (company) Therefore cost of Land acquired by LLP = Rs. 5,00,000 will be taken as cost in the hand of LLP. For depreciable asset = WDV at the beginning of the year of succession as per income tax act in the hand of previous owner (company)

Therefore cost of Machinery = Rs. 3,30,000 Patents = Rs. 3,00,000

will be taken as cost in the hand of LLP

For assets on which full amount of deduction claimed u/s 35AD Cost of such asset will be taken nil in the hand of LLP 3. B/F loss and unabsorbed depreciation: By virtue of section 72A; brought forward losses and unabsorbed depreciation of predecessor (company) will be allowed to carry forward in the hand of successor (LLP) for balance period.

Profits of the company before depreciation Less: Current year depreciation Business income of the company after depreciation Brought forward business loss Unabsorbed business loss as on 31.12.2011 to be carried forward by the LLP

8,00,000 1,09,995 6,90,005 9,00,000 2,09,995

4. Mr. Vidyasagar, a resident individual aged 64, is a partner in Oscar Musicals & Co., a partnership firm. He also runs a wholesale business in medical products. The following details are made available for the year ended 31.3.2012: Rs. 1,50,000 13,500 34,500 5,60,000

(i) (ii) (iii) (iv)

Interest on capital received from Oscar Musicals & Co., at 15% Interest from bank on fixed deposit (Net of TDS Rs. 1,500) Income-tax refund received relating to assessment year 2010-11 including interest of Rs. 2,300 Net profit from wholesale business Amounts debited include the following: Depreciation as per books 34,000 Motor car expenses 40,000 Municipal taxes for the shop 7,000 (For two half years; payment for one half year made on 12.6.2012 and for the other, on 14.11.2012)

(v) (vi) (vii)

Salary to manager for whom single cash payment was made for The WDV of the assets (as on 1.4.2011) used in above wholesale business is as under: Computers Motor car (20% used for personal use) LIP paid for major son PPF of Wife Long-term infrastructure bonds (Approved)

21,000

1,20,000 3,20,000 60,000 70,000 30,000

Compute the total income of the assessee for the assessment year 2012-13. The computation should show the proper heads of income. Also compute the WDV of the different blocks of assets as on 31.3.2012. Ans:

5. Dr. Shuba is a medical practitioner. Her age is 60 as on 1st January, 2012. The receipts and payments account of 2011-12 of her is as under: To Balance B/f Receipts from sale of medicine Consultation fee Visiting fee Lecture fees Family pension Savings bank interest Loan from bank Share from HUF Agricultural income Income from lottery (net after deduction of TDS @ 30%) Balance C/f Total Rs. 10,000 2,50,000 50,000 2,00,000 5,000 2,80,000 1,000 3,00,000 50,000 1,00,000 35,000 By Purchase of commercial vehicle before 30 Sep. 2011 Drawings Deposit in bank for 5 years Surgical instrument purchased before 30 Sep. 2011 Instalment of loan paid (including interest Rs. 22,333) Medical insurance premium Instalment of housing loan (Principal component Rs. 48,000) Advance tax paid Purchase of medicine Payment for medical journal Vehicle expenses Rs. 4,00,000 2,50,000 1,50,000 50,000 1,21,000 32,000 1,08,000 20,000 47,000 5,000 50,000

48,000 12,81,000

12,81,000

Other relevant information is as under: (i) She resides in her own house which was constructed in 1998 with a loan from LIC Housing of Rs. 10,00,000 out of which Rs.6,00,000 was still due. She got it refinanced from SBI on 01-04-11 at the rate of 10%. One-fourth portion of the house is used for clinic purposes. (ii) She invested in term deposit Rs. 1,50,000 in Bank of Baroda on 01-07-2009 for a period of 5 years in the name of her minor daughter at 9% interest p.a. (iii) She purchased a commercial vehicle on 1st July 2011 at Rs. 4,00,000. A loan of Rs. 3,00,000 was taken to buy the van at 8% interest. One fourth use of vehicle is estimated to be personal. (iv) She paid medical insurance premium for herself of Rs. 16,000 and for mother Rs. 16,000. Her mother is dependent on her. (v) She got her share from HUFs income of Rs. 50,000.

Ans:

6. (i)

Net profit as per profit and loss account Rs.72,000 after charging the following : (a) Depreciation on building Rs.31,000 (b) Provision for discount on debtors Rs.40,000 (c) Private household expenses Rs.50,000 (d) Charity (unapproved) Rs.7,000 (e) Computer for scientific research Rs.60,000 (f) Payment of expenses made through bearer cheque Rs.25,000 (g) Security deposit Rs.16,000 (h) Audit fee paid in cash Rs.25,000 (i) Patent purchased during the year Rs.75,000 (j) Market survey feasibility report expenses Rs.50,000 on new project costing Rs.6,00,000.

(ii)

Opening stock Rs.66,000 valued at 10% above cost and closing stock Rs.72,000 valued at 10% below cost.

(iii) Income credited to profit and loss account include following; (a) Bank interest on fixed deposits Rs.9,000 (b) Refund of excise duty Rs.18,000 earlier allowed as deduction (c) Bad debts recovered Rs.5,000. Compute total income of Suraj and his tax liability if he is a senior citizen assuming depreciation on building as per the Income-tax Act, 1961 is Rs.50,000. Ans:

7. Ram and Shyam are partners in Mahima & Co., a partnership firm, which is engaged in manufacturing carpets. They share profits and losses in the ratio of 2:3. The profit and loss account of the firm for the year ended 31st March, 2012 is as follows:

Expenditures Cost of goods sold Depreciation Salary to staff Remuneration to partners : Ram Shyam Interest on capital @15% : Ram Shyam Sundry expenses Net profit Incomes Sales

Rs. 10,00,000 50,000 1,00,000 Rs.2,50,000 Rs.1,20,000 Rs.45,000 Rs.67,500

3,70,000

1,12,500 1,00,500 7,35,200 24,68,200 23,00,000

Dividends Winnings from lotteries (Rs.2,00,000)

28,200 1,40,000 24,68,200

Additional information : (i) The firm donated Rs.30,000 to National Defence Fund and this amount is included in sundry expenses. (ii) Depreciation admissible under the income-tax rules is Rs.68,000. (iii) The firm is evidenced by partnership deed. Compute the taxable income and amount of tax liability of the firm for the assessment year 2012-13. Ans:

8. Amritoz is a cloth merchant in Ghaziabad. From the following profit and loss account for the year ended 31st March, 2012, compute his taxable income and tax payable for the assessment year 201213: Rs. Rs. Opening stock Purchases Reserve for bad debts Household expenses Advertisement Depreciation Salaries and wages Reserve for future losses Travelling expenses Expenditure on scientific research Net profit Additional information :
(i) Household expenses include an amount of Rs.5,000 paid for premium on life insurance policy of Amritoz. (ii) Depreciation admissible as per the income-tax rules is Rs.30,000. (iii) Advertisement costing Rs.10,000 appeared in a newspaper owned by a political party is included in the total amount spent on advertisement.

1,00,000 25,00,000 10,000 20,000 40,000 20,000 1,20,000 20,000 15,000 50,000 15,55,000 4,50,000

Sales Closing stock Gift form friend Gift from brother

40,00,000 3,00,000 70,000 80,000

4,50,000

(iv) Expenditure on air fare from Delhi to Bangalore and from Bangalore to Delhi of a sales manager costing Rs.10,000 is included in travelling expenses. The sales manager is otherwise entitled for a second class AC train where the expenditure would be Rs.4,000. (v) Expenditure on scientific research relates to the money spent by Amit on conducting research relating to the business of cement which he proposes to undertake in future.

Ans:

9. John, Jack and Jill are partners sharing profits and losses in the ratio of 2:1:1 respectively. Their summarised profit and loss account for the year ending 31st March, 2012 is appended below : Rs. Office salaries Bad debts reserve Telephone Salary to Jack Collection charges of interest on securities Interest on loan from John Municipal taxes (let out property) Commission to partners : John 12,000 Jack 15,000 Jill 18,000 Net profit to partners : 17,040 3,000 6,000 9,000 150 6,000 3,000 Rs. Gross profit 1,81,710 Interest on securities 12,000 Rent 18,000 received

45,000

John Jack Jill

61,260 30,630 30,630

1,22,520

2,11,710 2,11,710 Compute total income of the firm for the assessment year 2012-13 and tax liability thereon. Interest paid to John has been calculated at the rate of 20% per annum simple. Ans:

10. Niraj, Govind and Suman are partners in a firm with equal shares. The profit and loss account for the year ending 31st March, 2012 shows a net profit of Rs.42,300 after debiting the following items:

(i) Salary of Rs.24,000 each to Niraj and Govind. (ii) Bonus to Suman Rs.18,000. (iii) Commission of Rs.9,000, Rs.10,000 and Rs.15,000 to Niraj, Govind and Suman respectively. (iv) Interest on capital @ 15% amounting to Rs.4,500, Rs.6,000 and Rs.15,000 paid to Niraj, Govind and Suman respectively.

Assuming that all partners are working partners and the firm fulfills the conditions of section 184, compute the total income of the firm and taxable income of the partners in the firm. Ans:

Income from Other Sources

1. From the following particulars of Pankaj for the previous year ended 31st March, 2012, compute the income chargeable under the head Income from other sources: Rs. (i) Directors fee from a company 10,000 (ii) Interest on bank deposits 3,000 (iii) Income from undisclosed source 12,000 (iv) Winnings from lotteries (Net) 33,500 (v) Royalty on a book written by him 9,000 (vi) Lectures in seminars 5,000 (vii) Interest on loan given to a relative 7,000 (viii) Interest on debentures of a company (listed in a recognised stock exchange) net of taxes 3,600 (ix) Interest on Post Office Savings Bank Account 500 (x) Interest on Government Securities 2,200 (xi) Interest on Monthly Income Scheme of Post Office 33,000 He paid Rs.1,000 for typing the manuscript of book written by him. Ans:

2. Particulars of income received by Mrs. Sarita for the year ended 31st March, 2012 are as follows : (i) Family pension received from the Government of Madhya Pradesh Rs.15,000. (ii) Royalty received from a publisher Rs.42,700. She spent Rs.2,700 on books, stationery, typing, etc. (iii) Winnings from lotteries (gross) Rs.90,000. (iv) Winnings from horse race (net) Rs.35,000. (v) Interest from tax-free debentures of a public company (listed) Rs.18,000. (vi) Interest on tax-free notified government bonds Rs.10,000 (vii) Dividend received from a foreign company (net) Rs.8,000. Nothing has been paid to the Government of India out of tax deducted at source. From the above information, compute income from other sources of Mrs. Sarita for the assessment year 2012-13. Ans:

3. Danny has the following investments in the previous year ended 31st March, 2012: (i) Rs.7,160 received as interest on securities of Karnataka government. (ii) Rs.9,000 received as interest on securities of a listed paper manufacturing company. (iii) Rs.7,200 received as interest on the unlisted securities of a sugar company. (iv) Rs.30,000, 11% securities (unlisted) of a textile company. (v) Rs.20,000, 10% Tamil Nadu government loan. (vi) Rs.50,000, 13.5% listed debentures of Dolly Ltd. Interest on all securities is payable on 30th June, and 31st December. The bank charges 1.5% commission on net realisation of interest as collection charges. Danny also received Rs.15,000 as directors fee from a company. His other incomes are

winnings from horse race : Rs.25,000 (gross); and interest on post office savings bank account : Rs.6,000. Find out taxable income of Danny from other sources for the assessment year 201213. Ans:

4. Mrs. Vidya received the following amounts during the financial year 201112: Rs. Gross salary Family pension @ Rs.1,500 p.m. Income of a minor child Accumulated balance in provident fund of her husband after his death Gratuity received after the death of her husband 6,00,000 18,000 6,000 1,00,000 80,000

Calculate taxable income of Mrs. Vidya for the assessment year 201213.

Ans: