CWA ICWA Inter Group I : Applied Direct Taxes - June 2009
This Paper has 41 answerable questions with 0 answered.
Time Allowed : 3 Hours Full Marks : 100
The figures in the margin on the right side indicate full marks
Answer Question No. 1 which is compulsory and any five from the rest.
Working notes should form part of the answer.
Wherever required, the candidate can make suitable assumptions and
state the same clearly in the answer.
1. (a) State with reasons whether the following statements are true or false (No credit will be given for mere conclusions 2x7=14
(i) For the purpose of transfer pricing provisions, arm’s length price is determined by the taxpayer in consultation with qualified accountant. (0)
(ii) As per section 194–C of the Income-tax Act, 1961, all Association of Persons and Body of Individuals are liable to deduct tax at source from specified payments made to resident contactors. (0)
(iii) Where a person does basic operations in lands and later sells the saplings grown by him in a nursery owned by him, the same will be agricultural income. If the basic operations are not done by the assessee and the saplings are sold in his nursery, the same will still be regarded as agricultural income. (0)
(iv) Short–term capital gains arising from sale of listed shares through a recognized stock exchange, for which security transaction tax has been paid, will be charged to tax at a concessional rate of 10%. (0)
(v) For the purposes of computing minimum alternate tax(MAT) under section 115JB(2) of the Income–tax Act, 1961, the book profit need not be increased, by inter alia, the amount of deferred–tax or provision for deferred–tax debited to the profit and loss account. (0)
(vi) A political partly is exempt from paying wealth–tax. (0)
(vii) The maximum amount of penalty leviable under section 18(1)(c) of the Wealth–tax Act, 1957, for concealing the particulars of any asset chargeable to wealth–tax is five times the amount of tax sought to be evaded. (0)
(b) Fill up the blanks: 1x4=4
(i) As per section 2(ea)(i) the Wealth–tax Act, 1957, "asset" means, inter alia, farmhouse situate within _________ kilometers of only municipality. (0)
(ii) Service tax return can be revised within a period of ________ days. (0)
(iii) Interest on refund on Income–tax paid in excess is a _______ receipt. (0)
(iv) An assessee, after sale of house property, receiving arrears or rent _________–(is/is not) chargeable to tax; the same computed in the stipulated manner, is chargeable to tax as ____(income from other sources/income from house property). (0)
(c) Choose the correct answer: 1x7=7
(i) Where the Karta is not available, the return of wealth of a HUF can be signed by
(1) Any adult member of the family;
(2) Any adult coparcener of the family;
(3) The male member who is next in seniority to the karta;
(4) None of the above.
(ii) The following is capital receipt:
(1) Dividend from investments;
(2) Bonus shares;
(3) Sale of technological know–how;
(4) Compensation received for compulsory evacuation of place of business.
(iii) In case of assesses other than companies, the following is advance tax rate to be payable on or before of 15th September on the current fringe benefits.
(1) 15 per cent;
(2) 30 per cent;
(3) 45 per cent;
(4) 60 per cent.
(iv) Cash gifts received under section 56(2)(vi) from non-relatives are not taxable upto
(v) Mr. A has three minor children deriving interest from bank deposits to the tune of Rs.2,000, Rs.1,300 and Rs.1,600 respectively. Exemption available under section 10(32) of the Income–tax Act, 1961 is
(4) None of the above.
(vi) Miss Femina, aged 17, is married to Mr. Masculine. Her mother alone is alive. Income by way of interest on loans, of Miss Femina will be.
(1) Assessed to tax in the hands of Mr. Masculine;
(2) Assessed to tax in the hands of her mother;
(3) Taxable in her own hands;
(4) None of the above.
(vii) Mr. X gifts Rs.60,000 to the HUF of which he is member; said amount will be treated as income of
(1) Mr. X;
(2) The HUF;
(3) None, as it is exempt;
(4) None of the above.
2. (a) The Hyderabad Co–operative Society has the following sources of income during the financial year 2008–09:
Income from processing with the aid of power
Income from collective disposal of labour of its members
Interest from another Co-operative society
Chargeable income from house property
Income from other business Rs.
Find its total income, showing the computation under proper heads of income, and the tax payable, as per the provisions of the Income–tax Act, 1961.
(b) Discuss the consequence of non–compliance of TDS provisions of the Income–tax Act, 1961. 5 (0)
(c) Is commodities transaction tax a permissible business expenditure? Explain. 4 (0)
3. (a) Write a brief note on deduction available under section 80DD of the Income-tax Act, 1961. 6 (0)
(b) Mrs. Vasudha is running a cotton ginning factory. Raw cotton is grown in the lands owned by her and the same is used for ginning in her factory. The ginned cotton is sold subsequently for Rs.12,00,000. The following data are also available:
Cost of cultivation
Selling price of raw cotton when sent to the ginning factory
Expenses of ginning factory 4,00,000
You are required to ascertain the agricultural income and business income of Mrs. Vasudha.
(c) 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, 2008 and the same was received in May, 2008.
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? 4 (0)
4. (a) Discuss the provisions of the Income–tax Act, 1961 with regard to interest payable by the Department on refund. 5 (0)
(b) M, N and O are partners in the firm Upadhyay & Co. sharing profit and losses in the ratio of 2:1:1 respectively. The summarized profit and loss account for the year ended 31.03.2009 is given below:
Interest on loan from M
Telephone, telegram, etc.
Local taxes (let-out property)
Salary to working partner N
Commission to partners: 5,680
3,000 Gross profit
Interest on securities 60,570
Collection charges of interest on securities
Provision for bad debts
Net profit to partners: 50
Compute total income of the firm for the assessment year 2009–10 and tax payable thereon.
5. (a) Mr. Y submits the following particulars for the year ended 31.03.2009:
(i) On 30.04.2008, when he attained the age of 60, his friends gave him a new flat at Surat, each contributing Rs.40,000 in cash. The cost of the flat was Rs.6.4 lakhs.
(ii) Another friend sent cash gift of Rs.75,000 for the occasion.
(iii) Mr. Y sold the flat on 30.01.2009 for Rs.8.9 lakhs. The Registrar’s valuation for stamp duty purposes was Rs.9.2 lakhs. Neither the buyer, nor Mr. Y questioned this value.
(iv) He had purchased equity shares in X Ltd. On 05.02.2008 for Rs.3.5 lakhs. These were sold on 15.03.2009 for Rs.2.8 lakhs.
(v) He has paid life insurance premium of RS.90,000 for his major son who is not dependent on him.
You are required to calculate the total income of Mr. Y for the assessment year 2009–10. Cost inflation indices are 551 for financial year 2007–08 and 582 for financial year 2008–09.
(b) State briefly the exemptions available under section 5 of the Wealth–tax Act.1957. 6 (0)
(c) Mr. A, is engaged in retail trade and is a distributor for the products of Mr. X. In appreciation of high turnover effected by Mr. A, Mr. X presented him a new car worth Rs.4 lakhs. Discuss the exigibility to tax of the above receipt in the hands of Mr. A. 2 (0)
6. (a) The following details of income of Mr. X and his wife , for the assessment year 2009–10 are made available to you:
Rs. Mrs. X
Income from own business/profession
Income from other sources
Interest received from Z & Co.
Salary received form Z & co. 1,20,000
Mr. X and Mrs. X are partners in Z & Co. each having 10% share in profits. Determine the total income of Mr. X and Mrs. X.
Will your answer be different, (a) If each one of them hold 8% shares in profits of Z & Co.? (b) If Mr. X and Mrs. X both possess professional qualifications.
(b) Can income–tax return be filed through computer readable media? 4 (0)
7. Write short notes on any three of the following: 5x3=15
(a) Amendment by the Finance Act, 2008 to "Charitable purpose" as defined in section 2(15) of the Income tax Act, 1961; (0)
(b) Reverse mortgage and its income–tax implications; (0)
(c) Advance payment of service tax and its subsequent adjustment; (0)
(d) "Employer" for FBT purposes; (0)
(e) Factors affecting determination of the most appropriate method in arriving at Arm’s Length Price in transfer pricing regulations. (0)
8. (a) Is there any option available to a service provider to pay a lower rate of service tax, based on the gross amount, in relation to purchase or sale of foreign currency? Brifly explain. 3 (0)
(b) Janak Ltd., is an associated enterprises of Takoya Inc., Tokyo; the latter has a permanent establishment in India. This company rendered service to Janak Ltd. For which tax was deducted at source and remitted. The Arm’s Length Price of Takoya Inc. was recomputed during the course of transfer pricing assessment. Janak Ltd. Wants to know whether there will be a corresponding re–computation in its hands also. Advice. 2 (0)
(c) Discuss whether the following payments are permissible as business expenditure:
(i) For an existing business on 10.05.2008, and assessee had borrowed Rs.25 lakhs for acquiring a machinery. Interest paid Rs.1,10,000/–. The machinery was not put to use during the year ended 31.03.2009.
(ii) Payment of Rs.60,000/– was made to a Don for ensuring that the employees will not indulge in strike. The Don had threatened initiating a labour strike.
(d) Distinguish between Association of persons and Body of Individuals as envisaged in the Income-tax Act. 1961. 2 (0)
(e) Is it possible for the net annual value of a house property to be negative? What will be tax treatment if income under the head "income from house property" is negative? 2+2 (0)