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QUESTION BANK

TAX PLANNING
UNIT - I
I

Test Your Skills:

(a)

State Whether the Following Statements are True or False:

Introduction
1
A person may not have assessable income but may still be assessee.
2
In some cases assessment year and previous year can be same financial year.
3
SHEC is half of the education cess.
Residential status
4
A resident in India cannot become resident in any other country for the same assessment
year.
5
A foreign company is always non-resident in India.
Heads of Income
6
Salary received by the partner from the firm in which he is a partner is taxable under the
head salary.
7
Municipal tax is a deduction from net annual value.
8
Cost of acquisition is always indexed if there is any long term capital gain.
9
Interest on securities is always taxable under the head Income from Other Sources.
(b)

Multiple Choice Questions:

Introduction
1
Income tax extends to:
(a) Whole of India
(b) Whole of India except Jammu and Kashmir
(c) Whole of India except Sikkim
(d) Whole of India except Jammu and Kashmir and Sikkim
2
A.O.P should consist of:
(a)
Individuals only
(b)
Persons other than individuals only
(c)
Both the above
3
Education cess is leviable on:
(a)
Income tax
(b)
Income tax + surcharge
(c)
Surcharge

Residential status
4
Residential status is to be determined for:
(a)
Previous year
(b)
Assessment year
(c)
Accounting year
5
Total income of a person is determined on the basis of his:
(a)
Residential status in India
(b)
Citizenship in India
(c)
None of the above
(d)
Both of the above
Heads of income
6
Gratuity shall be fully exempt in the case of:
(a)
Central and State Govt. employee
(b)
Central and State Govt. employees and employees of local authorities
(c)
Central and State Govt. employees and employees of local authorities and
employee of statutory corporation.
7
X has two house properties. Both are self-occupied. The annual value:
(a)
of both house shall be nil
(b)
one house shall be nil
(c)
of no house shall be nil
8
Where a company purchases its own shares there will be capital gain to the:
(a)
Company
(b)
Shareholder
(c)
Neither to the company nor to the shareholder
(d)
Both to the company and the shareholder
9
Preliminary expenses incurred are allowed deduction in
(a) 10 equal instalments
(b) 5 equal instalments
(c) full
10
Brought forward unabsorbed capital expenditure on scientific research can be carried
forward :
(a) for any number of years
(b) 8 years
(c) 10 years
(c)

Fill in the Blanks:

Introduction
1
Previous year means the __________
___________ immediately proceeding the
assessment year.
2
A person leaves India permanently on 15-7-2010. The assessment year for income earned
till 15-7-2010 in this case shall be __________.

Residential status
3
Income which accrue or arise outside India from a business controlled from India is
taxable in case of ______________.
4
A Ltd. is a foreign company whose part of control and management of its affairs is
situated outside India. A Ltd. shall be ____________.
Heads of Income
5
Monthly pension received by a govt. employee is _____________.
6
Interest on capital borrowed for repairs of self-occupied house property is deductible to
the maximum extent of __________.
7
Total income for A.Y. 2011-12 of an individual including long term capital gain of Rs.
60,000 is Rs. 1,90,000. The tax on total income shall be _________.
8
Salary, bonus, commission or remuneration due to or received by a working partner from
the firm is taxable under he head _____________.
9
A firms business income is nil/negative. It shall still be allowed a deduction on account
of remuneration to working partner to the extent of _____________.
10
The lottery, cross word puzzle, races, card games income, etc. are taxable at the rate of
________.
II

Short Answer Type Questions:

Introduction
1
Define the term Income.
2
Write short note on person as defined in the Income Tax Act.
3
Define assessee.
4
State with reasons whether the following companies are those in which public are
substantially interested:
(i) X Ltd. is a public company with a share capital of Rs. 3,00,000. It consists of 20,000
equity shares of Rs. 10 each and 1,000 - 8% Preference Shares of Rs. 100 each. Of this
5,000 equity shares and 900 preference shares are held by Govt. of India.
(ii) A Ltd., a private company, has issued 15,000 equity shares of which 4,000 are held by 2
directors, 500 by another director, 2,500 by two public men and balance 8,000 by forty
persons equally.
(iii) B & Co. Ltd., whose shares are listed on Mumbai Stock Exchange.
(iv) Z & Co. Ltd. is registered u/s 25 of the Indian Companies Act, 1956 for promotion of
commerce. It has been detected that it distributes a part of its profits to its members.

Residential Status
5
Write short note on income received in India.
6
A was born in Dhaka in 1945. He has been staying in Canada since 1974. he comes to
visit India on 13-10-2009 and returns on 29-3-2010. Determine his residential status for
assessment year 2011-12.
Heads of Income
7
Salary is taxable either on due basis or on receipt basis. Discuss.
8
Distinguish between a recognized provident fund and unrecognized provident fund.
3

9
10
11
12
13
14

Write short note on unrealized rent.


Define annual value.
Write short note on capital asset.
Distinguish between short term capital gain and long term capital gain.
List some incomes to be included under the head Income from other sources.
Explain the concept of grossing up.

III

Long Answer Type Questions:

Introduction
1
Income tax is charged on income of the previous year. Do you fully agree with this
statement? If not, what are the exceptions?
Residential Status
2
The residential status is determined for each category of persons separately. Discuss in
detail how would you determine the residential status for each category.
3
How does the tax liability of a not ordinarily resident person differ from that of a resident
and ordinarily resident person under the Income Tax Act? Explain.
Heads of Income
4
What is transferred balance when unrecognized provident fund is recognized. Discuss
the tax treatment with the help of a simple illustration.
5
Ownership itself is the criterion for assessment under the head Income from House
Property.
6
Discuss the tax treatment, with the help of examples, when a house property is owned by
two or more persons.
7
Indexed cost of acquisition is not required for computation of long term capital gain.
Discuss.
8
Although there is a transfer of capital asset and there are capital gains, but they are
exempt from tax. Discuss.
9
What do you understand by Income from other sources. State the main incomes which
are included under this head.
10
Explain the provisions relating to taxation of winning from lotteries and horse races.
Computation of taxable income
11
Explain in detail the procedure for computation of income of an individual.
IV

Practical Questions:

Residential Status
1

During the previous year 2010-11, X, a foreign citizen, stayed in India for just 69 days.
Determine his residential status for the A.Y. 2011-12 on the basis of the following
information:
(i) During 2007-08, X was present in India for 365 days.
(ii) Mrs. X is resident in India for A.Y. 2011-12.
(iii) During 2004-05 and 2003-04, X was in Japan for 359 and 348 days respectively and for
the balance period in India.
4

A Ltd. is an Indian company. It carries on business in New Delhi and London. The entire
control and management of A Ltd. is situated outside India. 80% of the total income of
the company is from the business in London. What is the residential status of A Ltd.

During the previous year 2010-11, X, a foreign citizen, stayed in India for just 69 days.
Determine his residential status for the A.Y. 2011-12 on the basis of the following
information:
(i) During 2009-10, he was not present in India but during 2008-09 he came to India for 276
days.
(ii) During 2007-08, X was present in India for 90 days.
(iii) During 2004-05 and 2003-04, X was in India for 359 and 348 days respectively.
(iv) Earlier to 2003-04, he had been regularly coming to India for 100 days every year.

From the following incomes earned by Mr. X during the financial year 2010-11,
determine his total income for the assessment year 2011-12 if he is (1) resident and
ordinarily resident; (2) not ordinarily resident; (3) non-resident.
S. No.
Detail
Rs.
a)
Profits from a business in Bombay managed from London
1,60,000
b)
Pension for services rendered in India but received in Burma
15,000
c)
Interest on U.K. Government bonds half of which is received 4,000
in India
d)
Income from property situated in Pakistan received there
20,000
e)
Past foreign untaxed income brought to India during the 7,000
previous year
f)
Income from agricultural land in Nepal received there and then 30,000
brought to India
g)
Income from profession in Kenya which was set up in India, 12,000
received there
5

The following are the particulars of income of X for the previous year 2010-11.
Determine his total income for the assessment year 2011-12 if he is (1) resident and
ordinarily resident; (2) not ordinarily resident; (3) non-resident.
S. No.
Detail
Rs.
a)
Capital gain on sale of property in Delhi received in USA
1,80,000
b)
Income from a business in USA controlled from Delhi
2,20,000
c)
Income from a business in Bangalore controlled from USA
3,80,000
d)
Rent from property in USA received there but subsequently 6,00,000
remitted to India
e)
Interest from deposits with an Indian company received in 40,000
USA
f)
Profits for the year 2008-09 of a business in USA remitted to 1,75,000
India during the previous year 2009-10 (Not taxed earlier)
g)
Gifts received from his parents
4,45,000
h)
Interest payable by Punjab Government, received in USA
1,00,000

Heads of Income
6
X is employed with ABC Ltd. on a basic salary of Rs. 5,000 per month. He is also
entitled to dearness allowance @100% of basic salary, 50% of which is included in salary
for as per terms of employment. The company gives him HRA of Rs. 3,000 per month
which was increased to Rs. 3,500 per month w.e.f. 1-1-2011. He also got an increment of
Rs. 500 in his basic salary w.e.f. 1-2-2011. Rent paid by him during the previous year
2010-11 is as under:
April and May, 2010 Nil, as he stayed with his parents
June to October, 2010 Rs. 3,000 per month for an accommodation in Ghaziabad
November, 2009 to March, 2011 Rs. 4,000 per month for an accommodation in Delhi.
Compute his gross salary for A.Y. 2011-12.
7
A is Dy. General Manager in a Private Ltd. company at Jabalpur. He was appointed in the
grade of Rs. 6,500 250 9,500 on 1-1-2004. he gets 30% Dearness Allowance and 10% City
Compensatory Allowance of his basic salary. He contributes 11% of basic salary and dearness
allowance to recognized provident fund and his employer also contributes the same amount. The
following facilities have also been provided by the company:
(i) A furnished house, owned by the employer, is provided to him for residence. The monthly
fair rent of the house is Rs. 3,100, and the cost of furniture was Rs. 50,000.
(ii) He has also been provided a motor car of 1.4 litre capacity which is used for official and
his private purposes both. The drivers salary and all the xexpenses relating to official use
of car are borne by his employer.
(iii) He is given a facility of a watchman and a cook. They are paid Rs. 650 and Rs. 800 per
month respectively.
As per the contract, the salary becomes due on the last day of every month. Compute his
salary income for the A.Y. 2011-12. The professional tax Rs. 2,000 was deducted from his
salary. Assume population of Jabalpur is less than 25 lakhs but more than 10 lakhs.
8

Z owns a house at Delhi of the fair rent of Rs. 3,600 p.m. (Municipal value Rs. 30,000).
During the previous year 2010-11, the house is let out for residential purpose on a
monthly rent of Rs. 4,000 from 1-4-2010 to 30-6-2010 and self-occupied fro residential
purpose for the remaining part of the year. Municipal taxes Rs.6,000, fire insurance
premium Rs. 3,000, Land revenue Rs. 2,000. Ground rent Rs. 1,000 and collection
charges Rs. 600 were paid during the year. A loan of Rs. 50,000 was taken on 1-4-2005
@10% p.a. for the construction of the house which was completed on 1-1-2008. Rs.
10,000 was paid towards the loan account on 1-4-2007. Find out his taxable income from
house property for the A.Y. 2011-12.

X gifted diamonds worth Rs. 2,00,000 to his wife Mrs. X on 1-11-1995. These were
acquired by him on 1-4-1981 for Rs. 1,00,000. On 1-4-2010, Mrs. X sold these diamonds
for Rs. 4,00,000 and invested the same in a plot for Rs. 6,00,000. The remaining amount
was paid by her out of her own funds. The plot was sold for Rs. 7,00,000 on 28-12-2010.
Compute the income chargeable to tax in the hands of Mr. X and Mrs. X on the sale of
diamonds as well as plot if C.I.I. for 1995-96 is 281.

10

Mr. A lives in Bangalore. He owns not only house properties in Bangalore but cultivable
land near Mangalore. He lives in a house which had been bought by him in January, 1986
for Rs. 2,31,000. The agricultural land measuring 10 hectares is being cultivated by his
father for over 15 years. Its fair market value as on 1-4-1981 was Rs. 8,00,000. The
residential house is sold by him for Rs. 14,00,000 in December, 2010 and another house
bought within three months at a price of Rs. 3,00,000 to be used for residential purposes.
Agricultural land is also sold for Rs. 55,00,000 in January 2011. on 30-6-2011, he bought
another agricultural farm for Rs. 5,00,000 which will be cultivated by him. Gold
ornaments were also sold by him in November, 2010 for Rs. 3,00,000 the fair market
price thereof as on 1-4-1981 being Rs. 30,000. He bought fresh jewellery for Rs. 80,000
within six months of sales. You are required to compute taxable capital gains of Mr. A for
A.Y. 2011-12. CII of financial year 1985-86 and 2009-10 is 133 and 632 respectively.

Computation of taxable income


11

XYZ Ltd., a domestic company manufactures textiles. For the year ending 31st March,
2011, Profit and Loss Account showed a net profit of Rs. 9.5 lakh. This included the
following debits to the Profit and Loss Account:
(a) Dividends amounting to Rs. 2 lakh paid to the shareholders.
(b) Interest amounting to Rs. 10,000 paid on the loan taken for the payment of company's
income-tax liability. .
(c) Interest amounting to Rs. 15,000 paid on the loan taken to make donation to an approved
charitable institution.
(d) Rs. 1,20,000 spent by the managing director on his visit to :
(i)
Canada to buy machinery and finalise a collaboration agreement for a new
independent undertaking proposed to be set-up (cement factory) Rs. 70,000.
(ii)
U.S.A. to study export market for textiles: Rs. 50,000.
(e) Company sold a block of assets at a loss of Rs. 50,000.
(f) Company incurred expenditure of Rs. 2,00,000 as' follows :
(i)
advertisement in newspaper: Rs. 50,000.
(ii)
advertisement in Souvenir of a political party: Rs. 25,000.
(iii) capital expenses on scientific research related to business Rs.
1,25,000.
(g) Rs. 10,000 paid to legal advisers in respect of proceedings before income-tax authorities.
(h) Penalty of Rs. 24,000 for importing yarn in contravention of import regulations.
(i) The company has paid during the year a lumpsum amount of Rs. 30 lakh to acquire
technical know-how from a laboratory owned by the government. This is being treated as a
deferred revenue expenditure and a sum of Rs. 5 lakh has been charged off to P&L A/C.
Compute the total income and tax liability of the company.

12

X Ltd. is a public company engaged in the business of printing and publication of books.
Its profit and loss account for the year ended 31-3-2010 disclosed a net profit of Rs.
8,00,000. Particulars noted from the companys accounts and obtained on enquiry from
the company are given below:
(i) The head office of the company is situated in a building taken on lease. During the year, the
company incurred an expenditure of Rs. 1,00,000 on extension of and improvements to
this building. The sum of Rs. 1,00,000 was debited by the company to its P&L A/C.

(ii) In the past, the company used to value its closing stock at cost. This year the closing stock
was valued at 105 below the cost at Rs. 90,000. The company has resolved that it will
henceforth adopt this method of valuation, consistently from year to year.
(iii) A motor car purchased by the company in the past for Rs. 25,000 was sold to an employee
of the company for Rs. 16,000 which was also the written down value of the car at the
beginning of the year. The market value of the car on the date of sale was Rs. 24,000.
(iv) Credits to the P&L A/C included dividend of Rs. 80,000 received from an Indian company.
(v) Debits to the P&L A/C included the following:
(a) Rs. 10,000 regarding expenditure incurred for printing invitation cards and hiring and
transport charges of furniture and shamiana in connection with the inauguration of a new
branch opened for expanding the business.
(b) Rs. 20,000 paid as penalty to government for the companys failure to perform the job of
printing and supply of text books within the stipulated time. Company had to pay penalty
for 4 months delay @ Rs. 5,000 per month as per agreement with the government.
(c) Rs. 8,000 deposit made under own telephone scheme.
(d) Rs. 5,000 being interest paid to bank on monies borrowed to pay income-tax Rs. 4,000
and wealth tax Rs. 1,000.
(e) Rs. 12,000 paid fro shifting of business premises from the original site to the present site
which is more advantageously located.
Compute the total income of the company for the A.Y. 2011-12. Give reasons for additions
made or deductions allowed in respect of the various items.

UNIT - II
I

Test Your Skills:

(a)

State Whether the Following Statements are True or False:

Deductions from Gross Total Income


1
Deduction u/s 80E for payment by way of interest on loan is allowed for 10 years.
2
Deduction u/s 80U shall be allowed only when the assessee is suffering from a permanent
disability at the beginning of the previous year.
3
Deductions u/s 80C to 80U are not available for a long-term capital gain but the same is
available from short term capital gain other than STCG on shares sold through
recognized stock exchange.
4
There is no sectorial cap in case of payment/investment made for claiming deduction u/s
80C.
Dividend Policy
5
At the time of payment of dividend, the shareholders have to pay tax.
(b)

Multiple Choice Questions:

Deductions from Gross Total Income


1
Deduction u/s 80C in respect of LIP, contribution to PF, etc. is allowed to:
(a)
Any assessee
(b)
Individual assessee only
8

(c)
(d)

Individual or HUF
Individual or HUF who is resident in India

For claiming deduction u/s 80C In respect of life insurance premium can be paid by
assessee for:
(a)
Himself only
(b)
Himself or the spouse
(c)
Himself, spouse and minor children
(d)
Himself, spouse and dependent children
(e)
Himself, spouse and any child

An assessee has paid life insurance premium of Rs. 25,000 during the previous year for a
policy of Rs. 1,00,000. He shall:
(a)
Not be allowed any deduction under Sec 80C
(b)
Be allowed deduction under Sec 80C to the extent of 20% of the capital sum
assured i.e. Rs. 20,000
(c)
Be allowed deduction for the entire premium as per the provisions of Sec 80C

Deduction in respect of contribution for annuity plan to certain pension fund u/s 80CCC
is allowed to:
(a)
Any assessee
(b)
Individual assessee only
(c)
Individual or HUF
(d)
Individual who is resident in India

As per Sec 80CCE deduction u/s 80C, 80CCC and 80CCD cannot exceed:
(a)
Rs. 1,00,000
(b)
Rs. 1,10,000
(c)
Rs. 1,50,000

Deduction u/s 80D in respect of medical insurance premia is allowed to:


(a)
any assessee
(b)
an individual or HUF
(c)
individual or HUF who is resident in India
(d)
individual only

The overall limit in case of deduction under Sec 80G is:


(a)
10% of gross total income
(b)
10% of total income
(c)
10% of gross total income as reduced any portion thereof on which income tax is
not payable under any provisions of the Act and by any amount in respect of
which the assessee is entitled to as a deduction under Chapter VIA except
deduction u/s 80G.

Deduction u/s 80IA in respect of an undertaking which is engaged in providing


telecommunication service, etc. is allowed if it is owned by:
(a)
an Indian company
(b)
any assessee
9

(c)

an Indian company or consortium of such companies

Deduction to undertaking which develops, maintains, etc. any industrial park allowed if
such undertaking is owned by:
(a)
an Indian company
(b)
an Indian company or a consortium of such companies
(c)
any assessee

10

Where the return of income is filed after the due date specified u/s 139(1):
(a)
all deductions under Chapter VIA i.e. 80C to 80U will be allowable
(b)
all deductions under Chapter VIA i.e. 80C to 80U will not be allowable
(c)
all deductions under Chapter VIA i.e. 80C to 80U excepting 80-IA, 80-IAB, 80IB, 80-IC, 80-ID, 80-IE will be allowable
(d)
all deductions under Chapter VIA i.e. 80C to 80U except 80-IA will be allowable

(c)

Fill in the Blanks:

Deductions from Gross Total Income


1
The deduction u/s 80E is allowed for payment by way of interest on loan to the extent of
________ _________.
2
Deduction in respect of rent paid u/s 80GG shall be allowed to ______ _________.
Dividend Policy
3
Tax on distributed profits under the Income Tax Act is covered u/s ________.
Amalgamation and mergers of companies
4
Amalgamation has been defined under the Income Tax Act u/s ______.
II

Short Answer Type Questions:

Deductions from Gross Total Income


1
Discuss the provisions relating to Sec 80CC and 80U.
2

X, aged 66 years a resident in India has GTI of Rs. 2,90,000. This includes long-term
capital gains of Rs. 95,000 and interest on govt. securities amounting to Rs. 20,000. He
deposited Rs. 15,000 in PPF account during the previous year. Compute his tax liability
for the A.Y. 2010-11.

Minimum Alternate Tax on companies


3
For the assessment year 2011-12, a company has correctly worked out its book profit as
per section 115JB as Rs. 12,45,600. The total income computed as per the provisions of
Income Tax Act is Rs. 2,87,450. It desires to know the amount to be shown in the final
accounts as provision for taxation.
4

Explain the evolution of the concept of MAT.

Dividend Policy
10

R holds shares in a domestic company in which public are not substantially interested On
1.8.2004, he obtained a loan of Rs. 5,00,000 @ 14% interest per annum from the
company. As on that, the company had accumulated profits of Rs. 4,00,000. Explain the
tax implications of the transaction on R and also the company.

Discuss the applicability of tax on dividend distributed by a company for the shareholder
and company.

Amalgamation and mergers of companies


7
Explain the meaning of the term amalgamation as per Income Tax Act.
8
Define demerger.
9
Discuss the term slump sale.
10
Explain the provisions relating to computation of capital gains in case of slump sale.
11
What are the conditions to be satisfied for a merger to qualify as amalgamation for the
purpose of Income Tax Act.
III

Long Answer Type Questions:

Deductions from Gross Total Income


1
Explain the provisions relating to deductions from Gross Total Income in respect of 80C
of Income Tax Act.
2
What are the provisions relating to deductions from GTI in respect of donations to certain
funds, charitable institutions, etc. under Sec. 80G of Income Tax Act?
3
Discuss the conditions to be fulfilled for allowability of deductions u/s 80-IB in respect of
profits and gains from newly established industrial undertakings set up in India.
Minimum Alternate Tax on companies
4
Discuss the provisions regarding Minimum Alternate Tax. Also, explain the necessary
adjustments to be made to net profit of the company to convert it to book profit for
computation of Minimum Alternate Tax.
Dividend Policy
5
Explain the provisions relating to deemed dividend as per Sec. 2(22).
6
Discuss the provisions relating to tax on distributed profits of domestic companies.
Amalgamation and mergers of companies
7
Explain the consequences of amalgamation for :
(a)
Shareholders of amalgamating company
(b)
Amalgamating company
(c)
Amalgamated company
(d)
Banking company
IV

Practical Questions:

Deductions from Gross Total Income


1

X, who is working in Delhi as a manager of A Ltd. furnishes the following particulars of


his income for the previous year 2010-11:
11

a. Basic Salary
Rs. 10,000 per month
b. DA (forming part of salary for retirement benefits)
30% of basic salary
He has been provided with a motor car of 1.8 ltr. engine capacity which he uses partly for
official purposes and partly for his personal use. The running and maintenance expenses of the
motor car are met by the employer. However, the employer recovers Rs. 500 per month from
the employee for use of such motor car.
He is also provided with a furnished accommodation in Delhi. The house has been taken on
rent by the company at Rs. 7,000 p.m. The cost of furniture provided is Rs. 90,000.
Besides salary, he has earned the following income:
i) Interest on bank deposits
Rs. 14,000
ii) Winnings from card games
Rs. 12,000
Compute the total income of X for A.Y. 2011-12 assuming that he donates Rs. 10,000 to
National Children Fund.
2

X, who is resident in India, is a person of disability. He provides the following particulars


of his income for the year ending 31-3-2011.
a) Salary for working as a telephone operator in a company
17,500 p.m.
b) Honorarium from school of blind for giving his service
47,000
c) Interest on government securities (gross)
44,000
d) Income from unit trust of India (gross)
5,000
He has contributed Rs. 2,000 to Prime Minister National Relief Fund and donated Rs.
20,000 to the school for blind which is approved as a charitable institution. He has also
paid Rs. 3,000 by cheque as premium of medi-claim policy. His father is also a person
with disability and is dependent on him for medical treatment and rehabilitation. X
spends Rs. 8,000 during the year on him.
Compute his total income for the A.Y. 2011-12, assuming he has deposited Rs. 20,000 in
Public Provident Fund.
Minimum Alternate Tax on companies
3
R (P) Ltd. gives you a draft of its Profit and Loss Account for the year ended 31-3-2011
showing a net profit of Rs. 9 lakhs. The following further information is also given:
(a) The company had imported machinery at a cost of Rs. 50 lakhs in 2008-09. Depreciation
on the original cost at 10 per cent on the straight-line basis is provided in the accounts
(Rs. 5 lakhs). The company obtained from the foreign supplier Rs. 50,000 in 2008-09 by
way of compensation for the defective machinery supplied. This has been credited to a
reserve account. Provision for depreciation on other assets in the books is on the same
basis as provided in the Income-tax Act.
(b) The Enforcement Directorate had detected that the company had over invoiced imports of
raw materials to the extent of Rs. 90,000. This sum had been spent by the Managing
Director during his business visit to the foreign country for personal purposes.
(c) Professional charges included:
(i) Rs. 2,000 being legal expenses incurred in connection with criminal proceedings
launched by the Income Tax Department against the Managing Director for
fabrication of accounts in the case of a firm in which he is a partner.
(ii) Rs. 7,500 paid to solicitors for attending income-tax appeals for 3 years before
Income-tax Appellate Tribunal.
(d) Advertisement expenses included (incurred on January, 2010):
12

(i) Advertisement in Malaysia for exploring the possibilities of export to that country, Rs.
9,000.
(ii) Payment to an advertising agent Rs. 4,000 in cash. The payment is supported by
proper voucher.
(e) Interest payment included the following:
(i) Rs. 1 lakh paid to depositors all of whom were shareholders of the company, on fixed
deposits and Rs. 2 lakhs to a bank on overdraft account.
(ii) Rs. 3,000 paid by way of interest to a non-resident and Rs. 10,000 paid as interest on
fixed deposits from a relative of the Managing Director without deduction of tax at
source.
(iii) Rs. 5,000 paid to bank on loan taken for meeting income-tax liabilities.
(f) As per the Payment of Bonus Act, the bonus liability worked out to Rs. 3 lakhs.
However, following past practice, the company paid Rs. 4 lakhs, which worked out to 20
per cent of salaries of staff.
(g) The Profit and Loss Account shows a credit of Rs. 5,000 for dividend on 1-6-2010 from a
company engaged in the manufacture of cement. Dividend distributed by R (P) Ltd. for
the financial year 2010-2011 on 1-10-2011 is Rs. 1,50,000
Compute the total income of the company. Please indicate, in brief, the reasons for any
adjustments that you make in support of your computation.
4

ABC Ltd., a closely held Indian company, is engaged in the business of manufacture of
paints in India. A profit and loss account for the year ending 31-3-2011 is given below:
PROFIT AND LOSS ACCOUNT
Rs.
Rs.
Salary and wages
7.5 Sales
48.00
Postage and telegram
0.40 Amount withdrawn from
3.00
general reserve
Traveling and conveyance
0.50
Depreciation
5.00
Income tax
4.00
Wealth tax
0.10
Excise duty due
1.00
Provision for future losses
0.60
Proposed dividend
0.80
Loss of subsidiary company
0.50
Audit fee
0.25
Director remuneration
8.00
Deferred tax liability
1.35
Net profit
21.00
Total
51.00 Total
51.00
Additional information:
1. The excise duty due on 31-3-2011 was paid on 2-12-2011.
2. Custom duty of Rs. 1,20,000 which was due on 31-3-2008 was paid during the financial
year 2010-11.
3. Depreciation as per income tax is Rs. 11.43 lakhs.
4. The company wants to set off the following losses/allowances:
For tax purposes
For accounting
13

purposes
Brought forward loss of assessment year 2009-10
12,00,000
10,00,000
Unabsorbed depreciation
3,00,000
3,00,000
Compute the total income of the assessee and the tax liability for the assessment year 2011-12.

5 The business income of the assessee before claiming depreciation, for the financial year
2010-11 is Rs. 15,00,000. The book profit of the company as per the provisions of Sec
115JB is Rs. 8,00,000. the other details are as under:
1) Current year depreciation
2,80,000
2) Brought forward business loss
8,00,000
3) Brought forward unabsorbed depreciation 5,20,000
Compute the tax liability of the company fro the A.Y. 2011-12.

6 From the following information compute the total income of X Ltd. and the tax liability
for A. Y. 2011-12 :
To Expenses relating to
business
To Income tax paid
To General Reserve
To
provision
for
contingent liability
To
Provision
for
diminution in value of
an asset
To proposed Dividend
To Balance c/d

Profit and Loss Account


4,50,000
By long term capital gain
20,000
40,000
40,000

By sale
By deferred tax

1,00,000
7,00,000
1,00,000

50,000
50,000
2,50,000
9,00,000

9,00,000

Additional information:
(i)
Brought forward loss as per books of account Rs. 1,00,000
(ii)
Brought forward unabsorbed depreciation as per income tax Rs. 3,00,000
(iii)
Brought forward depreciation as per books of account Rs. 80,000
(iv)
Brought forward loss under the head capital gains (computed as per Incoem Tax Act)
Rs. 60,000.
7

A domestic company, R Ltd., has an undertaking newly established for export of


Computer Software in a free trade zone, the profits of which have been merged in the net
profit of the company as per Profit and Loss Account prepared in accordance with the
provisions of Parts II and III of Schedule VI to the Companies Act. It furnishes the
following particulars in respect of assessment year 2011-12 and seeks your opinion on the
application of section 115JB. You are also required to compute the total income and tax
payable
Net profits as per Profit and Loss Account as per Schedule VI
Profit and Loss Account includes:
14

2,00,00,000

(a) Credits: Dividend income


20,00,000
Excess realized on sale of land held as investment
30,00,000
Net profit of the undertaking for export of computer
software
1,00,00,000
(b) Debits; Depreciation on straight line method basis
1,00,00,000
Provision of losses of subsidiary company
60,00,000
(3) Depreciation allowable as per Income-tax Act and Rules
1,50,00,000
(4) Capital gains as computed under Income-tax Act
40,00,000
(5) Losses brought forward as per books of account
Business loss
50,00,000
Unabsorbed depreciation
60,00,000
The company has represented to you that the excess realized on sale of land cannot form
part of the book profit for purpose of section 115JB. You will have to deal with this issue.
Dividend Policy
8
An Indian company with a paid-up (for cash) share capital of Rs 10,00,000 divided into
10,000 equity shares of Rs. 100 each went into liquidation on 30th June, 2010. On that
date its reserves created out of profits amounted to Rs. 7,00,000 and the balance to the
credit of its' profit and loss account was Rs. 50,000. The liquidator realised the assets at
prices considerably in excess of their book values and after meeting and providing for all
liabilities including the liability for taxation had a distributable sum of Rs. 26,50,000
which he duly distributed to shareholders on 1st March, 2011.
Company S, a holder of 500 shares acquired by it on 1st July, 1976 at a cost of Rs. 10,000
approaches you for advice as to the treatment for income tax purposes for the amount
received by it from the liquidator. The fair market value of shares of Company S on
1.4.1981 was Rs. 20,000. The cost inflation index for 1981-82 was 100 and for 2009-10
was 632.
9

Out of Rs. 30,00,000 share capital of Rs. 100 per share, the company reduces Rs.
3,00,000 share capital at Rs.10 per share. The accumulated profits of the company were
Rs. 1,50,000. .Mr. Ramesh holds 500 shares of the company.
Compute the amount of deemed dividend u/s 2(22)(d).

10

Mr. Ram took a loan of Rs. 1,00,000 on 10.9.2010 from a company in which the public
are not substantially interested. The company also paid insurance premium Rs. 5,000 on
his behalf. He holds 25% equity shares of the company. On the date of loan and paying
the premium, the accumulated profits of the company were Rs. 80,000. Subsequently in
the same year, the company declared dividends to its shareholders. The dividends on the
shareholding of Mr. Ram amounting Rs. 15,000 was set-off against the amount of loan
etc. Compute the amount that should be included in the income of Mr. Ram.

11

R Ltd. has accumulated profits of Rs. 3,00,000 excluding capitalized profits i.e. bonus
shares of Rs. 1,00,000 issued in the past. The company distributed assets of Rs. 2.50,000
to the shareholders. Compute the amount taxable as dividend if the market value of the
asset on the date of the distribution is:
(a) Rs. 2,00,000.
(b) Rs.3,50,000.
15

(c) Rs. 4,50,000.

16

Amalgamation and mergers of companies


12
XY Ltd. (an industrial undertaking) wants to amalgamate with PQ Ltd. (an Indian
Company) on June 30, 2010. You are required to find out the tax implications in respect
of the following losses/allowances of XY Ltd. in the assessment of PQ Ltd. (i.e.,
amalgamated company).
Unabsorbed depreciation allowance of the previous year 2009-10 : Rs. 86,000; brought
forward business loss of the previous year 2009-10 : Rs. 10,00,000. Expected bad debts:
Rs. 15,000; brought forward capital loss: Rs. 40,000 of the previous year 2009-10;
brought forward speculative loss: Rs. 50,000 of the previous year 2008-09.
XY Ltd. incurred capital expenses Rs. 2,00,000 in 2008-09 for promoting family
planning amongst its employees. The company could not claim deduction in respect of
such expenses in previous years 2009-10 and 2010-11.

UNIT - III
I

Test Your Skills:

(a)

State Whether the Following Statements are True or False:

Tax Planning, Tax avoidance, Tax evasion and Tax Management


1
Tax avoidance is legitimate arrangement of affairs in such a way so as to minimize tax
liability.
2
There is element of malafide intention involved in tax avoidance.
3
Tax planning and tax avoidance are synonymous.
Tax Planning with reference to location of undertaking, Type of activity and ownership
pattern
4
Aggregate amount of tax liability of a firm and partners is generally higher than that in
case of same income generated in sole proprietorship.
5
To decide about the form of organization tax liability under different organization forms
must be compared.
Bonus shares
6
At the time of sale of bonus shares by the shareholder, the company issuing bonus shares
has to pay tax.
Tax Consideration in respect of specific managerial decisions like Make or buy, own or
lease
7
In case of purchase of asset out of borrowed funds, the assessee can claim only
depreciation as deduction.
8
Lease rentals can be claimed as admissible expenditure against the business income.
Managerial Remuneration
9
The tax planning in case of employees remuneration requires the study from employees
point of view only.
10
The Act, for valuation of ESOPs, provides that the fair market value of the specified
security or sweat equity shares, on the date on which the option vests with the employee
17

as reduced by the amount actually paid by, or recovered from the employee in respect of
such security or shares, shall be the value of fringe benefits.
(b)

Multiple Choice Questions:

Tax Planning, Tax avoidance, Tax evasion and Tax Management


1
A company wants to reduce the tax liability by making incorrect statement about the
location of manufacturing process, it is ____
(a)
Tax Planning
(b)
Tax Avoidance
(c)
Tax Evasion
2

Tax evasion is ____


(a)
legal
(b)
illegal

Tax Planning with reference to location of undertaking, Type of activity and ownership
pattern
3
Remuneration should be paid to ____
(a)
working partner only
(b)
dormant partner only
(c)
both of the above
4

Considerations like _____ need to be considered while setting up a new organization.


(a)
Location of undertaking
(b)
nature of business
(c)
form of organization
(d)
all of the above

Bonus shares
5
At the time of issue of bonus shares, tax liability arises in the hands of
(a)
the shareholder
(b)
the company issuing bonus shares
(c)
Both of the above
(d)
None of the above
(c)

Fill in the Blanks:

Tax Planning, Tax avoidance, Tax evasion and Tax Management


1
The benefits arising out of tax planning are substantial particularly for the _______ run.
2
The objective of tax management is to ___________.
Bonus shares
3
When bonus shares are issued the tax liability in the hands of the shareholders is _____.
Tax Consideration in respect of specific managerial decisions like Make or buy, own or
lease
18

For determining effective tax savings in case of purchase of asset out of own funds or
borrowed capital __________ and ________ have to be considered.
Managerial Remuneration
5
Fringe benefit tax is paid by the __________.
6
FBT is levied @ _______ on the value of fringe benefits.
II

Short Answer Type Questions:

Tax Planning, Tax avoidance, Tax evasion and Tax Management


1
What are the objectives of tax planning?
2
Differentiate between tax avoidance and tax evasion.
3
Define tax avoidance giving its essential features.
Tax Planning with reference to location of undertaking, Type of activity and ownership
pattern
4
How can you reduce tax incidence on companies.
5
Discuss the provisions relating to salary and interest payment to partners by a partnership
firm.
Bonus shares
6
Discuss the provisions relating to capital gain on bonus shares as given under Income Tax
Act.
7
What is the tax treatment in the hands of the shareholders at the time of sale of bonus
shares by the shareholder.
Tax Consideration in respect of specific managerial decisions like Make or buy, own or
lease
8
What are the considerations to be kept in mind for making a decision regarding financing
of a capital asset.
9
Explain how tax planning can be done in case of make or buy decision.
10
What all factors should be considered for tax planning in case of own or lease.
III

Long Answer Type Questions:

Tax Planning, Tax avoidance, Tax evasion and Tax Management


1
Define tax planning and explain its need and benefits.
2
What is tax planning? How does it differ from tax management?
3
Tax management is essential for every assessee but tax planning is optional. Comment.
Tax Planning with reference to location of undertaking, Type of activity and ownership
pattern
5
Explain the tax considerations relating to deciding on the nature of the business to be set
up.
6
Explain the provisions relating to location of undertaking for setting up a new business
organization.
Managerial Remuneration
7
Under section 15, read with section 17(1), gratuity is taxable when it is due or paid,
19

whichever is earlier. Under section 10(10) gratuity is exempt from tax when it is received.
If a person retires on March 14, 2007 but gratuity is received on April 4, 2008 state, as to
(a) when gratuity will be taxed, (b) when exemption under section 10(10) will be
allowed, and (c) when relief under section 89 could be claimed
IV
Practical Questions:
Tax Planning with reference to location of undertaking, Type of activity and ownership
pattern
1
A, B and C have decided to set-up a business. For this purpose A, B and C are having Rs.
6,00,000, Rs. 3,00,000 and Rs. 3,00,000 respectively. They wish (i) to charge interest on
their capital/loan @ 12% p.a., Salary A Rs. 20,000 p. m., B: Rs. 10,000 p. m., C Rs.
10,000 p.m. and share profits in the ratio 2 : 1 .: 1, or (ii) B and C to receive half the
income as salary nominating A as the sole owner of the business.
They expect the income of Rs. 8,00,000 (before charging interest on capital/ loan) during
the relevant year.
As an income tax expert you are approached by A, B and C for considered opinion as to
whether they should have a firm or a sole proprietary concern of A, while B and C
becoming employees and moneylenders to the concern so that they can reduce their tax
liability? What is your advice and what arguments would you give in support of your
advice?
2

There are two members A and B in a joint Hindu family having a capital of Rs.
12,50,000. They can run a business as a business of an individual by joining the other as
an employee and money-lender or as a H.U.F.
(i) If the business is run as of an individual, the other member will receive salary of Rs. 2
lakh and interest @ 12% on 6,25,000.
(ii) If the business is run as a H. U.F. each member will be receiving salary Rs. 1,50,000.
Suggest which form of business organisation should be adopted from tax point of view, if
the expected business income is Rs. 5,50,000 for P.Y 2011 12.

On the basis of the following information suggest to A and B whether they should invest
their funds in their own partnership firm @ 12% p.a. or invest it in the firm of C and D @
15% p.a. (the market rate of interest) and accept deposits of C and D @ 15% p.a. for their
firm :
(i) Profits of firm before interest and remuneration to partners Rs. 6,00,000
(ii) Remuneration to partners Rs. 10,000 p.m. each;
(iii) Funds for investment Rs. 4,00,000 each;
(iv) Other income of partners Rs. 3,00,000 each

Issue of bonus shares


4
On 1-8-1976, Mrs. X purchased 400 shares of ABC Ltd. @ Rs. 100 per share. On 31-121980, ABC Ltd. issued bonus shares; Mrs. X was allotted 600 bonus shares. The fair
market value of the shares on 1-4-1981 was Rs. 150 per share. On 3-10-2010, Mrs. X
sold all the 1,000 shares @ Rs. 1,100 per share and paid brokerage etc. @ 2% on sale
consideration. Out of the sale consideration, she invested Rs. 3,00,000 in the construction
of a residential house which was completed before 30-6-2011.

20

Compute the taxable income from capital gains of Mrs. X for the A.Y. 2011-12 assuming
that he does not own any other residential house and the above shares are not sold
through recognized stock exchange.
5

P purchases 500 listed equity shares of Rs. 10 each for Rs. 40 per share in 1989-90 and
incurs an expenditure of Rs. 400 on brokerage. In May 1993, he receives 100 bonus
shares. In September, 2010 he gets 100 right shares for Rs. 20 rach. He sold 100 bonus
shares in November, 2009 at Rs. 30 per share and 100 right shares @ 30 per share in
December 2010. the bonus shares as well as right shares have kept in a separate
depository. Both the sales were made through the stock exchange. Rs. 15 were paid as
securities transaction tax. Find out the capital gains for the assessment year 2011-12.

Tax Consideration in respect of specific managerial decisions like Make or buy, own or
lease
6
From the following information determine whether the assessee should purchase an asset
or take on lease:
Cost of asset Rs. 1,00,000.
Rate of depreciation 15%.
Rate of interest 10%.
Repayment of loan by the assessee Rs. 20,000 p.a.
Rate of tax 30.9%.
Residual value Rs. 20,000 after five years.
Profit of the assessee Rs..1,00,000 before depreciation, interest and tax/before lease rent
and tax.
Lease rent Rs. 30,000 p.a.
7

A motor car company requires 10,000 units of a part of car engines. From the following
information, suggest to the company whether it should make the part itself or buy it from
the market:
Total cost of 10,000 units
Direct material
20,000
Direct labour
80,000
Variable factory overhead
40,000
Fixed factory overhead
80,000
Total cost
2,20,000
A manufacturer offers to sell the same part @Rs. 20 per unit.
If the company manufactures the part, it does not require any additional facility.

An asset costing Rs. 1,00,000 is to be acquired. There are two alternatives available to
the entrepreneur. First one is buying the asset by taking a loan of Rs. 1,00,000 repayable
in five equal installments of Rs. 20,000 each along with interest @ 14% p.a. Assuming
that lease rentals processing fees, interest as well as the principal amounts are payable at
the year end. The second one is leasing the asset for which annual lease rental is Rs.
30,000 up to five years. The lessor charges 1 % as processing fees in the first year.
Assume the internal rate of return to be 10% and the present value factor at 10% is:
Years
1
2
3
4
5
PV Factor
.909 .826 .751 .683 .621
21

Suggest which alternative is better in the above case. Assume the tax rate to be 33.99%
and rate of depreciation @ 15%.
9

The management of X Ltd. wants to acquire a new machine. The cash price of the
machine is Rs. 1,00,000. The company has enough cash reserves to finance the purchase.
However, it seeks your advice, whether from the point of view of tax planning, it should
buy the machine or get it on lease. On the basis of the following particulars, explain the
suitability of each alternatives.
(i) Rate of Income Tax : 35%.
(ii) Rate of depreciation under the Income Tax Act : 25%.
(iii) Expected life of the machine: 9 years.
(iv) Lease rent: Rs. 31,000 per annum for the first five years and Rs. 300 per year afterwards.
(v) Present value of Re. 1 discounted at 14%; Year One-0.877; Year Two-0.769; Year Three0.675; Year Four-0.592; Year Five0.519; Year Six-0.456; Year Seven-O.400; Year
Eighth-0.351 and Year Nine-0.308.

10

A company requires 20,000 units of a component every year for next five years. The
component can either be manufactured by the company in its factory or be purchased
from the market. From the following information suggest to the company whether it
should make the component or buy it from the market:
1. Material cost per unit Rs. 4
2. Labour cost per unit Rs. 6
3. Variable overhead cost per unit Rs. 2
4. If the company manufactures the part, it has to purchase a machine by taking a loan from
the bank. The present value of net cash outflow in this regard in five years will be Rs.
1,00,000.
5. The component is available in the market at (a) Rs. 12.5 per unit, (b) Rs. 14 per unit

11

X Ltd. manufactures electric pumping sets. The company has the option to either make or
buy from the market component Y used in manufacture of the sets. The following details
are available:
The component will be manufactured on new machine costing Rs. 1 lakh with a life of 10
years. Materials required cost Rs. 2 per kg. and wages Re. 0.30 per hour. The salary of the
foreman employed is Rs. 1,500 per month and other variable overheads include Rs.
20,000 for manufacturing 25,000 components per year. Material requirement is 25,000
kgs. and requires 50,000 labour hours.
The component is available in the market at Rs. 4.30 per piece.
Will it be profitable to make or to buy the component? Does it make any difference if the
component can be manufactured on an existing machine?

12

XYZ Ltd. needs a component in an assembly operation. It is contemplating the proposal


to either make or buy the aforesaid component.
l. If the company decides to make the product itself, then it would need to buy a machine
for Rs. 8 lakh which would be used for 5 years. Manufacturing costs in each of the five
years would be Rs. 12 lakh. Rs. 14 lakh, Rs. 16 1akh, Rs. 20 lakh and Rs. 25 lakh
respectively. The relevant depreciation rate is 15 per cent. The machine will be sold for
Rs. 1 lakh at the beginning of the sixth year.
22

2. If the company decides to buy the component from a supplier the component would cost
Rs. 18 lakh, Rs. 20 lakh, Rs. 22 lakh. Rs. 28 lakh and Rs. 34 lakh respectively in each of
the five years.
The relevant discounting rate and tax rate are 14 per cent and 33.2175 per cent
respectively. Additional depreciation is not available. Should XYZ Ltd make the
component or buy from outside?
13

XYZ Lt/d. is considering the purchase of a new machine costing Rs. 60,000 with an
expected life of 5 years with salvage value of Rs. 3,000, in replacement of an old
machine purchased 3 years ago for Rs, 30,000 with expected life of 8 years.
The present market value of this old machine is Rs. 35,000. Because of the purchase of
new machinery, the annual profits before depreciation are expected to increase by Rs.
12,000. The relevant depreciation rate for the machine is 15 per cent on written down
value basis and the tax rate is 33. 99 per cent.
Assume the after tax cost of capital (discounting rate) to be 14 per cent. Advise the
company suitably.

14

The directors of a domestic company, whose existing capital is Rs. 1 crore all in equity
shares, proposes to expand its business for which an additional investment of Rs. 50 lakh
would be needed. The entire money can be raised either by issue of equity shares or by
issue of 10% debentures. They decide in favour of issue of equity shares. As a tax
consultant, do you approve the proposal? Assume that rate of return is 20% and rate of
income tax is 30%.

Managerial Remuneration
15

Mrs. X is offered an employment by PQR Ltd. at a basic


salary of Rs. 24,000 per month. Other allowances according
to rules of the company are: dearness allowance: 18 per cent
of basic pay (not forming part of salary for calculating
retirement benefits), bonus: 1 month basic pay; project
allowance: 6 per cent of basic pay. The company gives Mrs.
X an option either to take a rent-free unfurnished
accommodation at Bhopal for which the company would
directly bear the rent of Rs. 15,000 per month, or to accept a
house rent allowance of Rs. 15,000 per month and find out
own accommodation. If Mrs. X opts for house rent
allowance, she will have to pay Rs. 15,000 per month as rent.
Which one of the two options should be opted by Mrs. X in
order to minimise her tax bill? ( ans 49392 ).

16

Mr. A received offers from companies of Jaipur fro service as under:


Offer A
Salary
6,00,000
D.A.
1,44,000
23

Offer B
7,50,000
1,60,000

Rent free house (Rent payable Rs. 3,00,000)


House rent allowance (Rent payable Rs. 3,00,000)
Medical reimbursement upto
Medical allowance
Tea and snacks during working hours
Free food during working hours (cost Rs. 70 per day for 250
days)
Lunch allowance
Large car for official and private purposes (estimated expenses)
Transport allowance for commuting between place of residence
and the place of work and personal purposes
Contribution of employer to RPF 12% of salary
(subscription of employee to RPF 12% of salary)
Contribution of employer to approved superannuation fund
Education allowance for two children
Hostel allowance for two children
Telephone including mobile phone

3,00,000
20,000
4,700
17,500

3,00,000
25,000
-

1,25,000
-

15,000
60,000

72,000
1,00,000
2,400
7,200
7,200
14,00,000

90,000
14,00,000

Which offer should he accept keeping in view his tax liability.

UNIT - IV
I

Test Your Skills:

(a)

State Whether the Following Statements are True or False:

Return of Income and Procedure of Assessment


1
Due date of filing the return of income in case of non-company assessee is 31 st July of the
relevant assessment year.
2
Once a return of income is revised, it cannot be revised further.
Advance Tax
3
Advance tax can be paid in the assessment year before filing the return of income.
4
TDS
5

Advance tax is payable only when notice of demand is issued by the A.O.

Tax deducted at source for the month of March should be deposited on or before the date
prescribed under Sec 139(1).
The rate of tax to be deducted at source in case of fee for professional service is 10%.

(b)

Multiple Choice Questions:

Return of Income and Procedure of Assessment


1
As per Sec. 139(1), a company shall have to file return of income:
(a)
When its total income exceeds Rs. 1,50,000
24

(b)
(c)

When its total income exceeds the maximum amount which is not chargeable to
income tax
In all cases irrespective of any income or loss earned by it

E-filing of return in case of a office of the government/company and a firm whose


accounts are liable to be audited assessee is:
(a)
Mandatory
(b)
Optional

The filing of return of loss is:


(a)
Mandatory
(b)
Not mandatory
(c)
Mandatory if the assessee has to carry forward the loss which are allowed to be
carried forward and set off

If the assessee has to carry forward the loss, the return of loss must be submitted:
(a)
On or before the due date mentioned in Sec. 139(1)
(b)
At any time before the end of the relevant assessment year
(c)
At any time before the expiry of one year from the end of the relevant assessment
year
The assessee could not file his return of income for assessment year 2007-08 within the
time allowed as per Sec. 139(1). His assessment u/s 144 was completed on 15-1-2009 and
it was communicated to him on 19-1-2009. the assessee in this case could file the belated
return till:
(a)
14-1-2009
(b)
15-1-2009
(c)
18-1-2009
(d)
19-1-2009
(e)
31-3-2009

Penalties and Assessments


The minimum and maximum penalty for failure to comply with a direction regarding
getting of accounts audited under Sec 142(2A) shall be:
(a)
Rs. 25,000
(b)
Rs. 10,000
(c)
Rs. 1,000 and Rs. 25,000 respectively.

The minimum and maximum period of rigorous imprisonment under Sec. 276 for
removal, concealment, transfer or delivery of property to thwart tax recovery shall be:
(a)
Any period upto 1 year and fine
(b)
Any period upto 2 years and fine
(c)
Any period upto 3 years and fine

The minimum and maximum penalty under Sec 272A(1)(d) for failure to apply for
allotment of PAN under Sec 139A or quote such number in challan, etc. shall be:
(a)
Rs. 500
(b)
Rs. 500 and Rs. 5,000
(c)
Rs. 10,000
25

10

Appeals and Revisions


The first appeal against the order of the AO lies with:
(a)
Deputy Commissioner (Appeals)
(b)
Commissioner (Appeals)
(c)
Appellate Tribunal
The first appeal can be filed by:
(a)
The assessee only
(b)
A.O. only
(c)
Either by the assessee or by the A.O.

11

The maximum fee for filing an appeal to Appellate Tribunal is:


(a) Rs. 5,000
(b) 1% of the assessed income
(c) 1% of the assessed income subject to maximum of Rs. 10,000

12

The Commissioner shall not revise the order under Sec 264:
(a)
Where an order has been made more than one year previously
(b)
Where an order has been made more than 2 years previously
(c)
Where an order has been made more than 4 years previously

Advance Tax
13
The advance tax is payable by the assessee if the advance tax payable during the financial
year:
(a)
Exceeds Rs. 1,500
(b)
Exceeds Rs. 5,000
(c)
Is Rs. 10,000 or more
14

TDS
15

A company assessee has to make the payment of advance tax:


(a)
In 3 instalments
(b)
In 4 instalments
(c)
Every month
The deduction of tax at source from the salary shall be made at the time of:
(a)
Accrual of salary
(b)
Payment of salary
(c)
Credit or payment of the salary, whichever is earlier

16

The liability to deduct tax at source in case of income from interest on securities arises at
the time of:
(a)
Payment of interest
(b)
Accrual of interest
(c)
Credit of interest to the account of the payee / interest payable account or payment
thereof whichever is earlier.

(c)

Fill in the Blanks:


26

Return of Income and Procedure of Assessment


1
Loss under the head capital gain can be carried forward for a maximum of ________
assessment years.
Advance Tax
2
The first instalment of advance tax in case of a company assessee is payable on or before
________.
3
The advance tax is payable in the _________ itself.

27

TDS
4

Tax is to be deducted at source, if the winning from lottery exceeds Rs. _________.

II

Short Answer Type Questions:

Return of Income and Procedure of Assessment


1
For the A.Y. 2010-11, A could not file the return within the due date. The assessing
Officer passed the order under Section 144 on 31-5-2011 which was received by the
assessee on 5-6-2011. the assessee filed the return on 2-6-2011. Is the return valid?
2

X, an individual, has got his books of account for the year ending 31-3-2010 audited
under Sec 44AB. His total income for the assessment year 2011-12 is Rs. 1,90,000. He
desires to know if he can furnish his return of income for the assessment year 2011-12
through a Tax Return Preparer.

A return of income was filed within the statutory time provided under the Act, without
making the payment of self-assessment tax due as per return. The same was paid before
completion of assessment. The AO wants to declare the return as invalid. Is the AO
justified?

Define self-assessment.

Advance Tax
5
What are the due dates for payment of installments of advance tax?
6
Write short note on payment of advance tax on income estimated by the assessee himself.
7
Discuss the provisions relating to payment of advance tax as per order of the AO.
Advance Rulings
8
Define advance ruling
9
Explain the meaning of applicant under Sec 245N (b)
Avoidance of Double Taxation
10
Explain relief for double taxation with sections.
III

Long Answer Type Questions:

Return of Income and Procedure of Assessment


1
What do you mean by reassessment? State the provisions under the Income Tax Act
relating to assessment.
2
What is a defective return? What is the procedure to be adopted by the AO if the return is
found to be defective?
3
Can a return submitted by the assessee be revised? If so, what are the circumstances
under which it can be revised? What is the time limit for submission of such revised
return?
4
Discuss in detail the various types of assessments.
Appeals and Revisions
6
Discuss the procedure for redressal of grievances.
28

Explain the procedure for filing an appeal.

Advance Tax
8
What do you understand by Payment of Advance Tax or Pay as you Earn Scheme. 10.
What happens in case of default in payment of advance tax?
TDS
9
10

Explain the provisions relating to deduction of tax at source from salary.


Discuss the provisions of TDS given in IT Act regarding interest other than interest on
securities.

Advance Rulings
11
Discuss in detail the procedure for filing application for advance ruling .
12
What is Advance Ruling? When does a ruling become void?
Avoidance of Double Taxation
13
Briefly explain the provisions of Sec. 91 of the Income Tax Act relating to avoidance of
double taxation.
14

Explain unilateral relief as given u/s 91.

IV

Practical Questions:

Penalties and Prosecution


1
For the A.Y. 2010-11, A filed his return showing loss of Rs. 1,95,000. at the time of
assessment, the A.O. discovered a concealment of income of Rs. 3,10,000. during the
previous year, A paid medical insurance premia Rs. 6,000 by cheque. Calculate the
penalty imposable u/s 271(1)(c).
2

A notice to levy penalty under Sec 271(1)(c) was issued on 11-6-2010. The assessee in
response thereto filed on 13-7-2010 a written submission requesting to decide the matter.
The AO before whom this reply was filed retired on 31-7-2010 and the officer, who
succeeded him passed the penalty order without providing any further opportunity, but by
taking into cognizance the reply filed by the assessee. Whether the order by the AO is
valid?

Avoidance of Double Taxation


3
Mrs. R, an individual and citizen of India earned remuneration in foreign currency from a
University in London during her stay in that country in the previous year 2010-11. The
remuneration was Rs. 4,00,000 and Rs. 30,000 was deducted at source by the University.
Other incomes of Mrs. R, in India, were Rs. 1,67,000 which includes interest on bank
deposit Rs. 55,000. Compute the relief available to her under section 91 assuming that
Mrs. R brings Rs. 3,00,000 in India in convertible foreign exchange by 30 9 2010.

29

4. Mr. X, a resident of India, provides you the following particulars of his income for the A.Y.
2011-12.
1. Interest on government securities
25,000
2. Income from house property (computed)
45,000
3. Business income
3,30,000
4. Income from a foreign country with which no agreement for relief or 1,00,000
avoidance of double taxation exists
5. Income tax paid on income mentioned in 4
20,000
Compute the amount of income tax payable in India.
5. X (28 years) is resident and ordinarily resident in India. His income is Rs. 3,46,000 from a
business in India and Rs.1,92,000 from a business in a foreign from a business in India and Rs.
1,92,000 from a business in a foreign country with whom India has ADT agreement. According
to ADT agreement, income is taxable in the country in which it is earned and not in the other
country. However, in the other country, such income can be included for computation of tax rate.
According to the tax laws of the foreign country, business income of Rs. 1,92,000 is taxable @
23%. During the pervious year, X has deposited Rs. 42,000 in his public provident fund account
(out of which Rs. 10,000 is deposited out of foreign income). He has also received an interest of
Rs. 32,000 on government securities. Find out Xs liability under the Income Tax Act for the
assessment year 2011-12

Cost inflation data of 20 years


Financial Year

CI Index

Financial Year

CI index

1981-82

100

1996-97

305

1982-83

109

1997-98

331

1983-84

116

1998-99

351

1984-85

125

1999-2000

389

1985-86

133

2000-01

406

1986-87

140

2001-02

426

1987-88

150

2002-03

447

1988-89

161

2003-04

463

1989-90

172

2004-05

480

1990-91

182

2005-06

497

1991-92

199

2006-07

519

1992-93

223

2007-08

551

1993-94

244

2008-09

582

30

Financial Year

CI Index

Financial Year

CI index

1994-95

259

2009-10

632

1995-96

281

2010-11

711

References:
1
Ahuja Girish, Gupta Ravi, Simplified Approach to Corporate Tax Planning and
Management, 11th Edition, 2010-11, Bharat Law House Pvt. Ltd.
2
Ahuja Girish, Gupta Ravi, Systematic Approach to Income Tax, Service Tax and VAT,
24th Edition, Bharat Law House Pvt. Ltd
3
Ahuja Girish, Gupta Ravi, Practical Approach to Income Tax, Service Tax, VAT, CST and
Wealth Tax, 21st Edition, 2010-11, Bharat Law House Pvt. Ltd.
4
Singhania V.K., Singhania Monica, Students Guide to Income Tax, 43rd Edition, 2010-11,
Taxmann Publications (P) Ltd.
5
Singhania V.K., Singhania Monica, Corporate Tax Planning and Business Tax
Procedures, 14th Edition, 2010, Taxmann Publications (P) Ltd.

31

INCOME TAX
QUESTION BANK FOR CLASS PRACTICE
(FOR PRIVATE CIRCULATION ONLY)
RESIDENTIAL STATUS

Q1. Following are the incomes of M:


(a) Received Rs. 1,000 in India, which accrued in England;
(b) Rs. 2,000 earned in India but received in England;
(c) Rs. 10,000 were earned and received in Africa but brought to India;
(d) Rs. 8,000 were earned and received in Japan from a business which was
controlled and managed in Japan and this amount was not brought to India;
(e) Rs. 6,000 was untaxed foreign incomes of some earlier year, which was
brought to India in previous year.
Which of the above incomes are taxable, when M is : (i) Resident, (ii) Not
Ordinarily
Resident, (iii) Non-Resident?
Q2. Mr. A went to America on 1st April, 2010 for a film shooting. Due to ill health, he
had to stay there just after shooting. He came back to India on 25th September,
2010. He had to go again on 8th December, 2010 and returned India on 15th
February, 2011. Is Mr. A resident in India for the assessment year 2011-12 ? If not,
why?
Q3. B give the following informations:
(i) He first time went to Japan on 10th January, 2000 and came back to India on
22nd June, 2000.
(ii) On 30th September, 2003 he went to England and came back to India after 90
days.
(iii) On 16th July, 2008 he had gone to Srilanka and came back to India after
staying 100 days.
(iv) On 2nd December, 2010 he had gone to Nepal for 85 days.
(v) In the Previous year 2010-11 he was out of India for 180 days.
He submits the following details of his incomes for the previous year:
(i) Salary Rs. 80,000 received in Japan for the services given in India.
(ii) Commission received in India for the services given in Srilanka Rs. 1,40,000.
(iii) House rent of the house situated in Nepal received in India Rs. 30,000.
(iv) Dividend of a England based company received in India Rs. 75,000.
(v) Profit. of the business situated in Japan brought to IndiaRs. 5,00,000.
Determine residential status of Mr. B for the previous year 2010-11 and explain
32

that on which income he is liable to pay tax in India.

Q4. Mr. A furnishes the following particulars of his income earned during the
previous year
relevant to the assessment year 2011-12 :
Rs.
(1) Interest on German Development Bonds (one-third is received in India)
51,000
(2) Income from agriculture in Bangladesh, remitted to India
31,000
(3)
Income
from
property
in
Canada
received
in
U.S.A.
1,10,000
(4) Income earned from business in Kuwait, business being controlled from
Mumbai (Rs. 25,000 is received in India)
65,000
(5) Dividend from an Indian Company
15,000
(6) Royalty received in Singapore from Mr. David, a resident in India, for
technical services provided for a business carried on in Singapore 25,000
(7) Profit from a business in Chennai; this business is controlled from Singapore
1,25,000
(8) Profit on sale of a building in India, but received in Nepal
2,50,000
(9) Income from agriculture in Punjab, received in Mumbai.
30,000
(10) Profit from business in Indonesia; this business is controlled from Delhi
(60% of the profit deposited in a bank there and 40% is remitted to India)
40,000
(11) Interest received from Mr. D, a non-resident, on the loan provided to him
for a business in India
28,000
Compute his Gross Total Income, if he is :
(i)
Resident, (ii) Not Ordinarily Resident, (iii) Non-Resident.
Q5. Determine the residential status of Mr. R for the previous year 2010-11 who
left India for the first time on 15-9-2006 and came back on 1-9-2009. He again left
for Dubai on 15-6-2010 and came back on 14-2-2011 to settle in India.
Q6. Particulars of income of Shri A who is resident but not ordinarily resident for the
Assessment Year 2011-12 are given below:
(a) Profit from business in U.S.A. received in India, Rs. 1,00,000.
33

(b) Share of profit from a firm in India, Rs. 50,000.


(c) Income from house property in U.S.A. deposited there, Rs. 60,000
(d) Income from agriculture in Srilanka received in India, Rs. 40,000.
(e) Past untaxed foreign income brought to India during 2010-11, Rs. 1,20,000.
(f) Profit from business in U. K. which is controlled from India but deposited in a
Bank
Account in U.K.,Rs. 70,000.
Calculate Gross Total Income of Shri A for the assessment year 2011-12.
Q7. Mr. D earns the following incomes during the financial year 2010-11 :
(i) Profits earned from business in Paris which is controlled from India, half of the
profits
being received in India-Rs. 1,60,000.
(ii) Pension from former employer in India, received in U.S.A.-Rs; 32,000.
(iii) Income from agriculture in Pakistan and brought to India-Rs. 40,000.
(iv) Income from property in U.K. and received there-Rs. 32,000.
(v) Past untaxed foreign income brought into India during the previous year-Rs.
40,000.
(vi) Gift in foreign currency from a relative received in India-Rs. 80,000.
Determine the Gross Total Income of Mr. D for the A.Y. 2011-12, if he is
(A) Resident, (B) Not Ordinarily Resident, and (C) Non-Resident
Q 8. X a foreign national(not being a person of Indian origin) came to India for the first
time on November 15,2010 for a visit of 200 days . X had the following incomes
during the previous year ended March 31,2011,
Salary before standard deduction received in India for three months
Rs. 87,000
Interest on saving bank deposit in American Express Bank, New Delhi Rs. 50,000
Income from Business in Bhutan being controlled from India
Rs.1,00,000
Income from Agriculture in Indonesia being invested there
Rs. 50,000
Income from house property in Paris received there
Rs. 1,00,000
You are required to compute his total income for the assessment year 2011-12.
INCOME FROM SALARIES
Q1. Mr. K furnishes the following particulars of his income for the financial year
2010-11 : Net salary received Rs. 45,000 after deducting contribution to RP.F. Rs.
5,000; Employer's contribution to R.:P.F. Rs. 5000; Interest on P.F. Account
balance@9.5% p.a. Rs. 6,000; Travelling allowance for tour Rs. 2,400; City
Compensatory allowance Rs. 8,000; Bonus Rs. 7,500; Entertainment Allowance Rs.
5,000. Unfurnished house at Dharwar for which the employer pays Rs. 1,500 p.m. as
rent, but deducts only Rs. 150 p.m. from his salary.
Free gas and electricity provided by the employer at a cost of Rs. 500 p.m. The
34

employer has provided a small car but expenses are met by Kishore.
Compute his taxable Salary for the assessment year 2011-12.
Q2. Mr. X, an employee with a Furniture dealer, submits the following particulars of
his income for the Assessment Year 2011-12 and you are required to compute his
gross income from salary :
(1) Basic salary on 1.4.2009 Rs. 12,000 p.m.
(2) Dearness allowance at Rs. 1,000 p.m., which is taken into account for
retirement benefits.
(3) Free unfurnished accommodation in Mumbai. The rent paid by the employer
is Rs. 5,000 p.m.
On 1st September, 2010 his employer requested him to revise terms of
employment due to the bad financial position of the company. The revised terms
were:
(1) Basic Salary Rs. 9,000 p.m. from 1.9.2010.
(2) Dearness Allowance Rs.. 700 p.m.
(3) No accommodation to be provided.
For this revision in his terms, his employer paid him a lump-sum of Rs. 20,000,
when he agreed to such revision. His employer also sold him on 1.6.2010 old furniture
for Rs. 3,000. The cost of furniture on 1.4.2007 was Rs. 10,000. Assume that salary is
due on the last day of the month.
Q3. Mr. X has furnished the following details with regard to his salary income for the
year ended 31st March, 2011 : Compute his taxable salary.
(i) Salary at Rs. 6,000 per month.
(ii) Bonus at six months' salary.
(iii) Travelling allowance for tour at Rs. 300 per month.
(iv) Entertainment allowance ofRs. 250 per month.
(v) Commission equal to four months' pay.
(a) He is also provided with free furnished quarters at Kota valued at Rs. 3,000 per
month and furniture and fittings of the value of Rs. 10,000. He is also provided
with free lunch at the
company valued at Rs. 40 per meal for 300 working
days.
(b) He claims: (i) Electricity and water charges incurred by him for his residence
Rs. 1,600 per annum. (ii) Entertainment and travelling allowance in full.
(c) His contribution to company's Recognised Provident Fund is at Rs. 1,000 per
month and the employer contributes an equal sum. The interest credited to the
Provident Fund Account is Rs. 12,000 at 9.5%.

35

Q4. Shri P is employed in Mumbai in the grade of Rs. 4,400-100-5,400 since 1 st


January, 2007. He gets Rs. 5,000 p.m. dearness allowance and Rs. 15,000 as medical
allowance. He has been provided with a furnished accommodation by the employer
owned by it of the estimated rental value of Rs. 2,000 p.m. Furniture costing Rs.
13,000 has also been provided by the employer. He has been given a small car, which
is used by him for his personal purpose also. The driver's remuneration and all the
expenses relating to the official use of the car are borne by the employer. He has been
provided with the facility of a gardener, a watchman and a servant who are paid by the
employer @ Rs. 200 p.m., Rs. 1,000 p.m. and Rs. 600 p.m. respectively.
He contributes 15% of his pay and dearness allowance to the Recognised
Provident Fund towards which the employer contributes Rs. 1,200 p.m. Interest
amounting to Rs. 1,980 has been credited on the balance ofRs. 22,000 standing to the
credit of his Provident Fund Account. Assuming that the salary becomes due on .the
first day of the next month, determine his salary income for the assessment year 201112.
Q5.Sri R furnished the following particulars of his income for the financial year
2010-11:
Rs.
(a) Salary
p.m

5,000

(b) Dearness Allowance


p.m

250

(c) Entertainment Allowance


p.m

100

(d) Employer's and employee's contribution to a recognised provident fund Rs. 7,900
each.
(e) Interest from provident fund @ 9.5% p.a. 4,000
(f) City Compensatory Allowance

60 p.m.

(g)Medical Allowance1,000
(h) He has been provided by his employer a large car. Except the driver's salary, the
expenses for private use are borne by himself. The car is used for both official and
personal purposes.
(i) He has been provided with the facility of an unfurnished house by the employer in
a small town for which the employer charges Rs. 200 p.m. The fair rent of the house is
Rs. 9,000 per annum. The house is owned by the employer.
(j) The employer has employed for him a sweeper @ Rs. 200 p.m., and a servant @
Rs. 750 p.m.
Compute the taxable income under the head salary for the assessment year 2011-12.

36

Q6. Sri S, who is a retired employee of the Nepal Government, started service in a
private firm at Meerut. He furnished the following particulars of his income for the
financial year 2010-11 :
(i) Salary

Rs.

1,500 p.m.

(He received one month's salary in Nepal while on leave)


(ii) Planning Allowance

100 p.m.

(iii) Medical Allowance

100 p.m.

(iv) Entertainment Allowance

250 p.m.

(v) Travelling Allowance for tour

700 p.m.

(vi) Pension from Nepal Government 600 p.m.


(He received the pension in Nepal and deposited in a bank there)
(vii) He has been provided with a furnished house for which the employer pays
Rs. 1,200 p.m., but deducts only Rs. 300 per month from his salary. The furniture
provided to him costs Rs. 10,000.
(viii) His own contribution to Unrecognised Provident Fund is Rs. 300 p.m. and
the employer also contributes an equal amount.
Compute the salary income of Sri Sultan Chand for the Assessment Year 2011-12. He
was not ordinary resident during the previous year.
Q7. Smt. R is the manager of the Delhi Cloth Mill, Delhi. She receives every month
Rs. 9,000 as basic pay, Rs. 500 as entertainment allowance and Rs. 2,000 as
dearness allowance.
(a) She owns a house, but the company has provided her the following amenities:
(1) A gardener, a sweeper and a servant who are each paid Rs. 300 per month.
(2) Free use of the refrigerator costing Rs. 5,000.
(b) The following obligations of her were paid by the company:
(1) Gas, electricity and water bills amounting to Rs. 2,000.
(2) Annual membership fee of Rotary Club Rs. 2,400.
(c) The company has provided the facility of a small car. The car is used for- private purposes also besides official purposes
and all the expenses including the driver's salary are borne by the company.

(d) Her son is studying in a school run by the company. The annual expenses
incurred by the company per student is Rs. 3,600 but he had been sent for
education to a similar school a sum of Rs. 1,200 would have been payable
during the year.
(e) She proceeded on one month's leave to Shimla by car where she stayed in the
37

Holiday Home maintained by the company.


(f) The company allotted her 100 shares at Rs. 100 each as per guidelines of the
Central Government. The market value per share on the date of acceptance of offer
was Rs. 350. Compute her taxable income from salary for the Assessment Year 201112.
Q8. Mr. N is the Manager of a Jute Mil in Kolkata. He gets basic pay @ Rs. .7,000
p.m., dearness allowance @ Rs. 2,500 p.m., entertainment allowance @ Rs. 1,500
p.m. and education allowance Rs. 350 p.m. for a child. He has been provided with a
rent-free house by the Mills, the fair rent of which is Rs. 60,000 p.a. He has been also
provided by the Mill with the facility of free use of furniture costing Rs. 40,000 and
refrigerator costing Rs. 8,000. The Mill has provided him two small cars, the expenses
relating to the official use are borne by the Mill. The cars' are used partly for private
purposes also. The salary of the drivers is paid by the Mill.
Other informations relating to cars 'are :
Cost of each car Rs. 3;00,000;
Salary to each driver Rs. 5,000 p.m.
Rs. .15,000 on the treatment of Mr. Nair and his family members in a private hospital
(not owned by the employer) were reimbursed by the Mill. The company has provided
the amenity of free lunch and free refreshment in office. The cost of which is Rs. 60
and Rs. 20 per day respectively for 250 days.
He as well as the company contributes 14% of full basic pay and half of the dearness
allowance towards Recognised Provident Fund.
.
.
Compute Mr. N's salary income for the Assessment Year 2011-12.

Q9. Shri R who resides in Allahabad, got the following emoluments during the
previous year ending on March 31,2011:
From X Ltd. : 6 months basic pay @ Rs. 3,000 p.m., dearness pay forming part of
basic pay @ Rs. 250 p.m., and house rent allowance @ Rs. 1,000 p.m. .
From Y Ltd. : 4 months 'basic pay @ Rs. 4,000 p.m., dearness allowance @ 25% of
basic pay, commission on sale @ 5% (on sales effected during four months Rs.
1,00,000), house rent allowance @ Rs. 2,500 p.m.
From Z Ltd.: 2 months salary @ Rs. 8,000 p.m., dearness allowance @ Rs. 1,000
p.m., house rent allowance Rs. 3,000 p.m. During this period, he lived in his own
38

house.
He paid Rs. 3,000 p.m. as house rent throughout the previous year except two months
when he lived in his own house.
Determine the amount of house rent allowance taxable for the assessment year 201112.

Q10. Mr. D, an employee in a company at Delhi, is drawing a salary of Rs. 8,000 p.m.
plus 10% of his salary as dearness pay. He is getting entertainment allowance of Rs.
1,000 p.m. He has spent Rs. 5,000 on entertainment of the company's customers. He is
provided with a rent-free unfurnished house of the fair rental value of Rs. 4,000 p.m.
The house is owned by the company. He is also provided with a small car for his
personal and official use and all expenses of its running, maintenance and driver are
met by the company. D borrowed Rs. 1,00,000 interest free loan from the company to
construct the house before one year. The State Bank of India charges interest on such
loans @ 8% p.a.
Calculate the value of perquisites of Mr. D for the assessment year 2011-12.
Q11. Mr. V is reader in a college, run by a society, on a monthly salary of Rs. 14,000.
Besides salary he also gets 43% of salary as dearness allowance, Rs. 800 p.m.
entertainment allowance and Rs. 400 p.m. as proctor's allowance. During the year he
gets Rs. 250 p.m. as additional D.A. He contributes 10% of his salary to Provident
Fund. The college contributes an equal amount. Interest credited to his provident fund
@ 12% amounted to Rs. 10,000. Three children of Mr. V are studying in an institution
run by the society, which runs the college for which he paid nothing. Normally
expenditure in an institution of that standard comes to Rs. 1,500 p.m. for one student.
Mr. V is provided with a rent-free accommodation which is owned by the college. Its
fair rental value is Rs. 2,500 p.m.. A gardener for the up keep of the garden on the
back side of the house is also provided. The salary of gardener amounting to Rs. 200
p.m. is also paid by the college. During the year Mr. V proceeded on two months.
leave with full pay to his home at Jaipur. The college paid Rs. 4,500 being the air fair
to and from Jaipur for him and his wife for this purpose.
Compute the taxable salaries income of Mr. V for the year ending on 31st March,
2011.

Q12. Mr. P submits the following particulars of his income and you are required to
compute his gross income from salary for the previous year ended on 31st March,
2011 assuming that salary is due on the last day of the month:
(1) Employed in Q Ltd. upto 30th September, 2010 at a basic salary of Rs. 3,000
39

p.m. and dearness allowance of Rs. 1,600 p.m. On 1st October, 2010, he resigned from
this service.
(2) Joined R Ltd. from 1st December, 2010 at a monthly basic salary of Rs. 4,000
and dearness allowance of Rs. 2,000 p.m. He also received transport allowance at Rs.
500 p.m. and bonus equal to 10% of his salary plus dearness allowance from this
company.
Q13. Following are the particulars of the income of a woman for the previous year
ended 31st March, 2011 :
(a) Salary Rs. 15,000 per month.
(b) Her contribution to provident fund was at 14% of Salary, the employer also
contributes a similar amount.
(c) Interest credited to her provident fund account at 9.5% per annum Rs. 19,000.
(d) She is provided by her employer with a rent-free (unfurnished) house in a
small town of the Annual Value of Rs. 25,000.
(e) Proceeds of an endowment policy Rs. 10,000.
She paid Rs. 600 as Employment Tax of the State Government.
Find out her taxable salary for the assessment year 2011-12; if (i) the provident
fund is
recognized, and (ii) it is unrecognized.

Q14. Compute the taxable salary of Smt. G of Kanpur for the assessment year 201112 from the following particulars:
(i)

Basic salary Rs. 8,000 p.m

(ii) Dearness allowance Rs. 2,000 p.m. (which enters the retirement benefit as per the
terms
of employment).
(iii) Bonus Rs. 8,000 p.a.
(iv) Rent-free accommodation provided by the employer, the fair rental value of which
is Rs. 30,000 p.a. The cost of the furniture provided therein Rs. 10,000.
(v) Entertainment allowance Rs. 500 p.m.
(vi) Her contribution to Recognized Provident Fund is at 15%.
(vii) Employer's contribution to Recognized Provident Fund is Rs. 9,600p.a.
(viii) Interest on Recognized Provident Fund balance at 9.5% p.a. is Rs. 1,900.
(ix) Free use of a large Motor-car for both official and personal purposes. Driver is
also provided by the employer.
Q15. X is working in a Company at Hyderabad on a salary of Rs. 10,500 p.m. and
dearness allowance of Rs. 1,250 p.m. and medical allowance of Rs. 500 p.m. He
40

received Rs. 3,500 as bonus for the year 2010-11.


He is given a rent-free unfurnished house, owned by the employer. The house is also
provided with a gardener on a monthly salary of Rs. 250. He has taken a loan of Rs.
10,000 from his employer for purchasing a motor-cycle. Employer paid Rs. 4,000 as
his membership fee of Rotary Club for the year ending 31.3.2011.
He is contributing 15% of his salary to Recognized Provident Fund, to which his
employer is contributing 14%. Interest credited to the provident fund @ 9.5% p.a.
during the year is Rs. 5,000.
Compute his taxable salary for the assessment year 2011-12.
Q16. From the following particulars of Sri B, working in a firm at Jaipur, compute his
taxable income from salary for the previous year 2010-11:
Rs.
(i) Basic Salary

1,800 p.m.

(ii) Contribution to Recognized Provident Fund

2,632 p.a

(iii) Employer's contribution

2,632

(iv) Interest on P.F. @ 9.5%

9,000

(v) House Rent Allowance

2,400

Rent paid for the house

4,800

(vi) Medical Allowance

1,000

(vii) Free service of water & gas for which the payment was done by the
employer 1,200
(viii) He was provided with a cook whose salary was borne by the employer
7,200
(ix) Sri B was provided with a motor-car by his employer for official and personal
use.
(x) He claims the following deductions: (a) Rs. 700 in connection with purchase
of Books.
(b) He paid Rs. 60 for State Employment Tax.
Q17. X is a pilot in Indian Airlines. He draws Rs. 72,000 as salary, Rs. 18,000 as
dearness allowance, Rs. 70,000 as flight allowance to meet personal expenses while
on duty, Rs. 12,000 as conveyance allowance (actual expenses Rs. 9,000) and Rs.
7,200 as educational allowance for his three children studying in a public school.
Determine the taxable value of the allowances paid to him.

41

Q.18 Mr. A was appointed as the Branch Manager of a company at Jaipur on 1 2 2009 in
the pay scale of Rs. 6,000 100 7,000. He also receives 10% of his pay as D.A., Rs. 150
p.m. as medical allowance and Rs. 300 as conveyance allowance.
The company has given him a rent free residential house since 1 7 2010. the fair rent of
the house is Rs. 10,000 p.a. The company has incurred the following expenses in respect of
this house from July 2010 to March 2011.
Repairs Rs. 2,000, Electricity Bills Rs. 350, Water Bills Rs. 200, Telephone Bills Rs. 800. The
electricity and water bills are in the name of the employer but the telephone bill was in the
name of the employee.
On 1 10 2010, his conveyance allowance was stopped and he was given a motor car of 1.4
ltr. engine capacity for both official and personal use. All the expenses of running and
maintenance of car including salary of driver, are paid by the company.
He as well as the company contributes 14 % of his pay to a recognized provident fund. Interest credited during the previous year to his
provident fund A/C @ 12 % p.a. Rs. 1,250.

Compute his taxable income under the head salaries for the assessment year 2011-12
assuming that he has not spent any amount of conveyance allowance for official
duties.
Q.19 . Mrs. B is offered an employment by XYZ Ltd. At a basic salary of Rs. 24,000 p.m. other
allowances according to rules of the company are:
Dearness Allowance: 18% of basic pay (not forming part of the salary), bonus one months
basic pay, project allowance: 6% of basic pay.
The company gives Mrs. B an option either to take a rent-free unfurnished
accommodation at Bhopal for which the company would directly bear the rent of Rs.
15,000 p.m. or to accept a house rent allowance of Rs. 15,000 p.m. and find out own
accommodation. If Mrs. B opts for H.R.A., she will have to pay Rs. 15,000 p.m. as
rent. Calculate the income of Mrs. B for the A.Y.2011-12 and state which one of the
two options should be opted by her? Her income from other sources is Rs. 1,70,000.
Q.20 Mrs.X a finance manager of Y Ltd. New Delhi furnishes the following particulars for
the previous year 2010-11:
Basic salary Rs. 16,000 per month; dearness allowance Rs. 2,000 per month; bonus 3
months basic salary; commission Rs. 1,000 per month ; contribution of the employer
and employee to recognized provident fund is Rs. 28,000 each; entertainment
allowance Rs. 12,000 per annum; allowance to meet cost of education and hostel
expenditure of three children @ Rs. 5,000 p.a. each. Rent free unfurnished
accommodation provided in Delhi by the company for which company pays a rent of
Rs. 2,600 per month. Housing loan of rs. 5,00,000 at the interest rate of 6% p.a. is
advanced on October 1, 2008.(no repayment made during the year)(rate of State Bank
of India is 10%) , Titan watch costing Rs. 4,800 is gifted by the company on the
foundation day of the company and a maruti swift car which was purchased by the
company on August 10, 2002 for Rs. 4,00,000 is sold to the employee on September
16, 2010 for Rs. 1,80,000. She makes the following payments and investments during
the year : Life insurance premium paid on the life of her major son Rs. 20,000,
42

Infrastructure Bonds for Rs. 30,000 and PPF Rs. 10,000.


Compute tax payable by Mrs. X for the assessment year 2011-12
Q.21 Mr. A has submitted the following data regarding his income. Compute his total taxable
income and tax payable by him for the assessment year 2011-12.
Basic Salary Rs. 10,000 per month. Dearness allowance Rs. 2,000 per month. Contribution to
RPF 12% of salary (by employees and employer both)
City compensatory allowance Rs. 100 per month.
Interest on RPF 12% is Rs. 2,400.
HRA Rs. 1,000 per month.
Entertainment allowance Rs. 200 per month.
He has been provided with a 1800 cc car for both official and private purposes. The assessee
pays for the running and maintenance for the personal use of the car.
The assessee's 2 children are studying in the school run by the employer. The cost of
education in similar institution per student is Rs. 1,000 per annum.
The assessee is supplied with free gas, water and electricity for which the employer pays Rs.
1,000 per annum to an outside agency.
The assessee has encashed one month's earned leave in the previous year Rs. 2,600.
The assessee is provided with free lunch during working days. (In all 300 lunches of Rs. 90
each).
The assessee has travelled with his family members to Mumbai which is his native place. The
value of travel concession received from the employer is Rs. 3,500.
Rent paid by the assessee for the house he is living in is Rs. 2,500 per month.
The following are his savings during the previous year:
(i) Life Insurance premium paid Rs. 10,000 on a policy of Rs. 1,20,000 which was
taken on the life of his wife and children.
(ii) Contribution to PPF Rs. 1,500.
(iii) ULIP premium paid Rs. 6,000.
(iv) Contribution to group insurance scheme Rs. 100 per month.
(v) Contribution to RPF @12% of salary.
Q22. Mr. X is a principal in a college of Delhi university. The details of his income for the
financial year 2010-11 are as under:
Basic Salary

Rs. 5,000 p.m.

Dearness Allowance (forming part of salary)

800 p.m.

City compensatory allowance

200 p.m.
43

House rent allowance

1,200 p.m.

Examiner ship remuneration from various universities


Income received from U.T.I.

4,000
20,000

Being principal of the college, he has been given a free telephone at his domestic, costing the
college Rs. 3,200. The college has also provided him a domestic servant @ Rs. 200 per month.
He spent Rs. 21,000 on the treatment of his wife in a private hospital in Delhi. The medical bill
was fully reimbursed by the college. During the year, the college also reimbursed him Rs. 6,000
for his travel to Kashmir under L.T.C. scheme.
He is a member of Statutory Provident Fund to which the college contributes 8% of his salary,.
Interest on accumulated P.F. is Rs. 3,300; the rate of interest being 13%. He pays rent of Rs.
1,300 p.m. in respect of accommodation occupied by him for his residence. He donated Rs.
9,000 during the year to the Government for the promotion of family planning and Rs. 4,000 to
National Defence Fund. His own contribution to P.F. is 15% of Basic Salary and D.A.
Compute (i) his salary income (ii) Total Income (iii) tax payable.
Q.23 X was employed with a Private company G Ltd. and was entitled to a salary of Rs. 10,000
p.m. He was also entitled to D.A. 40% of salary forming part of salary for retirement
benefits. Besides the above, he was entitled to the following allowances/ perquisites.
Transport allowance
1,000 p.m.
(for commuting from residence to office and back out of which he spends Rs. 600 p.m.)
Medical allowance
500 p.m.
He spends Rs. 2,000 on his medical treatment and Rs. 1,000 on the treatment of his brother
not dependent on him
Education allowance (for one child)
130 p.m.
Entertainment allowance w.e.f. 1-5-2010
500 p.m
He was also entitled to a rent free unfurnished accommodation in Delhi, the fair rental
value of which is Rs. 10,000 p.m. He resigned on 31-12-2010 and joined RBI w.e.f. 1-12011 in the grade of Rs. 14,000-400-15,200-500-18,200. He was also entitled to the
following allowances/ perquisites.
D.A. (forming part of salary) 30% of basic, Entertainment allowance Rs. 1,000 p.m., motor
car of (1.5 ltrs) with driver, which he uses partly for his official purposes and partly for
personal purposes. The expenses of running and maintenance were met by the employer.
Medical reimbursement of the expenses incurred on the treatment of his wife Rs. 20,000.
He is also provided with the rent free furnished accommodation by the employer the FRV
of which is Rs. 10,000 p.m. Cost of furniture provided is Rs. 1,20,000.
Compute his income under the head salary.
Q.24 Mrs. X is the Director of a tyre company at Bangalore since 1-1-1992. She was placed
in the grade of Rs.14,000 400 18,000 600 27,000 plus a Dearness Allowance @ 20% of
her basic pay, half of which enters into retirement benefits. She contributes 10% (of salary and
50% of DA) to a recognized provident fund to which her employer contributes an equal amount.
She has been provided with a rent-free house owned by the company, the fair rent of which is
Rs.72,000 p.a. She is getting a Transport allowance of Rs.1000 p.m. for traveling from residence
44

to office and back, Medical Allowance of Rs.1000 p.m. and Servant Allowance of Rs.500 p.m.
Her club bills worth Rs.5,000 were also paid by the company.
She has been provided with the facility of a gardener and a cook who are each paid Rs.150
p.m. by the employer. She has also been provided with a car of 2000 cc by the employer, for
official use only.
Two children of Mrs.X are studying in an institute run by the employer for which no fees is
paid. Normal expenditure per student in such an institution is Rs.200 p.m.
She deposited a sum of Rs.10,000 towards her PPF account, Rs.20,000 on the life insurance
premium on the life of self (Sum assured Rs.3,00,000), Rs.8,000 towards NSC VIII th issue and
Rs.30,000 towards IDBIs infrastructure bonds.
Calculate the tax payable by her for the assessment year 2011-12.
Q25 . A has been employed with PQR Ltd. since 1-5-1995. He retired from his service, w.e.f. 112-2010 and received the following from the company.
Rs.
Basic Salary
12,000 p.m.
Dearness Allowance (60% is part of salary for retirement benefits) 2,000 p.m.
Commission
4,000 p.m.
He was provided with rent free accommodation in Delhi by the company which it had taken on a
rent of Rs. 12,000 p.m. He contributed 15% of his salary to a recognised provident fund to which
his employer contributed an equal amount.
Besides the above, he received Rs. 1,40,000 as gratuity, Rs. 48,000 for 120 days leave standing
to his credit and Rs. 2,40,000 from recognised provident fund. He was covered under Payment of
Gratuity Act and was entitled to 35 days leave for each completed year of service. He was also
entitled to pension of Rs. 6,000 pm w.e.f 1-12-2008. He got 60% of the pension commuted w.e.f
1-2-2009 and received a sum of Rs. 2,40,000 as commuted pension.
.
W.e.f. 1-2-2011 he took employment with Y Ltd. on the following terms
Rs.
Basic Salary
20,000 p.m.
DA (not forming part of salary for retirement benefits) 2,000 p.m.
HRA
8,000 p.m.
He has been paying rent to his former employer @ Rs 13,000 p.m. w.e.f. 1-12-2010 as he did
not vacate the house till date.
Compute the tax payable by A for the Assessment Year 2011-12.

45

INCOME FROM HOUSE PROPERTY


Q1. Mr. R owns house property. Its annual letting value is Rs. 80,000. During the
previous year it was let out to a tenant on a monthly rent of Rs. 7,000. He claimed the
following expenses actually incurred by him :
(i) Municipal taxes Rs. 8;000.
(ii)

Expenses for the recovery of rent of Rs. 600.

(iii)

Maintenance Allowance paid to the step-mother Rs. 12,000 annually which


was a charge
on

the

property

according

to

his

father's

will.

The house remained vacant for one month during the previous year. Find out the
income from house property for the assessment year 2011-12.
Q2. Mr. J owns a house which is let out for residential purposes. The construction of
the house was completed in June 2007. The Annual letting value of the house is Rs.
96,000. Municipal Taxes paid Rs. 20,000. He spent Rs. 24,000 on White washing. On
1.4.2005 he had borrowed Rs. 30,000 on pro-note at 12% interest and spent it on the
construction of the house. Nothing has been repaid out of this loan so far. Mr. J earns
salary of Rs. 7,400 per month. He has a scooter for going to office and spends for
petrol, etc., on an average Rs. 300 per month. Compute his income from House
Property and also his Total Income for the Assessment Year 2011-12.
Q3 Mr. X owned two buildings -in Chennai. Details related to the properties are
given below:
Rs.
Building I (used as residence) Annual rental value 45,000
Taxes paid

8,000

Repairs-Actual

10,000

Building II Rent collected for 12 months

48,000

Taxes paid

12,000

Interest paid on Mortgage loan on building

5,000

The Mortgage loan was Rs. 50,000 and it was used as follows:
Remodeling Building No. II for getting a higher rent 25,000
Advanced to Firm XYZ, where Mr. X is a partner, free of interest, 20,000
Personal use and meeting cost of education of son
46

5,000

You are requested to work out the income from house property of Mr. X for
assessment year 2011-12.
Q4. From the following particulars furnished by Shri H, compute his total income for
the Assessment Year 2011-12:
Rs.

Rs.

Rs.

Salary received

Rs.
1,36,600

3,000

Rent from house property:


Property B

5,100

Property C

8,100

Less: Municipal Taxes paid:


Property A
Property B
Property C
Repairs to Properties: Property A

400
500
700

1,600

400
250

650

Property C

750

Interest on Mortgage of Property


B for Rs. 5,000
Fire Insurance Premium:
Property A

50

Property B

75

Property C

100

Collection charges for all properties

225
700

Total Income

3,925

4,175

Rs. 1,40,775

(a) The assessee has settled in Mumbai for purpose of his employment where he
resides in a rented house.
(b) All the house properties are at Kolkata. Property A is for self-occupation. Properties B and C are let out for residential
purposes.

(c) According to Municipal records the annual value of properties A, Band Care Rs.
2,500, Rs. 2,500 and Rs. 4,500 respectively.
(d) The assessee was on leave for three months during previous year ended 31st
March, 2011. During that period he resided in the Property A. No other benefit was
derived from that property during the previous year.
47

(e) Rs. 5,000 raised on the mortgage of Property B was utilized for purchase of
agricultural lands, the income from which is exempt from Income tax.
Q5. Mr. Lal owns a big house, the construction of which was completed in May, 2009.
50% of the floor area is let out for residential purposes on a monthly rent of Rs. 22,500.
25% of the floor area is used by the owner for the purpose of his profession, which
remaining 25% of the floor area is utilised for the purpose of his residence. Other
particulars of the house are as follows:
Rs.
(i) Municipal Valuation
6,00,000
(ii) Standard Rent
9,00,000
(iii) Municipal Taxes Paid
80,000
(iv) Repairs
30,000
(v) Interest on capital borrowed for repairs
3,00,000
(vi) Ground Rent
8,000
(vii) Annual Charges

10,000

(viii) Fire Insurance Premium


12,000
Compute the taxable income from house property of Mr. Lal for the assessment year
2011-12.
Q6. Dr. P constructed a big house in July, 2000, which municipal valuation is Rs.
80,000 per annum, while its standard rent under Rent Control Act is Rs. 90,000
annual. The house was used in following manner during the previous year:
(a) 25% portion for self residence
(b) 25% portion for self office.

(c) 25% portion let out for residential purpose (Rs. 2,000 p.m.)
(d) 25% portioillet out to commercial firm (Rs. 2,000 p.m.)
Other particulars of the house are as follows:
(i) Municipal corporation tax Rs. 12,800 (actual payment during the previous year
2008-09 Rs. 9,000); (ii) Repairs Rs. 4,500; (ii) Ground rent Rs. 6,800; (iv) Annual
charge Rs. 4,000 (created by will by his father); (v) Fire insurance premium Rs. 2,000;
(vi) Rent collection charges Rs. 1,500.
He has taken a loan from housing board to construct the house @ 12% per annum Rs.
2 lakh. Interest was due Rs. 24,000 during the previous year. Out of which Rs. 20,000
48

was paid. Compute income from house property for the assessment year 2011-12.

Q7. Sri. R is the owner of four houses in Bangalore.


particulars of these properties:
Use of House
Rent received (Rs.)
Fair rental value(Rs)
tenant

Ist House
Self

llnd House
Self
Business

---

---

He gives the following


III House
Let out for
Residential
Purpose
Rs. 6,600
paid by

IV house
Let out for
business
5,400
paid

by

But
deducted from
Repairs (Rs.)
Interest on loan
Vacancy period

500
-2 months

300
-------

--1 month

Rent
-300
---

Additional information:
1.
Sri R, along with his family stayed in Mysore for two months.
2.
Interest was paid on loan obtained by mortgaging the 4 th house
for the purpose of his daughters education in computers.
3.
During the year he won Rs. 20,000 from bettings and received
salary Rs. 1,22,500.
Find out income from house property and income from other sources.

.Q.8. Mr. A owns a house property at Delhi. 60% of the house property is self-occupied for
residence and 40% is let out on a monthly rent of Rs. 10,000. The let out portion was also
self-occupied from 1-10-2010 to 31-12-2010. However, w.e.f. 1-1-2011 the entire house was
let out for Rs. 25,000 pm. The construction of the house property was completed on 31-121994.
The following expenses were incurred for the above house property during the year ending
on 31-3-2011.
Municipal tax paid:
For financial year 2007-08

10,000
49

For financial year 2008-09


20,000
For financial year 2010-11
30,000
Insurance premium paid
6,000
Land revenue due
18,000
Interest on money borrowed for construction of house property
36,000
Calculate income under the head house property of A for the assessment year 2011-12.

Q.9. Mr. C owns a house property. It is used by him throughout the previous year 2010-11 for
his (and his family members) residence. Municipal value of the property is Rs. 1,66,000,
whereas fair rent is Rs. 1,76,000 and standard rent is Rs. 1,50,000. The following expenses
are incurred by Mr. C: Repairs: Rs. 20,000; municipal tax: Rs. 16,000; insurance: Rs. 2,000;
interest on capital borrowed to construct the property: Rs. 1,36,000; interest on capital
borrowed by mortgaging the property for daughters marriage: Rs. 20,000 (in either case
capital is borrowed before April 1,1999). Income of Mr. C from business is Rs. 7,10,000.
Find out the net income for assessment year 2011-12.
Q.10 Compute Income from house property:
Annual rent
Standard Rent
Municipal valuation
Vacancy
Recovery of unrealized rent for earlier year allowed as deduction
Fair Rent
Municipal taxes
Interest paid on loan taken for house property

Rs. 60,000
Rs. 48,000
Rs. 40,000
one month
Rs. 2,000
Rs. 50,000
20%
Rs. 15,000

Q11. Mr. X has two house properties situated at New Delhi; Property A was self-occupied for his
residence. Property B has two identical units. Unit I was also self-occupied but unit II was let out
for residential purposes. The other particulars of the property are given below:
Property A
Property B
Municipal Valuation
60,000
90,000
Rent for property let out
4,000 p.m.
Date of completion
1-6-1983
30-9-93
Expenses on repairs
5,000
11,000
Collection charges
2,000
Ground rent
1,000
Interest on money borrowed for construction
20,000
36,000
50

Municipal Taxes paid


10,000
16,000
Unit II of Property B remained vacant for the month of June 2010. Calculate his taxable income
for the relevant assessement year.

Q.12 .Mr. X is the owner pf three house properties in Delhi, particulars of which for the year
ended 31-3-2011 are as below:
Ist house
2nd house
3rd house
Date of construction
31-12-1997
31-1-1997
31-12-1992
Rs.
Rs.
Rs.
Actual Rent received
70,000
38,000
Self occupied
Municipal value
1,20,000
38,000
55,600
Standard Rent
90,000
80,000
30,000
Municipal Tax paid by X
12,000
3,800
24,000
Municipal Tax paid by
Tenant
2,000
14,000
-------Collection Charges
3,000
3,000
_____
Insurance premium
5,000
5,000
5,000
Interest on loan taken for
Renovation of house
4,800
6,000
12,000
Unrealized Rent allowed
In the past, recovered
During the previous year
4,000
Mr.X resides in Mumbai for three months during the previous year in connection with his
business and for all three months the house remained vacant. During the period of his stay in
Delhi he did not occupy any other house of his own. Compute his income taxable under the
Income from House Property.

51

PROFIT AND GAINS FROM BUSINESS AND PROFESSION


Q1. The Profit and Loss Account of Mr. X Y a partnership firm for the year ending 31st March, 2011 is given below:
Profit and Loss Account
Expenses related to goods
manufactured

Sale of goods manufactured


10,00,000

Expenses related to sale of other

by the company

16,00,000

Sale of other goods

14,50,000

goods

8,20,000

Long term capital gain

Proposed dividend

8,05,000

Amount withdrawn from

Provision for unascertained

general reserve

liabilities

40,000

General Reserve

60,000

Income Tax Paid

30,000

Wealth Tax paid

30,000

Fringe Benefits Tax

15,000

Net Profit

5,70,000

20,000

8,40,000

36,40,000
36,40,000
Other relevant information are as follows:
1)

An outstanding liability related to sales tax for 2002-03 paid during 2010-11 Rs.50,000 that was not charged to above P&L A/C.

2)

Brought forward loss as per books of account is Rs.60,000 while the brought forward depreciation as per books of account is Rs.
80,000

3)

Brought forward unabsorbed depreciation is Rs. 4,60,000

4) Brought forward loss under the head capital gain Rs. 3,50,000.
Compute the tax liability of X Ltd. for the assessment year 2011-12.

Q2. From the following Profit and Loss Account of Mr. Y, ascertain his income from business
and Gross Total Income for the assessment year 2011-12.
Rs.
To salary (including
proprietors salary)
To general expenses
To advertisements
To interest on proprietors capital
To interest on bank loan

45,000
5,000
14,000
2,000
4,500

Rs.
By Gross Profit
1,22,000
By bad debt recovered
(Not allowed earlier by A.O.
due to lack of evidence)
2,000
By rent received
3,000
By interest on Post-Office
52

To provision for bad debts


2,000 savings bank A/C
1,000
To Fire insurance Premium
(on house property)
100
To depreciation
4,000
To reserve for sales tax
10,000
To advance income tax
2,000
To donation to Central Library
1,000
To corporation tax on house
property
500
To motor car expenses
1,000
To wealth tax paid
3,500
To income tax
4,000
To stationery
1,900
Net Profit
27,500
1,28,000
1,28,000
Other information:
1. Advertisement includes one neon-sign of Rs. 11,000
2. General expenses include Rs. 300 given to a poor student to enable him to pursue his
studies.
3. Depreciation is in excess by Rs. 1,500.
4. Motorcar expenses include Rs. 300 for personal purposes.
5. Central Library is an approved institution.
The proprietor draws Rs. 500 p.m. by way of salary.

Q3. Mr. B is a registered medical practitioner. He keeps his books on cash basis, and his summarized cash account for the year ended 31-3-2011
is as under:

Balance b/d
Loan from bank for
private purpose
Sale of medicines
Consultation fees
Visiting fees
Interest on govt. securities
Rent from property (not
subject to local taxes)

Rs.
4,48,000

Cost of medicines

6,000
50,500
1,10,000
48,000
9,000

Surgical equipments
Motor car
Car expenses
Salaries
Rent of dispensary

7,200

General Expenses
Personal expenses
53

Rs.
20,000
8,000
4,40,000
12,000
63,200
3,200
600
23,200

Life insurance premium


Interest on loan from
bank
Insurance of property
Telephone expenses
Balance c/d

6,000

600
400
6,000
95,500
6,78,700
6,78,700
Compute his income from profession for the assessment year 2011-12 taking into account
the following further information:
i)
th of motor car expenses are in respect of his personal use.
ii)
Depreciation allowable on car is 15% and surgical equipments is 15%. Both the assets
were purchased in December 2006.
Opening stock and closing stock of medicines was Rs. 40,000 and Rs. 24,000
respectively.

Q.4. Dr. A is a renowned medical practitioner who maintains books of accounts on cash basis.
The following is the receipts and payments account for the financial year 2010-11:
Rs.
Rs.
Balance brought forward
44,000 Rent of clinic
Consultation Fees
2004-05
24,800
2003-04
5,000 2005-06
1,200
2004-05
1,35,000 Water & Electricity Bills
2,000
Visiting Fees
30,000 Purchase of professional books
40,000
Loan from bank
1,25,000 Household Expenses
47,800
Sale of medicines
60,000 Collection charges for
Gifts and presents
5,000 dividend income
100
Royalties for articles published
Motor car purchased
1,30,000
in various journals
6,000 Surgical equipment purchased
24,800
Dividend
10,000 Income tax
10,000
Interest on govt. securities
7,000 Salary to staff
15,000
54

Life Insurance Premium


Gift to son
Interest on loan
Car expenses
Purchase of medicines
Balance c/d

15,000
5,000
11,000
15,000
40,000
45,300
4,27,000
4,27,000
Compute his income from profession for the assessment year 2011-12 after taking into account
the following information:
1) Books worth Rs.25,000 were purchased on 15-5-2010 and the balance on 5-2-2011.
2) Car was purchased on 1-1-2011 and the surgical equipment on 4-9-2010.
3) It is estimated that 1/3 of the use of car is for his personal use.
4) Gifts and presents include Rs.2,000 from patients in appreciation of his medical service
and Rs.3,000 received as birthday gifts.
5) Opening and closing stock of medicines amounted to Rs.10,000 and Rs.6,000
respectively.

Q.5 .The following is the Profit and Loss Accoount of Mr. X for the year ended 31-3-2011.
Debit
Rent of business premises
96,000 Gross Profit
7,38,500
Staff salary
4,20,000 Unclaimed credit balance
Printing and Stationery
15,000 transferred
42,000.
Telephone
20,000 Prize from Lottery (gross)
37,500
Purchase of Trade Mark
Refund of custom penalty
25,000
Mark in May 2008
41,500 Dividend from UTI
5,000
Loss of stock in trade due to
Interest on Post office
White ants
3,000 saving bank
2,000
Audit fees
5,000
Scholarship for a poor but
deserving student
5,000
55

Life insurance premium


Depreciation on fixed assets
Gifts and presents
Gratuity Reserve
Net Profit

10,000
30,000
3,000
25,000
1,76,000
----------8,50,000
-----------

-------------8,50,000
------------

Notes;
1. The unclaimed credit balance of Rs. 42,000 represents:
(a) Due to a trade creditor no longer payable. Rs. 15,000
(b) Deposits made by a person who in not traceable Rs. 27,000.
2. Life insurance premium is in respect of a deferred annuity for Rs.1,50,000.
3. The fixed deposits are as follows:
Asset
WDV Additions Dep:
Date of Additions
Furniture and fittings
60,000
20,000
10%
5-10-2010
Typewriters and Calculators
80,000
------15%
---------Cycle
----1,600
15%
1-12-2010
Machine
12,000
---15%
-----Compute tax payable be Mr. X for the Assessment year 2011-12

CAPITAL GAINS
Q. 1 Mr. A provides the following data regarding his transaction for the sale of his
residential house for assessment year 2011-12. Compute the amount of Capital
Gain to be included in the Total Income for the assessment year 2011-12 :
House purchased in 1987-88
Sold in November 2010

5,00,000
28,50,000

Purchased another house in September 2010

3,50,000

Deposited in the Capital Gains Alc Scheme, 1988 in January 2009 4,00,000
The cost inflation indices for 1987-88 and 2010-11 were 150 and 711
respectively.
Q 2 From the following data, you are required to work out the capital gains for
Assessment Year 2011-12 :
56

(i) Site purchased in 1975 value Rs.0.33 lakh


(ii)Market value of site on 1.4.1981 Rs.0.75 lakh
(iii) Ground floor-Cost of construction in 1981 Rs.1.50 lakh
(iv)First floor-Cost of construction in 1985 Rs.2.66 lakh
(v) Sale consideration received in 2010
(vi) Investment in new property

Rs. 33.00 lakh

Rs. 10.00 lakh

Assume that the property being sold and the new property being acquired are both
residential:
Index 1985-86-133, 2010-11-711.
Q.3 M/s. P. Bros. Chennai running an industrial undertaking were ordered by City
Corporation, Chennai- to shift their unit from urban area of Chennai. They shifted
their concern during 2010-11 and in the process sold some of the assets whose details
are given below:
Assets
P &M
Land
Building
Acquired in
1989
June 1983
1989
Rs.
Rs.
Rs.
Sale proceeds
10,00,000
7,00,000
12,00,000
W.D.V. on 1.4.2010 [cost U/S 50(2)] 4,40,000
7,32,500
Cost of acquisition 6,00,000
1,40,000
10,00,000
Amount invested during Dec. 2010
due to shifting .
8,00,000
2,00,000
5,00,000
Compute the taxable capital gain for the assessment year 2011-12
(C.I.I. for 1983-84 is 116; 1988-89 is 161; 2010-11 is 711)

Q.4. During the previous year 2010-11, Mr. Ramesh sells the following capital assets:
Sale
Cost of
Year of
Fair Market
proceeds
Acquisition Acquisition
Value as on
1 - 4 1981
(Rs.)
(Rs.)
(Rs.)
Land
1,58,00,000
18,50,000
1977
28,00,000
Gold
9,86,000
2,40,000
1980
2,41,000
Listed Debentures
1,57,000
75,000
1975
40,000
Assume that his business income is Rs. 1,46,000, determine his net income for the
assessment year 2011-12.
Q5. Mr. A lives in Bangalore. He owns not only house properties in and around Bangalore but
also cultivable land near Mangalore. He lives in a house which had been bought by him in
January, 1986 for Rs. 2,31,000. The agricultural land measuring 10 hectares is being
cultivated by his father for over 15 years. Its fair market value as on 1-4-1981 was Rs.
57

8,00,000. The residential house is sold by him for Rs. 14,00,000in December 2010 and
another house bought within 3 months at a price of Rs. 3,00,000 to be used for residential
purposes. Agricultural land is also sold for Rs. 46,00,000 in January 2011. on 30-6-2011 he
bought another agricultural farm for Rs. 5,00,000 which will be cultivated by him. Gold
ornaments were also sold by him in November, 2010 for Rs. 2,00,000 the fair market price
thereof as on 1-4-1981. being Rs. 30,000. He bought fresh jewellery for Rs. 80,000 within 6
months of sales. You are required to compute taxable capital gains of Mr. A for the A. Y.
2011-12.
(Capital Gain Index No. of the year 1981-82 = 100, 1986-87 = 133, 2010-11 = 711)
Q6 You are required to compute the total income for the assessment year 2011-12.
P sold a house property on 30-11-2010 for Rs.3,50,000. He had acquired this property from
O under a will on 1-6-1991 and expended Rs.19,900 on its improvement in 1991-92. Compute
Ps income under the head Capital Gains for the assessment year 2011-12 assuming that O had
acquired this property at the cost of Rs.40,000 in 1981-82 and further spent Rs.15,000 during the
same year on its improvements. The cost inflation indices are as under:
1981-82 100,
1991-92 199,
2010-11 711.
Q.7 X was the owner of the following assets:
Gold purchased on 15th December 1977 for Rs. 1,40,000 (market price as on 1-4-1981
Rs.1,82,000)
Land purchased on 15th Dec. 1979 for Rs. 31,60,000 (market price as on 1-4-1981 Rs.5,60,000)
Listed Debentures purchased on 15th December 1976 for Rs. 3,14,000 (market price as on .1-41981 Rs. 2,00,000)
He sold these assets in financial year 2010-11 as follows;
Gold for Rs. 38,00,000, Land for Rs. 1,54,00,000 and Debentures for Rs. 5,10,000). Compute
Capital gain taxable for Mr. X for the assessment year 2011-12.
(Capital gain Index no. 1981-82 ;100 and 2010-11 ;711 )
Q8. X owns several assets but does not own any residential house. He sells the following assets
and requests you to compute his capital gains for the assessment year 2011-12.
(1) Shares (purchased in April, 1992 for Rs. 1,20,000) sold through recognised stock exchange
on 15-12-2010 for Rs. 2,00,000.
(2) On 1-4-1981, he had agreed to sell the jewellery to Y for Rs. 5,60,000 which was
purchased in 1975 for Rs. 3,00,000. However, the sale could not be effected as Y backed
out. He now sold the jewellery on 15-7-2010 for Rs. 32,40,000 and incurred Rs. 40,000
incidental selling expenses on account of brokerage and commission. He also invested Rs.
3,00,000 on 20-10-2010 in a Deposit Account with a public sector bank under the Capital
Gains Deposit Account Scheme. In December, 2010 he also purchased a small residential
house for Rs. 3,80,000.
(3) Debentures (listed) (purchased in September, 1993 for Rs. 1,00,000) sold on 1-12-2010 for
Rs. 1,60,000.
(4) Sold his motor car (purchased in August, 1992 for Rs. 1,40,000) on 15-3-2011 for Rs.
1,60,000.
58

( Capital Gain Index No.: 1981-82 = 100, 1992-93 = 223, 2010-11 = 711 )

INCOME FROM OTHER SOURCES


Q1. Mr. X has the following investments in the previous year ended on 31st March,
2011 :
(i) Rs. 750 received as interest on Post Office Recurring Deposit.
(ii) Rs. 25,000, 12% Haryana State Electricity Board Bonds.
(iii) Rs. 20,000, 13% Allahabad Development Bonds.
(iv) Family Pension Rs. 24,000.
(v) Rs. 1,751 received interest on tax-free Secured Securities of Chits India (P) Ltd.
Co.
(vi) Rs. 30,000, 10% (Tax-free) Listed Debentures of a Company.
59

(vii) Rs. 40,000, 12% Debentures of Goa Development Authority.


He took a loan to purchase Goa Development Authority Debentures Rs. 20,000 @ 11%
on which interest has become due but not yet paid in the previous year. Bank charged 2%
as collection charges on realisation of interest on all securities. Interest being payable in
each case on 1st January and 1st July.
Calculate his income from interest on securities under the head 'Income from Other
Sources'.
Q2. Mr. X, a resident individual, submits the following particulars of his incom~ for the
year ended 31st March, 2011 :
(1) Royalty from a coal mine Rs. 20,000.
(2) Agricultural income in Pakistan Rs. 15,000.
(3) Salary for a part-time job with a firm Rs. 21,000.
(4) Salary as Member of Parliament Rs. 36,000.
(5) Daily Allowance as M.P. Rs. 15,000.
(6) His residential house has been taken on a rent of Rs. 1,000 p.m., half of which he has
sub-let at Rs. 1,200 p.m.
(7) Dividend received from a co-operative society Rs. 5,000.
(8) He has incurred the following expenses:
(i) Paid collection charges Rs. 100 for collecting dividends.
(ii) Rs. 3,000 spent for earning and collecting royalty income.
Compute Mr. X's income from other sources for the assessment year 2011-12.

Q3. Shri N, a resident individual, submits the following particulars of her income
from other sources for the year ended 31stMarch, 2011:
1. Family pension from the Government of Uttar Pradesh Rs. 42,000.
2. She has written a book for schools on which she gets a royalty of Rs. 17,000 from the
publisher. She has spent Rs. 3,000 on books, stationery, typing, etc. during the previous
year.
3. She has received remuneration for doing invigilation in Examination Rs. 1,000.
4. Remuneration for acting as examiner Rs. 1,800. She incurred Rs. 75 on postage, etc. in
connection with the examination work, which were reimbursed by the University.
5. Cash worth Rs. 1,00,000 was found in the previous year in her bank locker, the source
of
60

which could not be explained by her.


6. Interest credited to her savings bank account in Allahabad Bank Rs. 800.
7. Interest credited to her recurring deposit account and cumulative time deposit account
in
post office was Rs. 700 and Rs. 2,000 respectively.
Compute her taxable income from other sources for the assessment year 2011-12.
Q4. Mrs. R, a resident individual, submits the following particulars of income for the
previous year ending March 31, 2011 :
Dividend from REC International Ltd. (Gross) Rs. 4,800; Dividend from Sundaram
Finance Ltd. Rs. 2,700; interest paid on capital borrowed for the purpose of investment in
shares of Sundaram Finance Ltd. Rs. 4,200; collection charges in respect of dividend Rs.
460. Winnings from lottery net amount Rs. 69,400. Tax deducted at source Rs. 30,600.
Winnings from card games Rs. 23,500. Interest on securities issued by the Government of
Singapore Rs. 20,570. Determine the income chargeable under the head 'Income from
other sources' for the assessment year 2011-12.
Q5 Mr. A furnishes the following particulars of his income for the financial year ending 31-32011:
(i) Dividends in September, 2010 from UTI Rs. 4,000
(ii) Dividends received in July, 2010 from Assam Tea Co. Ltd., Rs. 7,160 (60% of income of the
company is agricultural income)
(iii) Amount received on 1-12-2010 in connection with winning from a horse race Rs. 11,104.
(Iv) Amount received on 1-12-2010 in connection with winning from lottery Rs. 55,520. Cost of
lottery tickets purchased Rs. 4,000.
(v) Directors fees received in August, 2010 Rs. 40,000
(vi) He has rented a residence of Rs. 500 per month. Half portion of this house was sub-let on a
monthly rent of Rs. 500 p.m.
Compute his taxable income for the assessment year 2011-12.

61

INDIVIDUALS
Q1. Mr. X, an employee of a company, has furnished the following particulars of his
income for the year ended 31st March, 2011 :
.
(a) Salary from 1st April, 2010 to 31st December, 2010 @ Rs. 9,000 per month and
D.A. @ Rs. 5,000 p.m.
(b) Entertainment allowance from 1st April, 2010 to 31st December, 2010@ Rs. 1,000
per month.
(c) Premium paid by the employer to Life Insurance Corporation on a policy for Rs.
5,000 taken on his life and for his benefits Rs. 600. .
(d) Premium paid by Mr. X out of his own pocket on Life Insurance policies on his own
life Rs. 3,500.
(e) Interest on Savings Account with Bank Rs. 400.
(f) Interest on National Plan Certificates Rs. 500.
(g) Own house in his own town (built in 1966) was occupied by his brother-in-law free
ofrent.
The annual letting value of the house according to municipal valuation is Rs. 2,000 and
municipal taxes for the year are Rs. 400.
(h) The employer had provided him a small car both for his official use and private use
for the above period. The maintenance expenses are met by the employer. .
Compute the total income of Mr. X for the assessment year 2011-12.
Q2. Mr. X, a Government employee and a citizen of India, is sent to London on office
duty on 1st June, 2010. He stays there upto 31st January, 2011. The salary and
allowance drawn by him during this period are given below:.
Rs. .
4 months' salary in India. .

72,000

8 months' salary in London

1,44',000'

Overseas allowance

96,000

Free residence in London (Rent Rs. 10,000 per month for 8 months)
80,000
The full amount of 8 months' salary was spent in London and nothing was brought to
India. He owns property in Delhi which he uses for his residence. During the period of
his stay in London the house was occupied by his wife and children. Annual rental
value of the house is Rs. 5,600. Municipal taxes paid in respect of this house during the
year 2010-11 were Rs. 600 and ground rent paid Rs. 200. His bank interest in India was
Rs. 4,200. He paid Rs. 20,000 donation to a charitable institution to which section 80G
applies. Compute
his total income.
Q3. Mr. B. presents the following information regarding previous year ended
31.3.2009 :
(1) Taxable profits from Poultry farming business Rs. 90,000. Taxable profits
from dairy business Rs. 75,000.
62

(2) Taxable profits from small-scale industry in rural area (established in 200102) Rs.
2,60,000. The industry produces article listed in schedule 11 of Income Tax Act.
(3)
.

Dividend

received

from

co-operative

society

Rs.

2,700.

(4) Dividend received from a domestic company Rs. 2,685.


(5) Income from units of M.F. Rs. 2,500.
(6) Sale proceeds of a residential plot Rs. 1,33,250. This plot was purchased in
1975 for Rs. 20,000. Rs. 5,000 were spent on registration. The market value of plot
on 1.4.1981 was Rs. 22,000. Cost inflation index for the year 2008-09 was 582.
(7) Mr. Roy resides in a rental bungalow at Indore, for which he pays Rs.
3,500 per month.
.(8) Loss from cloth production business (before deducting allowable
depreciation Rs. 21,000) Rs. 49,000. Brought down losses of this business for
previous year is Rs. 32,000.
(9) Interest on post office saving a/c Rs. 1,500.
(10) Interest accrued on National Savings Certificates (VIII issue) Rs. 6,000.
Compute the total income of Mr. Roy for the assessment year 2011-12.
Q4. Mrs. M submits .the following particulars of her income for the assessment
year 2011-12 :
Salary from Aristocracy Private Ltd. (computed)
50,000
Dividends on TISCO shares (Gross)
1,500
Interest on securities (Gross)
7,500
Interest on fixed deposits in SBI
3,200
Profits from agency business
10,000
Loss from speculation in shares
20,000
Profits from speculation in silver
9,000
Loss from short-term capital assets
5,000
First prize from Kerala State lottery
1,00,000
Gains from playing bridge in the club
5,500
Gains from playing rummy in the office
1,000
Loss in flash (card game) with friends
7,000
Maharashtra'State lottery tickets bought
10,000
Loss in race course on betting
20,000
Expenditure in maintaining race horse
40,000
Stake money received in respect of the horse
90,000
You are required to compute the Gross Total Income for the relevant A. Y.

63

Q5. The following are the particulars of Mr. X for the previous year 2010-11. You
are asked to compute his net tax liability or amount refundable, as the case
may be :
Business Income
1,46,900
Rent of property
10,000
Municipal tax on property paid
1,000
Agricultural Income
10,000
Long-term capital gains
15,000
Lottery winning from Kerala State
50,000
Life Insurance premium paid
10,000
Contribution to Public Provident Fund
15,000
Casual Income from crossword puzzles
1,200
Q6. Shri Ravi who is 70 years old has submitted the following particulars of his
income for the previous year 2010-11 :
Rs.
(i)
Income from profession as musician:
(a)
Earned and received in India
1,39,000
(b)
Earned and received in foreign country and
brought in India.
1,60,000
2,99,000
(ii)
Interest from Government Securities
17,000
(iii)
Accrued interest on National Saving Certificates during the
previous year
17,000
During the previous year he has made the following payments:
Rs.
(i)
National Saving Certificates VIII issue purchased
10,000
(ii)
Premium on self insurance policy
6,000
(iii)
Deposited in Public Provident Fund Account
10,000
(iv)
Health Insurance premium of his children paid by cheque
9,000
(v)
House rent paid for rented house of his own residence
36,000
Compute his total income and tax payable by him for A.Y. 2011-12
64

ASSESSMENT OF FIRMS AND ASSOCIATION OF PERSONS


Q1 A firm is engaged in the manufacture of basic drugs. It consists of three partners.
A,B,and C sharing profits and losses in proportion of 3,2, and 1 respectively.
The firms accounts for the year ended 31 st March, 2011 disclosed a net profit of Rs.
1,90,500
After debiting the following items:
(a)
Salary of Rs. 1,15,000 paid to partner C, who is a chemist and is incharge
of the firms laboratory.
(b)
Rent of Rs. 9,000 paid to partner B for the portion of his building in which
the firms office was situated.
(c)
Rs.9,100 paid as interest to partner A on a loan advanced by him to the firm
@ 13% p.a.
(d)
Rs.65,000 paid for the purchase of patent right to manufacture a drug for
caner.
Depreciation was debited to the Profit and Loss Account as permissible under the Act.
The net profit of Rs. 1,90,500 after debiting the following items:
(a) Salary of Rs. 1,15,000 paid to partner C, who is a chemist and is incharge of
the firms laboratory.
(b)
Rent of Rs.9000 paid to partner B for the portion of his building in which the
firms office was situated.
(c)
Rs. 9,100 paid to partner B for the portion of his building in which the firms
office was situated.
(d) Rs. 65,000 paid for the purchase of lpatent right to manufacture a drug for
cancer.
Depreciation was debited to the Profit and Loss Account as permissible under the Act.
The net profit of Rs. 1,90,500 included Rs. 6,000, being interest on fixed deposit with
the State Bank of India. New machine costing Rs. 15,000was purchased and installed
in July 2010. Its cost has not been charged against the Profit and Loss Account.
Compute the total income of the firm giving briefly the reasons for inclusion and
exclusion of each item.
Q2. The partnership firm, M & Co., consists of M, Mrs. M and N. The partners
have contributed capital equally and share profits and losses in equal proportion. M
and N paid their capital of Rs. 1,00,000 each from funds belong to them. Mrs M has
contributed her share of the capital Rs. 1,00,000 from the amount of Rs. 2 of capital
contribution have been accepted by the Assessing Officer.
The profit of the firm for the assessment year 2011-12 are settled with the Assessing
Officer at Rs.1,80,000 after tax.
The firm pays interest @ 12% p.a. on partners capital but it does not pay any
remuneration to partners.
The partners have other sources of income as given below:
M: Dividend Rs. 10,000; Ground rent Rs. 5000. He owns immovable property, the
Net Municipal Value of which is Rs. 30,000. The total gross receipts on account of
rent during the year amount to Rs. 39,000. Expenses incurred on the property are as
under:
65

Municipal Tax Rs. 3,000; Insurance Rs. 500, Ground Rent Rs. 500; Collection
Charges Rs. 600;lRepairs Rs. 4,000; Interest on Loan utilized for making substantial
extensions to the property Rs. 2,000.
Mrs. M: Interest on Government Securities Rs. 12,000, she received a legacy of Rs.
2,00,000 left to her by her grandmother and paid life insurance premium of Rs.
2,000.
Mr. N: During the year, Mr.N was engaged in speculation of shares which resulted
in a profit of Rs. 20,000. Besides, he also did speculation business which resulted in
a loss of Rs. 30,000. He paid Rs. 8,000 as life insurance e premium on a policy of
Rs. 30,000.Prepare statements showing the respective assessable incomes of the
three partners for the assessment year 2011-12.
Q3. Shri Avinash, Shri Ajay and Shri Abhay are partners in a partnership firm
Avinash & Co. sharing profits in the ratio 5:3:2:. The net profit of the firm as per its
P.& L. Account for the year ending 31st March, 2011 was Rs. 3,60,000
The debits to the Profit and Loss Account included the following:
(i) Rs. 3,000 for depreciation of scooter purchased by Avinash for Rs. 15,000 on Ist
April, 2008, which is used wholly for the business of the firm and Rs. 3,600 for
Scoooter Allowance to Avinash at Rs. 300 per month for meeting the cost of petrol
and repairs etc. of this scooter.
(ii) Rs. 30,000 paid as Commission to Smt. Vijay, wife of Shri Ajay, for acting as
the Sole
selling agent of the firm.
(iii) Rs. 2000 paid as fees to Smt. Alka, wife of Shri Abhay for appearing as an
advocate in an appeal filed by the firm in the Rajasthan High Court.
(iv) Rs. 50,000 spend on scientific research including Rs. 30,000 for the construction
of research laboratory completed on 30th September, 2008.
(v) Rs./ 10,000 spent by the firm for the purpose of promoting family planning
amongst its employees including Rs. 6,000 capital expenditure.
(vi) ;Rs. 3000 paid in proportion of 5:3::2 to the Life Insurance Corporation for
getting each partners life insured for Rs. 15 ,000.
Prepare the Statement of Total Income of the firm for the Assessment Year 2011-12
and also compute the income tax payable by the firm on its total income

66

Q4. The profit and loss account of the Firm of M/s A and B, sharing profits and
losses in the ratio of 3:2, for the previous year ending on 31dst March 2011 is as
follows:
Rs.
Rs.
Cost of goods sold
9,50,000
Remuneration of partners
20,000
Remuneration to employees

5,45,000

Sales

3,00,000

Dividends

1,70,000

Long term
Capital gain

1.90,000
Interest to Partners
Other expenses
Sales tax outstanding
Net profit

15,000
1,00,000
10,000
20,000
________

__________
11,60,000
11,60,000
________
__________
Additional information is given below:
(1)
Other expenses include the following:
(i) Entertainment expenses Rs. 20,000
(ii) V.I.P. bags, costing Rs. 1,500 each given to ten customers who exceeded
the sales target fixed under sales promotion scheme.
(iii) Rs. 32,500 paid in cash to an advertising agency.
(2)
Outstanding sales tax was paid as 14th July, 2009
(3)
The firm is not evidenced by instrument.
(4)
The detailed particulars of remuneration and interest to A and B, working
partners, are given below:
Amount actually paid
A
B
(i)
Salaries
70,000
80,000
(ii)
Bonus
60,000
40,000
(iii)
Commission
20,000
30,000
(iv)
Interest
9,000
6,000
67

(v)

Other incomes

You are required to compute for the assessment year 2011-12: total income and tax
liability of the firm.

_____________________________________________________________

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