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Question Paper

Economic Legislation-II (162): July 2005


• Answer all questions.
• Marks are indicated against each question.

< Answer >


1. Which of the following is considered as an asset of an individual under section 2(ea) of the Wealth Tax Act,
1957?
(a) A residential house used for own business or profession
(b) A house let out for a period of 310 days in the previous year
(c) Rs.10,000 not recorded in the books of account of a company
(d) Motor car treated as stock-in-trade
(e) A commercial complex.
(1 mark)
< Answer >
2. In computing the net wealth of an assessee, which of the following assets are not included as belonging to the
assessee by virtue of Section 4 of the Wealth Tax Act, 1957?

(a) When the assets are transferred to his/her spouse (not in connection with an agreement to live apart)
(b) When assets are transferred to his/her son’s wife for adequate consideration
(c) When assets are transferred to a person or AOP for deferred benefit of his/her spouse
(d) When assets are transferred to AOP for the immediate benefit of his/her son’s wife
(e) When asset is held by minor child of the assessee.
(1 mark)
< Answer >
3. Which of the following is chargeable to Wealth Tax?
(a) Co-operative society (b) Hindu Undivided Family
(c) Social club (d) Political party
(e) A company registered under section 25 of the Companies Act 1956.
(1 mark)
< Answer >
4. Wealth tax is chargeable in respect of the net wealth of an assessee as on
(a) The first day of the financial year
(b) The first day of the calendar year
(c) The last day of the calendar year
(d) The valuation date
(e) The last day of the Assessment year.
(1 mark)
< Answer >
5. According to section 7 of the Wealth Tax Act, 1957, the premium to be added to the capitalised value in the
Valuation of Building under Part B of Schedule III, when the excess of ‘unbuilt area’ over ‘specified area’ is not
more than 5 percent of the ‘aggregate area’ is
(a) Nil (b) 20 percent of capitalised value
(c) 30 percent of capitalised value (d) 40 percent of capitalised value
(e) 50 percent of capitalised value
(1 mark)
< Answer >
6. Which of the following conditions is/are to be satisfied for the levy of Central Excise Duty in terms of section 3
of the Central Excise Act, 1944?
I. Goods should be exercisable.
II. Goods must be manufactured or produced in India.
III. Goods must be movable.
IV. Goods must be marketable.

(a) Only (I) above (b) Only (III) above


(c) (I), (III) and (IV) above (d) (I), (II) and (IV) above

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(e) All (I), (II), (III) and (IV) above.
(1 mark)
< Answer >
7. Which of the following is not a condition to be fulfilled for a price to be accepted as ‘Normal Price’ as defined
under sec 4(1)(a) of the Central Excise Act?
(a) The price should be one at which the goods are ordinarily sold by the assessee
(b) The price should be the wholesale price
(c) The sale should be for delivery at the time and place of production or manufacture of goods
(d) The buyer in the ordinary course of trade should not be a related person
(e) The price should be the sole consideration for the sale.
(1 mark)
< Answer >
8. Under which of the following situations can an assessee request for provisional assessment under Rule 7 of
Central Excise Rules?
I. When the assessee is unable to determine the value of excisable goods in terms of section 4 of Central
Excise Act due to non-availability of any document
II. When the assessee is unable to determine the value of excisable goods in terms of section 4 of Central
Excise Act due to non-availability of any information
III. When the assessee is unable to determine the rate of duty applicable.

(a) Only (I) above (b) Only (III) above


(c) Both (I) and (II) above (d) All (I), (II), (III) above
(e) Both (II) and (III) above.
(1 mark)
< Answer >
9. The assessment under Central Excise is basically self-assessment except in the case of
(a) Softdrinks (b) Cigarettes
(c) Spare parts of motor cars (d) Tyres (e) Paper.
(1 mark)
< Answer >
10. The statutory time limit for filing an appeal to the Commissioner (Appeals) under Section 35 of the Central
Excise Act, 1944 is
(a) Within one month of the date of communication of the order contested
(b) Within two months of the date of communication of the order contested
(c) Within three months of the date of communication of the order contested
(d) Within six months of the date of communication of the order contested
(e) Within one year of the date of communication of the order contested.
(1 mark)
< Answer >
11. Under Rule 9 of Customs Valuation Rules, which of the following costs, services and expenses is not to be
added to the price paid or payable, if these are not already included in the invoice price?
(a) Cost of container which is treated as being one with the goods for customs purposes
(b) Cost of packing whether labour or materials
(c) Materials, components, tools, dyes etc. supplied by buyer
(d) Value of proceeds of subsequent sales
(e) Buying commission.
(1 mark)
< Answer >
12. The Central excise duty calculated in terms of the unit measures of the commodity is called
(a) Specific duty (b) Advalorem duty
(c) Special additional duty (d) Additional duty (e) Countervailing duty.
(1 mark)
< Answer >
13. Any property, whether vessel or cargo, left or abandoned in the open sea by persons incharge of it without any
hope of recovering or intention of returning to it, is called
(a) Jetsam (b) Flotsam (c) Derelict
(d) Wreck (e) Sea Goods.
(1 mark)

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< Answer >
14. According to the Customs Act, 1962, the boat note regulation, 1976 which prescribes the form and content of the
boat note stipulates that in the case of transhipment cargo, reshipment cargo or same bottom cargo, the boat note
should be in
(a) Form I (b) Form II (c) Form III (d) Form IV (e) Form I & II.
(1 mark)
< Answer >
15. Which of the following statements is false regarding the term ‘baggage’ under the Customs Act, 1962?
(a) Baggage means all dutiable articles, imported by passenger or a member of a crew in his baggage
(b) Un-accompanied baggage, if despatched previously or subsequently within prescribed period is also covered
(c) Baggage does not include motor vehicles, alcoholic drinks and goods imported through courier
(d) Baggage includes articles imported under an import licence for his own use or on behalf of others
(e) Bona fide baggage accompanying passenger is exempt from duty.
(1 mark)
< Answer >
16. Which of the following fall under the definition of the term ‘Stores’ as defined by section 2(38) of the Customs
Act, 1962?
I. Food, drink, and other needs of the passenger and crew.
II. Fuel required for running the conveyance.
III. Spare parts required for repair and maintenance of the conveyance.
IV. Life saving equipment, life boats, life belts.

(a) Both (I) and (II) above (b) Both (III) and (IV) above
(c) (I), (II) and (IV) above (d) Both (II) and (III) above
(e) All (I), (II), (III) and (IV) above.
(1 mark)
< Answer >
17. Which of the following are not included in the term ‘goods’ under The Central Sales Tax Act, 1956?
I. Old newspapers sold as scrap.
II. Stocks.
III. Shares.
IV. Actionable claims.

(a) All (I), (II), (III), and (IV) above (b) Both (II) and (III) above
(c) Both (I) and (IV) above (d) (I), (II) and (III) above
(e) (II), (III) and (IV) above.
(1 mark)
< Answer >
18. Which of the following transactions is taxable under the Central Sales Tax Act, 1956?

(a) A sale inside a state


(b) A sale outside all other states
(c) A sale which occasions the movement of goods from one state to another
(d) A sale in the course of import
(e) A sale in the course of export.
(1 mark)
< Answer >
19. To avail exemption from sales tax under section 5 (3) of the Sales Tax Act, 1956, the penultimate seller has to
obtain a certificate in______ from the actual exporter.

(a) Form C (b) Form D (c) Form F (d) Form G (e) Form H.
(1 mark)
< Answer >
20. X Ltd is a financial corporation for the purpose of section 36(1) (viii) of the Income Tax Act, 1961. Income of the
taxpayer for the previous year 2004-05 from different sources is as follows:
• From providing long-term finance for industrial/agricultural development
or development of infrastructure facility Rs.560 lakh
(before any deduction under section 36)
• Business income from other activities Rs.105 lakh

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Other information:
• Paid up capital and general reserve on March 31, 2005 Rs.610 lakh

• Balance standing to the credit of special reserve accounts as on April


01, 2004 (and the same was allowed as deduction in the earlier years) Rs.1,050 lakh
• Amount transferred to special reserve account during 2004-05 Rs.220 lakh

Compute the amount of deduction under section 36(1)(viii) of the Income Tax Act, 1961 for the assessment year
2005-06.
(a) Rs.220 lakh (b) Rs.224 lakh
(c) Rs.1,050 lakh (d) Rs.170 lakh (e) Rs.610 lakh.
(2 marks)
< Answer >
21. Which of the following is taxable under the head ‘Income from house property’?
(a) Income from house property held as stock-in-trade
(b) Income from farm house
(c) Income from house property used for own business
(d) Income from house property in case of a person resident of Ladakh
(e) Income from house property of a political party.
(1 mark)
< Answer >
22. Under the head ‘Income from house property’, deduction is permissible in respect of Municipal taxes from gross
annual value of a house property only if it is
(a) Paid by the assessee in the assessment year
(b) Paid by the tenant in the assessment year
(c) Paid by the assessee in the relevant previous year
(d) Levied by the local authorities but not paid in the relevant previous year
(e) Paid by the tenant in the relevant previous year.
(1 mark)
< Answer >
23. Which of the following persons is not considered as deemed owner for computation to income from house
property?
(a) Holder of impartible estate
(b) Person who transferred house property to spouse without adequate consideration
(c) Person who transferred house property to son’s wife without adequate consideration
(d) A person who is allowed to take possession of any building in part performance of contract
(e) A member of co-operative society to whom a building is allotted under house building scheme.
(1 mark)
< Answer >
24. For the purpose of computation of gratuity, the term ‘salary’ in the case government employees includes
I. Basic salary.
II. Dearness Allowance.
III. Commission as a percentage of turnover.
IV. House rent allowance.

(a) Only (I) above (b) Only (III) above


(c) Both (II) and (IV) above (d) Both (I) and (II) above
(e) All (I), (II), (III) and (IV) above.
(1 mark)
< Answer >
25. Which of the following does not fall under the purview of ‘profits in lieu of salary’?
(a) Compensation for loss of employment received from the previous employer
(b) Employer’s contribution to unrecognized provident fund
(c) Sum received under keyman insurance policy
(d) Leave salary
(e) Medical allowance.
(1 mark)
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< Answer >
26. Which of the following assessees cannot avail basic exemption limit of Rs.50,000 and slab rate of income tax?
(a) An artificial juridical person (b) A partnership firm
(c) An association of persons (d) A Hindu Undivided Family
(e) A body of individual.
(1 mark)
< Answer >
27. Which of the following amounts received by a Government employee is fully taxable?
(a) Leave encashment at the time of retirement (b) Gratuity
(c) Uncommuted pension (d) Retrenchment compensation
(e) Commuted pension.
(1 mark)
< Answer >
28. Which of the following is not chargeable to tax as business income?
(a) Recovery against deduction
(b) Balancing charge
(c) Surplus on sale of assets used for scientific research
(d) Dividend received from the shares held as stock-in-trade
(e) Sum received under an agreement for not carrying out any activity in relation to any business
(1 mark)
< Answer >
29. In the case of Indian Company and non-corporate resident assessees the expenditure incurred in prospecting for
development of certain minerals can be claimed as deduction u/s 35E for a period of
(a) Five years (b) Ten years (c) Fifteen years
(d) Twenty years (e) Seven years.
(1 mark)
< Answer >
30. The deduction under section 37(2B) of the Income Tax Act, 1961 in respeect of expenditure incurred by an
assesee on advertisement in any souvenir, brochure, pamphlet or the like published by a political party is
(a) 100 percent (b) 50 percent (c) 25 percent (d) 10 percent (e) Nil.
(1 mark)
< Answer >
31. Which of the following expenditures is allowable as deduction under section 37(1) under the head ‘Profits or
Gains of business or profession’?
(a) Income tax
(b) Wealth tax
(c) Securities Transaction tax
(d) Commission paid on which tax has not been deducted.
(e) Advertisement expenses in respect of assessee’s business products.
(1 mark)
< Answer >
32. Which of the following is considered as capital assets according to section 2(14) of the Income Tax Act, 1961?
(a) Gold Deposit bonds issued under Gold Deposit scheme, 1999
(b) Units of UTI
(c) Special Bearer Bonds, 1991
(d) 7 per cent gold bonds, 1980
(e) National Defence Gold Bonds 1980.
(1 mark)
< Answer >
33. Which of the following losses can be carried forward even if loss return is not filed in time?
(a) Speculation business loss
(b) Non-speculation business loss
(c) Loss from house property
(d) Capital loss
(e) Loss from the activity of owning and maintaining race horses.
(1 mark)
< Answer >
34. Which of the following is not a condition to be fulfilled by an assessee being an individual to claim deduction
under section 80GG of the Income Tax Act 1961 in respect of rent paid?
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under section 80GG of the Income Tax Act, 1961 in respect of rent paid?
(a) The assesse should not be in receipt of House Rent Allowance
(b) The assesee, his minor child should not own residential house at that place
(c) His spouse should not own residential house at that place
(d) His daughter-in-law should not own residential house at that place
(e) No claim for self occupied property should be made in respect of any accommodation.
(1 mark)
< Answer >
35. The salary and other allowances received by a Member of Parliament is taxable under the head_____________of
the Income Tax Act, 1961.
(a) Income from salaries (b) Profits and gains from business
(c) Income from other sources (d) Income from professions
(e) Income from short term capital gains.
(1 mark)
< Answer >
36. Which of the following perquisites is not fully exempted under the Income Tax Act, 1961?
(a) Refreshment provided to all employees during working hours in office premises
(b) Amount spent on training of employees
(c) Facilities provided by Government of India to the citizens for rendering services outside India
(d) Interest-free loan
(e) Reimbursement of mobile phone expenses.
(1 mark)
< Answer >
37. According to section 140 of the Income Tax Act, 1961, which of the following persons is authorized to sign the
income tax return of a company?
(a) Finance Manager (b) Administrative Manager
(c) Chief Accounts Officer (d) Managing Director
(e) Personnel manager.
(1 mark)
< Answer >
38. Which of the following is/are deemed income(s)?
I. Unexplained investments
II. Investments not fully disclosed
III. Amount borrowed on Hundi
IV. Amount repaid on Hundi

(a) Only (I) above (b) Only (III) above


(c) Both (I) and (II) above (d) Both (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
(1 mark)
< Answer >
39. Loss from betting can be carried forward for
(a) 2 years (b) 4 years (c) 8 years
(d) Indefinite period (e) Nil year (i.e. it cannot be carried forward).
(1 mark)
< Answer >
40. The taxable income of Ram for the Assessment Year 2005-06 is Rs.8,55,000. The tax liability after considering
the surcharge and education cess payable by him, is
(a) Rs.2,38,680 (b) Rs.2,53,550 (c) Rs.2,34,000
(d) Rs.2,55,200 (e) Rs.2,35,110.
(2 marks)
41. Mr.Rustogi, retired on July 15, 2004 from Enterprises Ltd. after rendering services for 34 years and five months. < Answer >
He received Rs.1,00,000 as gratuity under the Payment of Gratuity Act, 1972. The last drawn salary was Rs.3,200
pm. The amount of Gratuity chargeable to income tax for the assessment year 2005-06 is
(a) Rs.62,770 (b) Rs.1,00,000 (c) Rs.3,50,000
(d) Rs.37,230 (e) Rs.2,50,000.

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(1 mark)
42. Mr. Suman received Entertainment allowance of Rs.22,000 for the previous year 2004-05. Of the amount of < Answer >
Rs.22,000, he spent Rs.10,000 for official purpose, spent Rs.5,000 for personal purpose, and saved the
balance. For the Assessment Year 2005-06, the amount of taxable entertainment allowance is
(a) Rs.5,000 (b) Rs.22,000 (c) Rs.10,000
(d) Rs.12,000 (e) Rs.17,000.
(1 mark)
43. Mr.Ramesh took voluntary retirement from a Public sector unit after a service of 20 years. He had seven years of < Answer >
service left. His last drawn salary was Rs.25,000 per month. On the occasion of his voluntary retirement, he
was paid Rs.15 lakh as compensation. The amount of compensation exempt from tax is
(a) Rs.5,00,000 (b) Rs.15,00,000 (c) Rs.10,00,000
(d) Rs.12,00,000 (e) Rs.7,50,000.
(2 marks)
44. Mr.Radheshyam, is the director of Srirangam Ltd. He furnishes the following details for the Assessment year < Answer >
2005-06:
• Basic salary • Rs.5,000 per
month
• DA • Rs.500 per month
• HRA • Rs.800 per month
• Rent paid for the house at Kolkata • Rs.1,000 per
month

The company has provided motor car of 1.6 liters for both personal and official purposes. Expenses in respect of
personal use are met by Mr. Radheshyam. Along with his contribution towards Recognised Provident Fund, the
company also contributes 12.5% of salary towards Recognised Provident Fund.
Considering all the above details, taxable salary for the Assessment Year 2005-06 is
(a) Rs.53,130 (b) Rs.47,730 (c) Rs.45,330
(d) Rs.50,730 (e) Rs.54,820.
(2 marks)
45. Mr. Ramana retired on October 31, 2004. He received Rs.4,000 as pension from the date of his retirement to < Answer >
January 31, 2005, when he commuted 70% of his pension at Rs.49,000. Ramana is in receipt of gratuity also. The
taxable income of Ramana for the Assessment Year 2005-06 is
(a) Rs.14,400 (b) Rs.2,400 (c) Rs.22,500
(d) Rs.40,067 (e) Rs.45,000.
(2 marks)
46. Mr.Rashid owns a house at Hyderabad. The Municipal valuation of the house is Rs.10,00,000. Its fair value is < Answer >
Rs.12,00,000. The standard rent of the house is Rs.12,50,000 and the actual rent received in the previous year
2004-05 is Rs.10,00,000. He pays municipal taxes amounting to Rs.1,50,000 in respect to the property. The Net
Annual Value if the house has been let out during the full previous year, is
(a) Rs.10,50,000 (b) Rs.12,50,000 (c) Rs.11,00,000 (d) Rs.8,50,000 (e) Nil.
(1 mark)
47. Mr.Raghu owns two house properties. Since the Annual value of first house is much higher than the second house < Answer >
property , he claims the first property as Self occupied. However, the second is also self occupied. The Municipal
valuation of the property is Rs.2,10,000; Fair rent of similar property is Rs.1,80,000; the Standard Rent is
Rs.2,25,000. Municipal taxes paid for previous year 2004-05 is Rs.40,000; repairs incured in respect of the house
for the same period is Rs.18,000. Interest on loan borrowed in respect of the property is Rs.3,00,000. Income from
Property II chargeable to tax is
(a) Nil (b) Rs.1,80,000 (c) (Rs.3,00,000) (d) (Rs.1,81,000) (e) Rs.2,10,000.
(2 marks)
48. On April 01, 2004, Ratan Ltd. owned four vehicles A, B,C & D. Vehicles A & B are motor cars which are < Answer >
eligible for 20% depreciation, Vehicles C & D are motor buses eligible for 40% depreciation. The following are
other details

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Particulars Written Down Value Other details
on 1.4.2004 (Rs.)
Motor car A 1,20,000 Sold during the previous year 2004-05 for
Rs.1,00,000
Motor car B 1,00,000 –
Motor Bus C 3,00,000 Sold during the previous year 2004-05 for
Rs.1,40,000
Motor Bus D 4,20,000 –
Motor car E 2,20,000 Purchased in October 25, 2004
Motor Bus F 2,40,000 Purchased in July 2004
Under section 32 of the Income Tax Act, 1961, the depreciation to be allowed for the Assessment Year 2005-06 in
respect of the above motor vehicles is
(a) Rs.3,76,000 (b) Rs.3,74,000 (c) Rs.3,96,000
(d) Rs.3,28,000 (e) Rs.2,32,000.
(2 marks)
49. Mr.Rudra is a retail trader at Kolkata. Details regarding his business for the Assessment Year 2005-06 are as < Answer >
follows :
Sales Turnover for the Previous year 2004-05 is Rs.38,00,000; Cost of goods produced is Rs.32,00,000;
Depreciation eligible as deduction Rs.15,000; and his other income for the period is Rs.15,000. If he opts for the
Scheme under section 44 AF, the amount of tax payable (exclude surcharge and cess) by him is
(a) Rs.71,750 (b) Rs.61,500 (c) Rs.35,500
(d) Rs.15,250 (e) Rs.31,000.
(2 marks)
50. On March 02, 2003, Mr.Randhir purchased 400 listed equity shares of Rs.100 each at a premium of 240 per share. < Answer >
Out of these shares, he sells 300 shares on March 25, 2005 at a price of Rs.500 per share.
Cost inflation index:
Year Index
2004-05 480
2003-04 463
The amount of capital gains taxable in the hands of Randhir for the Assessment year 2005-06 is
(a) Rs.14,000 (b) Rs.48,000 (c) Rs.44,349 (d) Rs.75,423 (e) Rs.Nil.
(1 mark)
51. Ms.Rashi purchases a house property on April 15, 1979 for Rs.50,000. The fair market value of the house < Answer >
property on April 01, 1981 was Rs.70,000. On June 30, 1985, Rashi enters into an agreement with Uday for sale
of such property for Rs.90,000 and received an amount of Rs.10,000 as advance. However, as Uday did not pay
the balance amount, Rashi forfeited the advance. In June 1986, Rashi constructed the first floor by incurring a cost
of Rs.30,000. Subsequently, on August 10, 1987, Rashi gifted the house to her friend Mani. On May 23, 2004,
Mani sold the house for Rs.4,00,000.
Cost inflation index:
Year Index Year Index
1981-1982 100 1987-1988 150
1984-1985 125 1988-1989 161
1985-1986 133 2002-2003 447
1986-1987 140 2003-2004 463
2004-2005 480
The long term capital gains taxable in the hands of Mani for the Assessment Year 2005-06 is
(a) Rs.74,719 (b) Rs.84,719 (c) Rs.22,986
(d) Rs.1,15,586 (e) Rs.57,143.
(2 marks)
52. Mr. Raga has derived the following incomes from various investments during the previous year 2004-2005: < Answer >

Description of Income Rs.


Interest from fixed deposits in a bank 8,000
Interest from units of UTI 3,000
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Interest from units of UTI 3,000
Interest on Government securities 5,000
Dividend from A Ltd., an Indian company 7,000
Dividend on shares in a co-operative society 3,000

The amount of deduction available under section 80L of the Income Tax Act, 1961 for the Assessment Year 2005-
06 is
(a) Rs.12,000 (b) Rs.15,000 (c) Rs.17,000 (d) Rs.26,000 (e) Rs.9,000.
(2 marks)
53. Mr.Raju, earned from lottery a sum of Rs.1,10,000 for the Previous year 2004-05. What would be his tax liability < Answer >
for the Assessment Year 2005-06 if he does not have any other income?
(a) Rs.33,000 (b) Rs.23,000 (c) Rs.10,200 (d) Rs.33,660 (e) 23,460.
(2 marks)
54. Mr. Rakesh has a son who is fifteen years of age. For the previous year 2004-05, his taxable income is < Answer >
Rs.2,50,000. His son earns a salary of Rs.25,000 for the said period, on his qualifications as a technician. His son
also earns Bank interest of Rs.10,000 and Interest of Rs.5,000 on Fixed deposits invested out of gifts and Rs.2,000
in respect of interest on salary income saved and invested. What is the gross total income of Mr.Rakesh for the
Assessment Year 2005-06?
(a) Rs.2,65,500 (b) Rs.2,67,000 (c) Rs.2,92,000
(d) Rs.2,90,500 (e) Rs.2,26,500.
(2 marks)
55. Mr.Rana is a farmer and his agricultural income is Rs.90,000 for the Assessment Year 2005-06. He also has a < Answer >
business, the income from which is Rs.85,000 during the previous year 2004-2005. The tax liability of Mr.Rana
for the assessment year 2005-06 is
(a) Rs.9,500 (b) Rs.6,000 (c) Rs.9,975 (d) Rs.6,300 (e) Rs.9,690.
(2 marks)
56. Mr. Ramakrishna incurred the following expenses during the previous year 2004-05 for medical treatment of his < Answer >
handicapped dependent brother (falling under the category of severe disability):
Particulars Rs.
Hospital expenses 10,000
Cost of Medicines 25,000
Travelling expenses from residence to hospital 15,000
The amount of deduction that Mr. Ramakrishna can claim under section 80DD of the Income Tax Act, 1961 for
the Assessment Year 2005-06 is
(a) Rs.40,000 (b) Rs.50,000 (c) Rs.60,000 (d) Rs.75,000 (e) Rs.Nil.
(1 mark)
57. Mr. Rajeev has furnished his income/loss details for the AY 2005-06 as under: < Answer >

Particulars Rs.
Income from salaries 1,50,000
Income from speculation business 60,000
Loss from non-speculation business (40,000)
Short term capital gain 80,000
Long term capital loss (30,000)
Winning from lotteries 20,000
The total taxable income of Mr. Rajeev for the Assessment Year 2005-06 is
(a) Rs.2,40,000 (b) Rs.2,70,000 (c) Rs.2,80,000
(d) Rs.3,10,000 (e) Rs.2,20,000.
(2 marks)
58. ABC Ltd., an aluminum sheet manufacturing company, submitted the following particulars of its wealth as on < Answer >
March 31, 2005:
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Particulars Rs.
Land (within 5 km of Bangalore) 54,05,000
Land in urban area (construction is not permitted as per municipal 32,10,550
rules)
Motor cars (one of them is imported, value: Rs.3,52,000) 15,63,480
Cash in hand (Rs. 25,515 not recorded in books) 15,20,550
Fixed deposit in SBI 11,78,500
Current deposit in SBI 7,01,015
Loan for acquiring land (within 5 km of Bangalore) 9,37,926
Loan for acquiring land in urban area 5,11,144
Loan for purchase of motor cars 6,98,950
The Wealth tax of the company for the AY 2005-06 is
(a) Rs.38,570 (b) Rs.53,570 (c) Rs.40,800 (d) Rs.77,140 (e) Nil.
(2 marks)
59. Following is the Profit and loss account of Rakshak Ltd. for the year ended March 31, 2005: < Answer >

Dr. Cr.
Particulars Rs. Particulars Rs.
Opening stock 52,000 Sales 28,39,000
Purchase of raw materials 11,30,000 Closing stock 81,000
Salaries & wages 9,40,000
General charges 23,000
Depreciation on assets 49,000
Provision for bad debts 13,000
Bad debts written off 10,000
Provision for Income Tax 52,000
General reserve 68,000
Net Profit 5,83,000
29,20,000 29,20,000
Other information:
i. General charges include a sum of Rs.18,000 being family planning expenditure on employees.
ii. Material purchased from Shiram Ltd. for Rs.45,000 was paid by a bearer cheque.
iii. A sum of Rs.16,000 on account of liability foregone by a raw material supplier has been credited to a special
reserve account.
iv. According to the Income Tax Act, the depreciation on assets is Rs.53,000.
The taxable income of the company for the Assessment Year 2005-06 is
(a) Rs.7,55,000 (b) Rs.7,91,000 (c) Rs.6,22,000
(d) Rs.7,37,000 (e) Rs.6,90,000.
(2 marks)
60. On March 30, 2005 Mr.Ravikiran has transferred self-generated goodwill of his profession for a sale consideration < Answer >
of Rs.40,000 and incurred expenses of Rs.1,000 for such transfer. The capital gains chargeable to tax in the hands
of Mr. Ravikiran for the assessment
year 2005-06 are
(a) Rs.40,000 (b) Rs.41,000 (c) Rs.39,000 (d) Rs.42,000 (e) Rs.Nil.
(1 mark)
61. The gross total income of Ms.Ramani for the previous year 2004-05 is Rs.6,35,000. During the previous year, she < Answer >
made the following payments:

Particulars Rs.
Contribution towards the Public Provident Fund 40,000
Contribution towards 15 years Pension fund of LIC of India 24,000
Contribution towards the Life insurance premium of her minor daughter 50,000
Subscription to the Units of Unit Trust of India
1,00,000

10
The tax rebate available to Ms.Ramani under section 88 of the Income tax Act, 1961 for the Assessment Year
2005-06 is
(a) Rs.21,000 (b) Rs.15,000 (c) Rs.10,500 (d) Rs.14,800 (e) Rs.Nil.
(1 mark)
62. M/s.Sujana Ltd. has made the following contributions to provident fund on the dates indicated during the previous < Answer >
year 2004-05:
Mode of Date of realization of Cheque
Due date of payment Date of payment
payment cheques amount
October 31, 2004 October 20, 2004 Cheque November 02, 2004 Rs. 55,000
January 11, 2005 January 10, 2005 Cheque February 01, 2005 Rs. 40,000
The amount admissible as deduction for the assessment year 2005-06 is
(a) Rs.30,000 (b) Rs.40,000 (c) Rs.55,000 (d) Rs.95,000 (e) Rs.Nil.
(1 mark)
63. Ramba imported raw materials at the rate of US$ 5,000 FOB. Goods were imported in returnable containers for < Answer >
which Ramba deposited an amount of US$1,000 and paid US$300 for packing charges. In addition, Ramba
incurred US$ 50 towards insurance, US$150 towards freight and US$100 towards commission to broker who
arranged the transaction. The exchange rate applicable is Rs.45 per US$. The basic excise duty is 35% and
additional duty (CVD) is 16%. The total amount of duty payable under the Customs Act, 1962 by Ramba is
(a) Rs.1,28,520 (b) Rs.1,42,632 (c) Rs.1,51,470
(d) Rs.1,44,058 (e) Rs.1,43,444.
(2 marks)
64. Tuition fees paid by an individual to any university, college or other educational institution in India for full time < Answer >
education for any two children of the tax payer qualifies for tax rebate under section 88. The maximum amount
which qualifies for tax rebate for the assessment AY 2005-06 is
(a) Rs.10,000 per child (b) Rs.20,000 per child
(c) Rs.15,000 per child (d) Rs.12,000 per child (e) Rs.1,000 per child
(1 mark)
65. Raghuvir owns a house property at Hyderabad which was originally acquired on May 10, 1973. Consider the < Answer >
following particulars pertaining to the above property:

Particulars Rs.
Municipal value of the house property 1,00,000
Rent received from the tenant during the previous year 2004-05 80,000
Municipal taxes paid by Raghuvir during the year 2004-05 3,000
The amount deposited by the tenant with Raghuvir as refundable security 25,000
(without any interest)

If the difference between unbuilt area and specified area is 3%, the value of the house property on March 31, 2005
under the Wealth Tax Act, 1957, assuming that the house built on free hold land is
(a) Rs.6,56,000 (b) Rs.8,20,000 (c) Rs.8,52,344
(d) Rs.12,12,500 (e) Rs.10,25,000.
(3 marks)
66. Ms.Rathi has a taxable income of Rs.1,40,000 for the previous year 2004-05. She made savings of Rs.40,000 < Answer >
which are eligible for tax rebate under section 88 of the Income Tax Act, 1961. The total tax rebate available to
her under section 88 and 88C of the Income Tax Act, 1961 for the assessment year 2005-06 is
(a) Rs.15,000 (b) Rs.20,000 (c) Rs.10,000
(d) Rs.13,000 (e) Rs.50,000.
(1 mark)
67. In which of the following cases, is the income taxable in the normal assessment year and not in the year in which < Answer >
it is earned?

11
(a) Income from discontinued business
(b) Person likely to transfer property to avoid tax
(c) Association formed for short duration
(d) Persons leaving India with no present intention of returning to India
(e) Shipping business of a resident, who is a foreign national.
(1 mark)
68. Mr.Anjaneyulu, who is a resident and ordinarily resident has the following income for the previous year 2004-05. < Answer >

Particulars Rs.
Interest on the UK bonds 75,000
Income from the sale of the property in Canada but received in India 4,85,000
Income from a business abroad but controlled from India 96,000
Profit from a company in Delhi but controlled from London 1,26,000
Dividend from a foreign company but received in India 64,000

The taxable amount in the hands of Mr.Anjaneyulu for the assessment year 2005-06 is
(a) Rs.2,97,000 (b) Rs.2,22,000 (c) Rs.8,46,000
(d) Rs.6,11,000 (e) Rs.7,82,000.
(2 marks)

69. Mr.Amrit saved a small boy from kidnappers on January 16, 2004. He was awarded an amount of Rs.50,000 by < Answer >
the boy’s father for saving the life of his son. What is the amount taxable in the hands of Mr.Amrit for the
assessment year 2005-06?
(a) Rs.40,000 (b) Rs.50,000 (c) Rs.45,000 (d) Rs.37,500 (e)
Rs.Nil.
(1 mark)
70. An assessee who is a working partner in a firm, the accounts of which are subject to the tax audit has to file the < Answer >
return of income on or before
(a) July 31 (b) October 31 (c) September 30
(d) December 31 (e) November 30.
(1 mark)

71. The income from the business of growing tea leaves and manufacturing tea is considered to be agricultural income < Answer >
to the extent of
(a) 100% (b) 60% (c) 40% (d) 50% (e) 30%.
(1 mark)
72. Which of the following conditions is/ are to be satisfied for the income from farm building to be treated as < Answer >
agricultural income?
I. The farm is situated on or within the vicinity of the land used for the agricultural operations and has been
assessed to land revenue.
II. It is occupied for dwelling purpose by the cultivator or the receiver of rent-in-kind.
III. The land is assessed to land revenue or land rate or the land is situated outside “urban areas”.

(a) Only (I) above (b) Only (II) above (c) Only (III) above
(d) (I), (II) and (III) above (e) (I) and (III) above.
(1 mark)
73. An Association of persons, whose control and management of the affairs is partly in India and partly outside < Answer >
India, is treated as
(a) Resident but not ordinarily resident
(b) Resident
(c) Non-resident
(d) Resident and ordinarily resident
(e) Neither a resident nor a non-resident.
(1 mark)
74. The surcharge in the case of the company assessees and the firms for the assessment year 2005-06 is < Answer >

12
(a) 5 percent (b) 10 percent (c) 2.5 percent (d) 12 percent (e) Nil.
(1 mark)
75. Ms.Ranjana receives an amount of Rs.1,00,000 towards the scholarship from the Book Syndicate Pvt. Ltd. for < Answer >
pursuing a course though it does not lead to any formal degree. Which of the following statements is true?
(a) It is fully taxable as the scholarship is not given for the purpose of an educational degree
(b) Scholarship given for the purpose of the education is totally exempt irrespective of whether it is for the
purpose of getting a formal degree or not
(c) Scholarship to the extent of 50% is exempt as the same is not given for acquiring a degree
(d) It is not taxable as Ms.Ranjana is still a student and not an assessee
(e) Scholarships over and above Rs.50,000 are taxable.
(1 mark)

76. SRM Transports, a transport company grants the allowances to its drivers to meet their personal expenditure in the < Answer >
course of their duty. Mr. Somesh is working as a driver from
May 01, 2004 and gets an amount of Rs.65,000 as the allowance for the year 2004-05 and he is not in receipt of
the daily allowance. What is the taxable portion of the allowance in the hands of Mr.Somesh for the assessment
year 2005-06?
(a) Rs.72,000 (b) Rs.45,500 (c) Rs.66,000 (d) Rs.19,500 (e) Rs.65,000
(1 mark)

77. Alpha Ltd., engaged in the business of manufacture and production of drugs, incurred the following expenditure < Answer >
on the scientific research during the previous year 2004-05:

Paid to the agricultural research institute, approved for the purpose of the Rs.90,000
scientific research
Paid to National research laboratory for the scientific research Rs.1,25,000
Expenditure incurred on in house research and development Rs.2,00,000

What is the deduction that the company can claim in respect of the scientific research for the assessment year
2005-06?
(a) Rs.5,68,750 (b) Rs.6,22,500 (c) Rs.5,18,750
(d) Rs.5,72,500 (e) Rs.4,15,000.
(2 marks)

78. Mr. Satish, a professional tax consultant, based at Hyderabad furnishes the following particulars of his < Answer >
income/expenditure relevant for the assessment year 2005-06:
Particulars Rs.
Income from profession 6,00,000
Short-term capital gain (covered by section 111A) 4,000
Long-term capital gain 10,000
Winning from a camel race 1,700
Winning from a horse race 2,000
Winning from lottery 1,600
Income from other sources 10,000
Payment of medical insurance premium on his own life 3,000
Payment of house rent 80,000
The amount deductible under section 80GG of the Income Tax Act, 1961 and the net income for the assessment
year 2005-06
(a) Rs. 15,300 and Rs.6,29,000 respectively
(b) Rs. 15,300 and Rs.6,12,300 respectively
(c) Rs. 18,770 and Rs.6,29,300 respectively
(d) Rs. 18,770 and Rs.6,07,530 respectively
(e) Rs. 24,000 and Rs.6,07,530 respectively.
(2 marks)

13
Suggested Answers
Economic Legislation-II (162): July 2005
1. Answer : (c) <
TOP
Reason : A residential house used for own business or profession, A house let out for a minimum >
period of 300 days in the previous year, Motor car treated as stock in trade and A commercial
complex are all exceptions to the term “Assets” given under section 2(ea) are not assets.
Where as cash in hand in excess of Rs.50,000 in the hands of an individual and any amount
not recorded in the books of account of any other person are treated as Assets. Hence option
(c) is an asset.
2. Answer : (b) <
TOP
Reason : Where an asset is transferred by the assessee to his wife or to son’s wife for adequate >
consideration, the transfer is complete. Hence the clubbing provision i.e. the deemed
provision does not come to play in option (b), and the asset shall be taxable in the hands of
the Son’s wife only and not the transferor. Where an asset is transferred to spouse (not in
connection with an agreement to live a part) or to any person or AOP for immediate/deferred
benefit of spouse/ son’s wife, or asset is held by minor child of the assessee, the value of the
assets are included as belonging to the asseessee by virtue of Section 4 of Wealth tax Act.
3. Answer : (b) <
TOP
Reason : Only an individual, HUF, and a company is chargable to wealth tax by virtue of section 45. >
No wealth tax is chargeable in respect of the net wealth of A co-operative society, Any social
club, Any political party, and A company registered under section 25 of the companies Act
1956.
4. Answer : (d) <
TOP
Reason : Wealth tax is charged in respect of net wealth of an assessee on the valuation date in the >
immediately following assessment year.
5. Answer : (a) <
TOP
Reason : The amount of premium , to be added to capitalised value, is determined as follows Hence a >
is the right option.:
The excess of ‘‘unbuilt area’ over Premium
‘specified area’
not more than 5 percent of the ‘aggregate Nil
area’
More than 5 percent but not more than 10 20 percent of capitalised value
percent of the ‘aggregate area’
More than 10 percent but not more than 15 30 percent of capitalised value
percent of the ‘aggregate area’
More than 15 percent but not more than 20 40 percent of capitalised value
percent of the ‘aggregate area’
More than 20 percent ‘aggregate area’ Rules given are not applicable .
6. Answer : (e) <
TOP
Reason : To be taxable under section 3 of the central excise act-1944, the goods must be manufactured >
or produced in India, the goods must be movable, and the goods must be marketable. Hence
the option (e) All of the above is right.
7. Answer : (c) <
TOP
Reason : The term normal price is defined by section 4(1)(a). For a price to be accepted as a normal >
price the following conditions must be fulfilled.
a. The price should be one at which the goods are ordinarily sold by the assessee
b. The price should be the wholesale price
c. The sale should be for delivery at the time and place of removal.
d. The buyer in the ordinary course of trade should not be a related person
e. The price should be the sole consideration for the sale.
From the above it is clear that the sale should be for delivery at the time and place of removal
and not at the place of production or manufacture, hence option C is incorrect.

14
8. Answer : (d) <
TOP
Reason : An assessee can request for provisional assessment in following circumstances (a) Assessee >
is unable to determine the value of excisable goods in terms of section 4 of CEA on account
of non-availability of any document or information or (b) Assessee is unable to determine
rate of duty applicable.
9. Answer : (b) <
TOP
Reason : The assessment under Central Excise is basically an invoice based self-assessment, except in >
case of cigarettes. Rule 6 of Central Excise Rules [earlier rule 173F] states that ‘The assessee
shall himself assess the duty payable on excisable goods, provided that in case of cigarettes,
the Superintendent or Inspector of Central Excise shall assess the duty payable before
removal of goods.
10. Answer : (c) <
TOP
Reason : The time limit for filing appeal was 3 months and Commissioner (Appeals) upto 11.5.2001 >
.Now the time limit for filing an appeal is 60 days.
11. Answer : (e) <
TOP
Reason : Some costs, services and expenses are to be added to the price paid or payable, if these are >
not already included in the invoice price. Rule 9 of Customs Valuation Rules provide that
following cost and services are to be added - Commission and brokerage, except buying
commission, Cost of container which are treated as being one with the goods for customs
purposes, Cost of packing whether labor or materials, Materials, components, tools, dies etc.
supplied by buyer, Royalties and license fees, Value of proceeds of subsequent sales , Other
payment as condition of sale of goods being valued , Cost of transport upto place of
importation , Landing charges and Cost of insurance.
12. Answer : (a) <
TOP
Reason : When the duty is calculated in terms of the unit measures of the commodity eg. Per kg, per >
meter, etc. it is called specific duty. As against duty payable on the basis of value of the
goods manufactured or produced is known as Ad valorem duty.
13. Answer : (c) <
TOP
Reason : Any property, whether vessel or cargo, left or abandoned in the open sea by persons in charge >
of it without any hope of recovering or intention of returning to it, is called Derelict. When
there is clear intention that the goods were thrown into the sea with a view to lighten the ship
in order to prevent it from sinking it is called ‘Jetsam’. When the goods are separated from
the ship by some perils it is called Flotsam. Wreck refers to the property cast ashore within
the ebb and flow of the tide after shipwreck.
14. Answer : (c) <
TOP
Reason : The boat note regulation, 1976 which prescribes the form and content of the boat note >
stipulates that in the case of transhipment cargo, reshipment cargo or same bottom cargo, the
boat note should be in Form III, in case of export cargo Form I, and in case of Import Cargo
Form II.
15. Answer : (d) <
TOP
Reason : The term has not been defined as such. However, following may be noted : (a) Baggage >
means all dutiable articles, imported by passenger or a member of a crew in his baggage (b)
Un-accompanied baggage, if despatched previously or subsequently within prescribed period
is also covered (c) baggage does not include motor vehicles, alcoholic drinks and goods
imported through courier (d) Baggage does not include articles imported under an import
licence for his own use or on behalf of others. Bona fide baggage accompanying passenger is
exempt from duty. It includes wearing apparel, toilet requisites and other personal effects. In
the above, statement d states that baggage includes articles imported under an import license
which is untrue.
16. Answer : (e) <
TOP
Reason : The term ‘stores’ has been defined by section 2(38) as ‘goods for use in a vessel or aircraft, >
and includes fuel and spare parts and other articles of equipment, whether or not for
immediate fitting. All the above Food, drink, and other needs of the passenger and crew; Fuel
required for running the conveyance; Spare parts required for repair and maintenance of the
conveyance ; Life saving equipment, life boats, life belts.

15
17. Answer : (e) <
TOP
Reason : The term goods includes all materials, articles, commoditites and all other kinds of movable >
property, but does not include newspaper, actionable claims, shares, securities and stocks.
18. Answer : (c) <
TOP
Reason : A Sale which occasions the movement of goods from one state to another state is taxable >
under section 3 of the Central sales tax Act,1956.A sale out side all other states, a sale inside
a state, a sale in the course of import and a sale in the course of export are not taxable under
the Central Sales Tax Act,1956.
19. Answer : (e) <
TOP
Reason : To avail exemption from sales tax the penultimate seller has to obtain a certificate in form H >
from the actual exporter.
20. Answer : (d) <
TOP
Reason : The amount of decuction under section 36(1) (viii) of the Income Tax Act, 1961for the >
assessment year 2005-06 is the least of the following:
a. Rs.220 lakh (being the amount transferred to the special reserve account during 2004-05)
b. Rs.224 lakh (being 40% of Rs.560 lakh) ; or
c. Rs.170 lakh (being 200% of Rs.610 lakh minus Rs.1,050 lakh).
Therefore, the amount of deduction under section 36(1) (viii) is Rs.170 lakh.
<
21. Answer : (a) TOP
Reason : Income from farm house, income from house property used for own business, income from >
house property in case of a person resident of Ladakh and income from house property of a
political party are exempt from tax. Income from house property held as stock-in trade is
taxable under the head ‘Income from house property’.
<
22. Answer : (c) TOP
Reason : Municipal taxes are qualified for deduction from gross annual value of house property as per >
the provision of the Income Tax Act, 1961 if they are paid by the assessee in the relevant
previous year.
23. Answer : (c) <
TOP
Reason : Holder of impartible estate, person who transferred house property to spouse without >
adequate consideration, person who is allowed to take possession of any building in part
performance of contract and a member of co-operative society to whom a building is allotted
under house building scheme are considered as deemed owners. But the person who
transferred house property to son’s wife without adequate consideration is not considered as
deemed owner though the income from such house property is taxable in the hands of
transferor under section 64(1)(vi).
24. Answer : (d) <
TOP
Reason : Salary for the purpose means basic salary and Dearness Allowance. >

25. Answer : (d) <


TOP
Reason : Compensation for loss of employment received from previous employer, Employer’s >
contribution to unrecognized provident fund, Sum received under keyman insurance policy
(including the sum allocated by way of bonus on such policy), Medical allowance are taxable
as profits in lieu of salary. However leave salary does not come under the purview of profits
in lieu of salary.
26. Answer : (b) <
TOP
Reason : As per the Income Tax Act, 1961, individuals, HUF, AOP, BOI and every artificial juridical >
person can avail basic exemption limit of Rs.50,000 and slab rates. However the income of
firms and companies is chargeable at a flat rate and there is no basic exemption limit.
27. Answer : (c) <
TOP
Reason : The uncommuted pension is fully taxable in the hands of all employees whether government >
employees or non-government employees. The leave encashment at the time of retirement
and gratuity and commuted pension are fully exempted in the hands of government
employees. Retrenchment compensation is exempted to the extent specified under section
10(10B).

16
28. Answer : (d) <
TOP
Reason : Recovery against deduction (section 41(1)), Balancing charge (section 41(2)), Surplus on sale >
of assets used for scientific research (section 41(3)) and sum received under an agreement for
not carrying out any activity in relation to any business (section 28(va)) are taxable as
business income. However dividend received from the shares is taxable under the head
‘income from other sources’ irrespective of the fact whether shares are held by the assessee
as investment or stock-in trade.
29. Answer : (b) <
TOP
Reason : The case of Indian Company and non-corporate resident assessees the expenditure incurred in >
prospecting for development of certain minerals can be claimed as deduction u/s 35E for a
period of 10 YEARS in equal installments . However, capital expenditure does not qualify
for such deduction.
30. Answer : (e) <
TOP
Reason : No allowance shall be made under section 37(2B) in respect of expenditure incurred by an >
assesee on advertisement in any souvenir, brochure, pamphlet or the like published by a
political party.
31. Answer : (e) <
TOP
Reason : According to section 40(a), Securities transaction tax, Income tax, Wealth tax and >
commission paid without deducting tax are specifically not deductible while calculating
business income. However advertisement not being to do anything with political parties and
on the purpose of business products is allowable under section 37(1).
32. Answer : (b) <
TOP
Reason : Units of UTI are considered as capital assets. However the National Defense Gold Bonds, >
1980, Special Bearer Bonds, 1991, Gold Deposit bonds issued under Gold Deposit scheme,
1999 and seven per cent gold bonds 1980 are not considered as capital assets.
33. Answer : (c) <
TOP
Reason : Business loss (speculative or non-speculative), capital loss, loss from the activity of owning >
and maintaining race horses cannot be carried forward if the loss return is not filed. However,
unabsorbed depreciation and loss from house property can be carried forward even if loss
return is not filed.
<
34. Answer : (d) TOP
Reason : Rent paid is allowable as a deduction under section 80GG if all the conditions are fulfilled a. >
The assesse should not be in receipt of HRA. b & c The assesee, his spouse, his minor child
should not own residential house at that place. No claim for self occupied property should be
made in respect of any accomodation.
However, in the above there is no restriction on the Daughter-in-law owning a residential
house.
35. Answer : (c) <
TOP
Reason : The amount which is received from a person other than the employer cannot be termed as >
salary. A Member of Parliament or a State Legislature is not treated as an employee of the
Government. Hence the salary and other allowances received by Member of Parliament is
taxable under the head Income from other sources.
36. Answer : (d) <
TOP
Reason : Refreshment provided to all employees during working hours in office premises, Amount >
spent on training of employees, Perquisites allowed outside India by the Government to a
citizen of India for rendering services outside India and Reimbursement of mobile phone
expenses are fully exempt. In case of interest-free loan, the value of perquisite is interest
computed at the rate of 10% per annum in case of loan for housing and conveyance and 13%
in case of other loans.
37. Answer : (d) <
TOP
Reason : The authorized person to sign the income tax return as per the provisions of the Income Tax >
Act, 1961 vide Section 140, in case of a company is the Managing Director. If, for any
reason the managing director is not able to sign, any director of the company is authorized to
sign the return. Finance Manager (a), Administrative Manager (b) Chief Accounts Officer (c)
and Personnel Manager (e) are responsible for the management of the respective departments
17
as they are the heads of the respective departments. They are not the authorized signatories
to sign the income tax return.
38. Answer : (e) <
TOP
Reason : Unexplained investments, unexplained money, investments not fully disclosed, unexplained >
expenditure and amount borrowed and repaid on Hundies are considered as deemed income
by the Assessing officer.
39. Answer : (e) <
TOP
Reason : Under the head ‘Income from other sources’, only loss from the activity of owning and >
maintaining race horses can be carried forward. No other loss can be carried forward under
this head. Hence, the Loss from betting is not allowed to be carried forward.
40. Answer : (a) <
TOP
Reason : The tax rates for the Assessment year 2005-06 is as follows >
Income slab Income tax rate
Up to Rs.50,000 Nil
Rs.50,001 – Rs.60,000 10% of income over Rs.50,000 = Rs.1,000
Rs.60,001 – Rs.1,50,000 Rs.1,000 + 20% of income over Rs.60,000 = Rs.19,000
Above Rs.1,50,000 Rs.19,000 + 30% of income over Rs.1,50,000
Cess 2% educational cess < Rs.8,50,000
12% (10% existing surcharge +2% educational cess),
if income exceeds Rs.8,50,000 = Rs.2,30,500
As Ram taxable income is Rs.8,55,000. Therefore his basic tax is Rs.2,30,500 + Rs.23,050
(surcharge) = Rs.2,53,550. Since marginal relief is provided to ensure that the additional
income tax payable including surcharge on the excess of income over Rs.8,50,000 is limited
to the amount by which the income is more than Rs.8,50,000, The tax payable is limited to
Rs.2,29,000 + Rs.5,000 surcharge only . On this cess of 2% is applicable . Hence the tax
payable is
(Tax on Rs.8,50,000 + Rs.5,000) × 1.02
= (Rs.2,29,000 + Rs..5,000 ) × 1.02 = Rs.2,38,680
41. Answer : (d) <
TOP
Reason : Actual gratuity Rs.1,00,000 >
Less exempt u/s 10(10) to the extent of the following
1. Rs. 3,50,000
2. 15/26 x 3,200 x34 Rs.62,770
Rs.1,00,000. Since least of the above is Rs.62,770 is exempt, the balance is taxable ie
Rs.1,00,000- Rs.62,770 = Rs.37,230
42. Answer : (e) <
TOP
Reason : Entertainment allowance received Rs. 22,000 >
Least of the following is deductible
1. Maximum amount Rs. 5,000
2. 1/5 of salary Rs. 90,000
3. Actual entertainment allowance Rs. 22,000
Taxable entertainment allowance = Rs.22,000 – Rs.5,000 Rs. 17,000.
43. Answer : (a) <
TOP
Reason : Amount received Less least of the following is exempt >
1. Rs.25,000 x 3 x20 = Rs.15,00,000 or Rs..25,000 × 12 × 7 yrs = Rs.21,00,000 which
ever is lower
2. Ceiling of Rs.5,00,000
3. Actual compensation received = Rs.15,00,000.
Since least is Rs.5,00,000, the exempt amount is Rs.5,00,000.
44. Answer : (c) <
TOP
Reason : Computation of taxable salary of Mr.Radheshyam for AY 2005-06 >

18
Particulars Rs.
Basic salary Rs.5,000 × 12 60,000
Dearness Allowance 500 x12 6,000
House Rent Allowance (Note1)
(Rs.9,600 – Rs.5,400 4,200
Motor car (Note 2) (400 x 12) 4,800
Employers contribution in excess of 12% of 330
salary (66,000 x 0.5%)
Gross Salary 75,330
Less deduction u/s 16 30,000
Taxable Salary 45,330
Note 1 HRA: Least of the following is exempt u/s 10(13A)
Actual rent paid at Rs.1,000 pm = Rs.12,000
Less 10% of salary = 6,600 Rs. 5,400
50% of Salary = 50% of Rs.66,000 Rs. 33,000
Actual HRA received Rs. 9,600
Note 2: Since the motor car is provided by the employer, though the expneses for persoal use
are met by the employee , it is taxable at Rs.400 pm in respect of wear and tear.
45. Answer : (d) <
TOP
Reason : Uncommuted pension before the date of commutation >
(4,000 x 3 =Rs.12,000) 12,000
Uncommuted pension after the date of commutation
Rs.4,000 x 30% x 2 2,400
Commuted pension 49,000
Less exempt u/s 10(10A) (1/3 since he is
Receipt of gratuity 49000/70% = 70,000/3 23,333 25,667
Taxable income 40,067.
46. Answer : (a) <
TOP
Reason : Rs. >
Step I : Muncipal valuation of Rs.10,00,000 or Fair rent of Rs.12,00,000 12,00,000
(whichever is higher)
Step 2: Standard Rent of Rs.12,50,000 or Amount in step I
(whichever is lower) 12,00,000
Step 3 : Actual Rent of Rs.10,00,000 with amount in step II
(whichever is more) 12,00,000
GROSS Annual Value 12,00,000
Less Municipal taxes
Net Annual Value 10,50 000
47. Answer : (d) <
TOP
Reason : Step 1 : Muncipal valuation of Rs.2,10,000 or Fair rent of Rs1,80,000 2,10,000 >
(whichever is higher)
Step 2: Standard Rent of Rs.2,25,000 or Amount in step I
(whichever is lower) 2,10,000
GROSS Annual Value 2,10,000

Particulars Amount (Rs.)


Gross Annual Value 2,10,000
Less Municipal taxes paid 40,000
Net annual value 1,70,000
Less deduction u/s 24 30% of NAV 51,000
Interest on loan 3,00,000
Income from property II (1,81,000)
48. Answer : (b) <
TOP
Reason : >
19
Particulars 20% BLOCK 40% Block >
Opening vlaue of the block 2,20,000 7,20,000
Additions made during the year 2,20,000 2,40,000
Less Assets sold during the year 1,00,000 1,40,000
WDV for the purpose of Depreciation 3,40,000 8,20,000
Depreciation 46,000 3,28,000
Since the motor car E was put to use for less than 180 days, the depreciation on Rs.2,20,000
@20% @50% is Rs. 22,000 + balance Rs.1,20,000 @20% = Rs. 24,000.
Total depreciation = Rs.46,000 +Rs.3,28,000 = Rs.3,74,000
49. Answer : (c) <
TOP
Reason : In case of opting for Scheme under section 44AF >
Business income will be taken as Rs.38 lakhs x 5% Rs.1,90,000
Add other income Rs. 15,000
Net income Rs.2,05,000
Tax on income of Mr.Rudra is Rs.
First 50,000 nil
Next 10,000 10% 1,000
Next 90,000 20% 18,000
Balance 30% 16,500
Total tax 35,500
50. Answer : (e) <
TOP
Reason : From the assessment 2004-05, the long term capital gains on transfer of listed equity shares is >
not chargeable to tax under section 10(36). Hence the answer is Nil.
51. Answer : () <
TOP
Reason : >
Particulars Rs.
Sale consideration 4,00,000
Less: Indexed cost of acquisition (note) 2,24,000
Indexed cost of improvement (note) 1,02,857
Long-term capital gain 73,143
Note:
Rs.70, 000
x480
Indexed cost of acquisition = 150 = Rs. 2,24,000
Rs.30, 000
x480
Indexed cost of improvement = 140 = Rs. 1,02,857
Amount forfeited by previous owner will not be considered.
52. Answer : (b) <
TOP
Reason : >
Rs. Rs.
Interest on Government securities
(maximum permissible Rs.3000 in respect 3,000
of special deduction)
Interest from fixed deposit in bank 8000
Interest from units of UTI 3000
Dividend from A Ltd, an Indian company Nil
Dividend on shares in a co-operative society 3,000
14,000
Maximum limit Rs.12000 12,000
Amount of deduction under section 80L 15,000
53. Answer : (c) <
TOP
Reason : >
Income tax payable on Rs.1,10,000 @30% u/s 115BB Rs.33,000
Less Rebate u/s 88D
20
Tax payable 33,000
Less Exces of income over 1 Lakh 10,000 Rs.23,000
Tax payable Rs.10,000
Add cess @2% 200
Tax liability Rs.10,200
54. Answer : (a) <
TOP
Reason : Note that since his son earns salary due to application of his skill , no clubbing provisons >
apply.

Individual taxable income of Mr.Rakesh 2,50,000


Add under clubbing provisions
Interest on FD of his child 5,000
Bank interes 10,000
Interest on Investment 2,000
17,000
Less u/s 10(32 1,500 15,500
2,65,500
55. Answer : (e) <
TOP
Reason : Aggregate of non-agricultural income and agricultural income is Rs.85,000 + Rs.90,000 = >
Rs.1,75,000
Tax on Rs.1,75,000 = Rs.26,500
Aggregate of agricultural income and basic exemption limit is
Rs.90,000 + Rs.50,000 = Rs.1,40,000
Tax on Rs.1,40,000 = Rs.17,000
The difference between tax on Rs.1,75,000 and tax on Rs.1,40,000 is Rs.9,500
Cess = 2% on Rs.9,500 = Rs.190
∴ Rs.9,690 is income tax liability.
56. Answer : (d) <
TOP
Reason : The amount of deduction under section 80DD is Rs.75,000 irrespective of the actual >
expenditure incurred in the case of severe disability and Rs.50,000 in other cases irrespective
of the amount actually expended.
57. Answer : (b) <
TOP
Reason : Taxable income of Mr. Rajeev for the assessment year 2005-06: >
Particulars Rs. Rs.
Income from salaries 1,50,000
Income from speculation business 60,000
Less: loss from non-speculation business (40,000) 20,000
Short term capital gain 80,000
Winnings from lotteries 20,000
Taxable income 2,70,000
Loss from non-speculation business can be set off against income from speculation business.
Long-term capital loss can be set off against only long-term capital gain with effect from
assessment year 2003-2004. Hence long term capital loss can only be carried forward for 8
assessment years.. From the AY 2005-06, loss from busines cannot be setoff against salary
income.
58. Answer : (a) <
TOP
Reason : Calculation of net wealth tax of ABC Ltd as on 31-3-2005 >
Rs. Rs.
Land 54,05,000
Land in urban area (Since construction is not permitted) Nil
Motor cars 15,63,480
Cash not recorded 25,515 69,93,995
Less:
Loan taken for acquisition of land 9,37,926
Loan taken for acquisition of land in urban area Nil
21
Loan taken for acquisition of land in urban area Nil
Loan taken for acquisition of Cars 6,98,950 16,36,876
Net wealth of ABC Ltd 53,57,119
Net wealth tax payable is 1% over Rs.15 lakh 38,571
(rounded off to nearest Rs.10) 38,570
59. Answer : (d) <
TOP
Reason : >
Particulars Rs. Rs.
Net Profit as per Profit & Loss A/c 5,83,000
Add:
Provision for bad debts 13,000
Provision for Income Tax 52,000
Family planning expenses is allowable expense ––
Material purchased amount paid by bearer
cheque 20% is disallowed u/s 40 A(3) i.e. Rs. 45,000
disallowed (20% of Rs. 45,000) 9,000
Liability foregone by a creditor is chargeable u/s 41 (1) 16,000
Transfer to general reserve 68,000 1,58,000
7,41,000
Less: Additional depreciation which can be claimed according
to Income Tax provisions 4,000
Taxable Income 7,37,000
60. Answer : (e) <
TOP
Reason : The transfer of self-generated goodwill of profession is not chargeable to tax. Hence, the >
answer is Nil. i.e.(e). It is based upon the Supreme Court’s ruling in CIT vs. B.C.Srinivasa
Setty.
61. Answer : (e) <
TOP
Reason : Ms.Ramani will not get any tax rebate under section 88 of the Income tax Act,1961 as her >
gross income exceeds Rs.5,00,000.
62. Answer : (c) <
TOP
Reason : The cheque given towards contribution to provident fund must be realized within 15 days of >
the due date. In the given case, only the cheque for Rs.55,000 is cleared within 15 days of the
due date (i.e. October 31, 2004). Hence only Rs.55,000 is admissible.
63. Answer : (d) <
TOP
Reason : >
Particulars US$
FOB Value 5,000
Add: Packing charges 300
Freight 150
Commission to broker 100
Insurance charges 50
Total CIF 5,600
Note: The amount of deposit for returnable containers is not part of assessable value
Total CIF in Rupees is US$5,600 × Rs.45 = Rs.2,52,000
Add: Landing charges @1% = Rs. 2,520
Assessable value (AV) = Rs.2,54,520
Basic customs duty @ 35% = = Rs. 89,082
Additional duty @16% on AV+ Basic duty = 16% of 3,43,602 = Rs. 54,976
Hence total duty payable by Ramba is Rs.89,082 + Rs.54,976 = Rs. 1,44,058
64. Answer : (d) <
TOP
Reason : Tuition fees paid by an individual to a university, college or other educational institution for >
full time education for any two children of the tax payer qualifies for tax rebate under section
88. The maximum amount which qualifies for tax rebate for the AY 2005-06 is Rs.12,000 per
child.
65. Answer : (e) <
TOP
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Reason : Calculation of net wealth of ABC Ltd as on 31-3-2005 TOP
>
Rs. Rs.
Calculation of value of the property
Gross maintainable rent
Annual value (being municipal value) (a) 1,00,000
Actual rent paid by tenant 80,000
Interest on amount deposited by tenent
15% of 25,000 3,750 83,750
Actual rent received (b) 83,750
Gross maintainable rent (a) or (b) which ever 1,00,000
is higher
Less; Municipal taxes paid 3,000
15% of Gross maintainable rent 15,000
Net maintainable rent 82,000
Capitalized value (free hold land)
82,000 × 12.5 10,25,000
Value of the property 10,25,000
66. Answer : (d) <
TOP
Reason : Savings eligible for exemption under section 88 Rs.40,000 >
Tax rebate @ 20% Rs. 8,000
Additional tax rebate under section 88 C Rs. 5,000
Total tax rebate available is Rs.13,000
67. Answer : (e) <
TOP
Reason : Section 176 states that income from discontinued business in any financial year is taxable in >
that year itself. However, the discretion is left to the assessing officer. Hence option (a) is
incorrect. Section 175, states that where it appears to the assessing officer that a person is
likely to charge, sell, or dispose his movable or immovable asset, to avoid tax, the income is
taxed in the financial year in which such transfer takes place. Hence option (b) is incorrect.
From the assessment year 2002-03, Section 174A has been inserted, to provide that if it
appears to the Assessing officer that an association of persons or a body of individuals is
likely to be dissolved in the Assessment year, the total income of such association or body for
the period from the expiry of the previous year for that assessment year up to the date of
dissolution shall be chargeable to tax in that assessment year itself. Hence option (c) is
incorrect. Sec 174 is applicable in case of persons leaving India with no present intention to
returning to India. The total income of such person up to a probable date of departure from
India shall be chargeable to tax in that Assessment year itself. Hence option (d) is incorrect.
Section 172 is applicable to Shipping business of Non–residents. Section 172 is applicable
only if the taxpayer is a non resident. In option (e) the taxpayer is a foreign national, however
since he is a resident, his income from shipping business will be treated on the same footing
as any other business, hence taxable in the normal assessment year i.e. succeeding the
previous year. Hence option (e) is the right option.
68. Answer : (c) <
TOP
Reason : As Mr.Anjaneyulu is a resident and ordinarily resident for the previous year 2004-05, his >
taxable income is calculated as under :
Interest on the UK bonds 75,000
Income from the property in Canada but received in India 4,85,000
Income from a business abroad but controlled from India 96,000
Profit from a company in Delhi but controlled from London 1,26,000
Dividend from a foreign company but received in India 64,000
Total taxable income 8,46,000
69. Answer : (b) <
TOP
Reason : As per the provisions of the section 10(17A), only the awards instituted by the government >
(both central and state) in the public interest or for such purposes as may be approved by the
government are exempted from tax. Any other award/ reward is fully taxable.
70. Answer : (b) <
TOP
Reason: An assessee who is a working partner and whose accounts are subject to the tax audit is >
required to file the returm of income on or before October 31 every year.

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71. Answer : (b) <
TOP
Reason: Where the business is of growing tea leaves and manufacturing tea, 60% of income from >
such business will be treated as agricultural income.
72. Answer : (d) <
TOP
Reason: (a) The farm is situated on or within the vicinity of the land used for the agricultural >
operations and has been assessed to land revenue (b) It is occupied for dwelling purpose by
the cultivator or the receiver of rent-in-kind (c) The land is assessed to land revenue or land
rate or the land is situated outside the urban areas.In all the above cases, the income is treated
as the agricultural income.
73. Answer : (b) <
TOP
Reason: An AOP can only be a resident or a non-resident. It cannot be ordinarily or not ordinarily >
resident. The residential status of the partners / members of the firm /AOP is not relevant in
determining the status of the firm / AOP. In cases where the control and management of the
affairs of the AOP is partly in India and partly outside India, the AOP is treated as resident
for the purpose of the Income tax. Hence the option (b) is the answer.
74. Answer : (c) <
TOP
Reason: For the assessment year 2005-06, the surcharge is calculated at 2.5% of the income tax in >
respect of both the firms and the company assessees.
75. Answer : (b) <
TOP
Reason: As per the provisions of section 10(16) of the Income Tax Act, 1961, scholarship, once >
proved, will be fully exempt from the tax irrespective of the terms of the award. .i.e. even if
the scholarship is received for pursuing a course of education not leading to a degree. A
Ratnakar Rao v.CIT (1981) 6 Taxman 144 (Kar.)
76. Answer : (d) <
TOP
Reason: The exemption in respect of the allowances received by the transport employees during the >
course of their duties is calculated as under :
• 70% of the allowance received Rs.65,000 × 70% = Rs.45,500
• Rs.6,000 per month Rs.6,000 × 11 = Rs.66,000
• Rs.45,500 being the lower of the above, is exempted and the balance is taxable.
Therefore the taxable portion of the allowance is Rs.65,000-Rs.45,500= Rs.19,500
77. Answer : (a) <
TOP
Reason: The deduction that can be claimed in respect of the expenditure on the scientific research is >
calculated as under :
Donation to the agricultural research institute Rs.90,000 125% Rs.1,12,500
Donation to the National research laboratory Rs.1,25,000 125% Rs.1,56,250
Expenditure on the in-house research Rs.2,00,000 150% Rs.3,00,000
Rs.5,68,750
78. Answer : (d) <
TOP
Reason: >
Particulars Rs. Rs.
Professional income 6,00,000
Capital gains (Rs.10,000 +Rs.4,000) 14,000
Income from other sources:
Winning from races including horse races 3,700
Winning from lottery 1,600
Other income 10,000 15,300
Gross total income 6,29,300
Less: Deductions under sections 80CCC to 80U
Under section 80D in respect of medical insurance premium 3,000
Under section 80GG in respect of rent paid being the least of the following :
a. Rs.24,000 (being Rs.2,000 × 12);
b. Rs.1,53,075 (being 25% of Rs.6,12,300*);

24
c. Rs.18,770 (being excess of rent paid over 10% of total income
i.e.Rs.80,000 - 10% of Rs.6,12,300)
Rs.18,770, being the least, is therefore deductible 18,770
Net Income 6,07,530
* “Total income” for the purpose of section 80GG is 6,12,300 i.e.Rs.6.29.300 – Rs.4,000 –
Rs.10,000 – Rs.3,000.

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