Question Paper

Economic Legislation ñ II (162) : April 2005

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

1. An appeal with CEGAT can be refused to be admitted, if the fine or penalty under contest does not < Answer >
exceed
(a) Rs.10,000 (b) Rs.25,000 (c) Rs.30,000
(d) Rs.50,000 (e) Rs.1,00,000.
(1 mark)
2. As per the provisions of the Income Tax Act, under which of the following situations, is clubbing of < Answer >
agricultural income with non-agricultural income not applicable?
I. Where the non-agricultural income does not exceed Rs.50,000 during the relevant previous year.
II. Where the agricultural income does not exceed Rs.5,000 for the relevant previous year.
III. Where the assessee is a firm.
IV. Where the assessee is a cooperative society.
(a) Only (I) above (b) (I), (III) and (IV) above
(c) (I), (II) and (IV) above (d) Both (I) and (II) above
(e) (I), (II), (III) and (IV) above.
(1 mark)
3. Mrs. Lalitha has a residential property, which could not be occupied by her owing to her job < Answer >
requirements during the previous year 2004-05. The same was neither let out nor any benefit has
accrued to her from the said property during the previous year 2004-05. The annual value of the house
for the assessment year 2005-06 is taken to be
(a) The fair rental value (b) The municipal value
(c) The standard rent (d) Nil
(e) Either fair rental value or municipal value, whichever is higher.
(1 mark)
4. Mr.Raj converts his capital asset to stock-in-trade in the month of March, 1984. The cost of the asset, < Answer >
which was acquired during the year 1981 was Rs.96,000 and its fair market value on the date of
conversion was Rs.1,20,000. The stock-in-trade was sold in the month of December, 2004 for an
amount of Rs.3,75,000. Compute the capital gains chargeable to tax in the hands of Mr.Raj for the
assessment year 2005-06?
Cost of inflation index:
1981-82 100 1983-84 116
2002-03 447 2003-04 463
2004-05 480

(a) Rs.2,55,000 (b) Rs.2,79,000

(c) Rs.1,03,966 (loss) (d) Rs.8,172 (loss) (e) Rs.Nil.
(2 marks)
5. Mrs.Malati, who was born on August 10, 1958, furnishes the following particulars of her income for the < Answer >
previous year 2004-05:
Particulars Rs.
Income from salaries (net) 80,000
Winnings from the lotteries (gross) 20,000
Profits from the poultry farming business 12,000
Interest on fixed deposits with banks 15,000
Income from the long term capital gains 25,000
What is the tax rebate Mrs.Malati can claim for the assessment year 2005-06 under the Income Tax
Act?
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 Act?
(a) Rs.5,000 (b) Rs.20,000 (c) Rs.25,000 (d) Rs.12,000 (e) Rs.Nil.
(2 marks)
6. Under the provisions of the Income Tax Act, 1961, for the purpose of the clubbing of income, the < Answer >
definition of a ‘relative’ of an individual includes
I. Spouse.
II. Brother and sister.
III. Any lineal ascendant or descendant of the individual.

(a) Only (I) above (b) Only (II) above

(c) Only (III) above (d) Both (I) and (II) above
(e) (I), (II) and (III) above.
(1 mark)
7. Which of the following places is/are considered as ‘place of business’ as per section 2(dd) of the < Answer >
Central Sales Tax Act, 1956?
I. The place of business of an agent, where a dealer carries on his business through an agent.
II. The place from where a dealer carries on his business.
III. Any place where a dealer stores his goods.
IV. The place where a dealer keeps his books of account.

(a) Only (II) above (b) Both (I) and (II) above
(c) Both (II) and (III) above (d) Both (II) and (IV) above
(e) (I), (II), (III), and (IV) above.
(1 mark)
8. Mr.Varma has furnished the following particulars in respect of his house property situated in the city of < Answer >
Hyderabad for the previous year 2004-05:
Particulars Amount (Rs.)
Municipal value 45,000
Fair rent 42,000
Self occupied portion 4/5
Let out portion (@ Rs.1,000 per month) 1/5
Municipal taxes paid 3,500
Insurance premium paid 2,000
Ground rent paid 1,500
Interest on the capital borrowed 3,000
What is the income from house property (let out), taxable in the hands of Mr.Varma for the assessment
year 2005-06?
(a) Rs.7,310 (b) Rs.7,910 (c) Rs.11,300 (d) Rs.9,000 (e) Rs.4,910.
(2 marks)
9. Ms.Radha holds 1000 shares in Zee Ltd., acquired in the year 1982-83 at a cost of Rs.20,000. She has < Answer >
been offered right shares by the company in the month of August, 2004 at Rs.40 per share, in the ratio
of 2 for every 5 held. She retains 50% of the rights and sells the balance to Ms.Lata for an amount of
Rs.12,000. What are the capital gains taxable in the hands of Ms.Radha for the assessment year 2005-
06?
(a) Rs.8,000 (short term gain) (b) Rs.12,000 (short term gain)
(c) Rs.3,714 (short term gain) (d) Rs.4,000 (short term loss) (e) Rs.Nil.
(2 marks)
10. Consider the following information pertaining to Mr. Robin, an employee of M/s Hood Ltd., for the < Answer >
previous year 2004-05:
• The company provided a housing loan of Rs.6,00,000 at an interest of 3% per annum on October
01, 2004 (repayable in 60 monthly instalments starting from April 2005).
• Mr. Robin owns a mobile phone and the expenses amounting to Rs.10,000 for the previous year
2004-05 were reimbursed by his employer.

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 • The company purchased a computer for Rs.75,000 on April 01, 2003 and subsequently gave it to
Mr. Robin on June 30, 2004.
The value of perquisites taxable in the hands of Mr. Robin for the assessment year 2005-06 is
(a) Rs.1,03,000 (b) Rs.68,500 (c) Rs.51,000
(d) Rs.Nil (e) Rs.58,500.
(2 marks)
< Answer >
11. Income from business, set up outside India but controlled wholly or partly from India, is
(a) Taxable in the hands of the Resident (both ordinarily and not ordinarily)
(b) Taxable only in the hands of the Resident but not ordinarily resident
(c) Taxable in the hands of the Non-resident
(d) Not taxable as the business is set up outside India
(e) Taxable only in the hands of a resident and ordinarily resident.
(1 mark)
12. The percentage of the depreciation allowed on the land is respect of profits & gains of business or < Answer >
profession under the Income Tax Act is
(a) 10 percent (b) 15 percent (c) 25 percent (d) Nil (e) 5
percent.
(1 mark)
13. Mr.Nagaraj is the owner of two house properties, both of which are occupied by him for residential < Answer >
purposes. The following particulars are furnished in respect of the said properties for the previous year
2004-05:
Particulars Property I (Rs.) Property II (Rs.)
Fair rent 75,000 86,000
Municipal value 78,000 89,000
Standard rent 77,000 90,000
Municipal taxes 9,360 10,680
Interest on the property loan borrowed 46,000 35,000
during the year 2000-01
What is the total income from the properties taxable in the hands of Mr.Nagaraj for the assessment year
2005-06?
(a) Rs.33,652 (Loss) (b) Rs.26,176 (loss)
(c) Rs.33,652 (d) Rs.26,176 (e) Rs.19,324.
(2 marks)
< Answer >
14. Who among the following is treated as a ‘manufacturer’ for the purposes of the Central Excise Act?
(a) Raw material supplier
(b) Independent contractor, in cases where the manufacture is carried out in the premises of the raw
material supplier
(c) Loan licensee
(d) Contractor supplying the labour in the premises of the manufacturer
(e) Brand owner.
(1 mark)
< Answer >
15. Mr.Lal, an individual is the holder of the following properties as on March 31, 2005:
Particulars Amount (Rs.)
Property at Mumbai, let out for the business of a firm in which he is a partner 12,00,000
Property at Chennai, used for his own business 8,00,000
Vehicles for personal use 12,50,000
Cash on hand 1,20,000
Jewellery 7,50,000
Property gifted to the smaller HUF consisting of himself, wife and children 9,50,000
(The value as per the Schedule III is Rs.8,00,000)
The gross wealth of Mr. Lal as on March 31, 2005 is
(a) Rs.20,70,000 (b) Rs.22,70,000 (c) Rs.30,20,000

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 (d) Rs.5,70,000 (e) Rs.15,20,000.
(2 marks)
16. Under which of the following transactions, issue of one ‘C’ form is not allowed as per the provisions of < Answer >
the Central Sales Tax Act, 1956?
(a) Where the total value of a transaction is less than Rs.25,000 per financial year
(b) Where there is only one transaction in a financial year and the amount of the transaction has no
relevance
(c) Where an order of high value has been placed and the supplies are effected in one financial year in
installments
(d) Where a transaction covers more than one financial year
(e) Where different orders have been placed during one financial year and each order is of a value
exceeding Rs.25,000.
(1 mark)
17. Which of the following is/are the ‘sale in course of export’ on which no tax is payable under the Central < Answer >
Sales Tax Act?
I. Sale or purchase that occasions the export.
II. Sale effected by a transfer of the documents of title to goods after the goods have crossed the
customs frontiers of India.
III. Exports through the agents, if the goods are not sold to the agents any time.
(a) Only (I) above (b) Only (II) above (c) Only (III) above
(d) Both (I) and (III) above (e) (I), (II) and (III) above.
(1 mark)
18. Which of the following statements is true in respect of the property which is self occupied for a part of < Answer >
the year and let out for the rest?
(a) The value of the property is computed as if the house is self occupied for the entire year
(b) The fair rental value of the property is taken as the annual value
(c) The value of the property is computed as if the house is let out
(d) The municipal value of the property is taken as the annual value
(e) The standard rent of the property is taken as the annual value.
(1 mark)
< Answer >
19. Which of the following is/are chargeable to tax as deemed profits under the Income Tax Act?
I. Recovery against any deduction of an expenditure, loss or liability allowed in the earlier years.
II. Profit on the sale of the asset used for the scientific research.
III. Recovery of the bad debts allowed as a deduction in the earlier years.
IV. Recovery of the money after the discontinuance of the business or the profession.
(a) Only (I) above (b) Both (III) and (IV) above
(c) Both (I) and (II) above (d) (I), (II) and (III) above
(e) (I), (II), (III) and (IV) above.
(1 mark)
20. Mr.Anjaneyulu, who is a resident and ordinarily resident has the following income for the previous year < Answer >
2004-05:
Particulars Amount (Rs).
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
What is the amount taxable in the hands of Mr.Anjaneyulu for the assessment year 2005 -06?
(a) Rs.7,71,000 (b) Rs.5,60,000 (c) Rs.8,46,000
(d) Rs.6,11,000 (e) Rs.7,82,000.
(2 marks)

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 < Answer >
21. As per the Customs Act, 1962, unloading of the cargo can start only after the
(a) Grant of the entry inwards by the Customs Officer
(b) Submission of the bill of entry
(c) Vessel reaches the Indian territorial waters
(d) Approval has been granted by the Customs Officer
(e) Clearance is received from the warehouse for keeping the goods.
(1 mark)
22. Ms.Veda holds 2000 shares in Bee Ltd., acquired at a cost of Rs.80,000 during 1980-81. (The fair < Answer >
market value of the shares as on April 1, 1981 was Rs.70,000). She has been offered right shares by the
company in the month of April, 2004 at Rs.60 per share, in the ratio of 2 for every 4 held. She retained
60% of the rights and sold the balance to Ms.Rita for an amount of Rs.28,000 in the month of
November, 2004. What is the capital gain taxable in the hands of Ms.Veda for the assessment year
2005-06 if she sells all the shares at a price of Rs.120 per share in the month of March, 2005?
Cost of inflation index:
1981-82 100 2003-04 463
2002-03 447 2004-05 480
(a) Long term loss Rs.1,44,000 and the short term gain Rs.64,000
(b) Long term gain Rs.1,44,000 and the short term loss Rs.64,000
(c) Long term gain Rs.1,44,000 and the short term gain Rs.64,000
(d) Long term gain Rs.1,98,000
(e) Long term loss Rs.90,000.
(2 marks)
23. Mr.Kiran owns a car (1,500 c.c), which he uses for both official as well as for private purposes. He has < Answer >
incurred the running and maintenance expenses of Rs.47,350 during the previous year 2004-05 and also
paid the salary of the driver at the rate of Rs.1,850 per month. His employer reimbursed the entire
expenditure.
The perquisite taxable in the hands of Mr.Kiran for the assessment year 2005-06 is
(a) Rs.47,950 (b) Rs.21,600 (c) Rs.69,550
(d) Rs.16,800 (e) Rs.52,750.
(2 marks)
24. Mr.Jumani is an employee of the central government and is posted at Delhi. He gets a basic pay of < Answer >
Rs.50,000, entertainment allowance of Rs.7,200, dearness allowance of Rs.15,000 for the previous year
2004-05. He spends 50% of the entertainment allowance for private purposes. Which of the following
statements is true in respect of the exemption of the entertainment allowance Mr. Jumani can claim for
the assessment year 2005-06?
(a) The entire amount of entertainment allowance is taxable, as it has been utilised partly for private
purposes
(b) The entire amount of entertainment allowance is exempted as Mr.Jumani is a government servant
(c) The exemption is restricted to a maximum amount of Rs.5,000
(d) The exemption is restricted to 10% of the basic plus dearness allowance
(e) The exemption is allowed to the extent of the amount spent on official purposes.
(1 mark)
25. Ms.Padma, an employee of M/s.Sundaram Steels Ltd., is entitled for a pension of Rs.2,500 per month < Answer >
but no gratuity. She retires on January 31, 2005 and gets Rs.80,000 in lieu of commutation of 25% of
pension. The amount of commuted pension exempted from income tax for the assessment year 2005-06
is
(a) Rs.80,000 (b) Rs.4,000 (c) Rs.Nil
(d) Rs.1,60,000 (e) Rs.1,06,667.
(2 marks)
26. Which of the following is false in respect of the depreciation that can be claimed by an assessee u/s 32 < Answer >
of the Income Tax Act, 1961?
(a) The assessee need not be the registered owner of the asset
(b) The assessee is entitled for a depreciation in respect of the capital expenditure incurred on a
building in respect of which he holds the right of occupancy
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 (c) In the case of the lease transaction, the depreciation can be claimed by the lessee
(d) The assessee can claim the depreciation in respect of the assets over which he has a right to retain
the possession and defend the same
(e) Depreciation is available on the tangible as well as the intangible assets.
(1 mark)
< Answer >
27. Which of the following statements is false in respect of the interest on the house property loan?
(a) The interest can be claimed as a deduction irrespective of whether paid or not during the previous
year
(b) Deduction is available only if either the principal or the interest is a charge on the property
(c) Interest on the unpaid interest is not deductible
(d) Interest on a fresh loan taken to repay the original loan raised for the purchase, construction or
repair of the house property is allowed as a deduction
(e) No deduction is allowed for any brokerage or commission for arranging the loan.
(1 mark)
< Answer >
28. Mr.Shyam has three minor children and the following are their incomes for the previous year 2004 -05:
Minor Son Minor daughter Minor Son
(Rs.) (Rs.) (Rs.)
Interest on the bank deposits 1,250 1,800 1,475
Income from the exercise of their skills 2,500 3,600 4,500
Total 3,750 5,400 5,975
What is the total deduction that Mr.Shyam can claim in respect of the income of his minor children for
the assessment year 2005-06?
(a) Rs.4,225 (b) Rs.4,500 (c) Rs.15,125 (d) Rs.4,525 (e) Rs.Nil.
(2 marks)
29. Mrs.Raghavan, who is an employee of a private company, had to go abroad for her medical treatment. < Answer >
The cost of the treatment was Rs.7,00,000 as against the RBI permit of Rs.6,50,000 for the same. The
travel expenses amounting to Rs.1,75,000 were borne by her employer. The gross salary of
Mrs.Raghavan for the previous year 2004-05 is Rs.3,50,000. What is the perquisite taxable in respect of
the medical treatment in the hands of Mrs.Raghavan for the assessment year 2005 -06?

(a) Rs.2,25,000 (b) Rs.1,75,000 (c) Rs.50,000

(d) Rs.6,50,000 (e) Rs.7,00,000.
(2 marks)
30. Mr.Parasuram, a professional consultant furnishes the following information for the previous year 2004- < Answer >
05:
Particulars Rs.
Income from the profession 75,000
Long term capital gains 12,000
Winnings from the lotteries (Gross) 15,000
Income from other sources 20,000
Interest from the bank 10,000
Medical insurance premium on self 4,000
Rent paid (per month) 3,000
What is the amount of deduction he can claim in respect of the rent paid for the assessment year 2005-
06?
(a) Rs.26,500 (b) Rs.25,400 (c) Rs.24,000
(d) Rs.36,000 (e) Rs.29,500.
(2 marks)
31. The maximum exemption limit in respect of the retrenchment compensation received by an employee as < Answer >
per the provisions of section 10(10B) of the Income Tax Act, 1961 is
(a) Rs.5,00,000 (b) Rs.3,50,000 (c) Rs.2,50,000
(d) Rs.3,00,000 (e) Rs.4,00,000.
(1 mark)
32. An assessee can claim the deduction under section 80D of the Income tax act, in respect of the < Answer >
mediclaim policy taken on the health of
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 I. Self.
II. Spouse.
III. Dependent children and parents.
(a) Only (I) above (b) Only (II) above
(c) Only (III) above (d) Both (I) and (II) above
(e) (I), (II) and (III) above.
(1 mark)
< Answer >
33. In the case of a non-government employee (receiving gratuity), the commuted pension is
(a) Exempted to the extent of one-half of the commuted pension
(b) Exempted to the extent of one -third of the commuted pension
(c) Exempted to the extent of one -fourth of the commuted pension
(d) Fully exempted
(e) Fully taxable.
(1 mark)
34. Which of the following expenses is not deductible under the provisions of Section 37(1) of the Income < Answer >
Tax Act, 1961?
(a) Fees paid to obtain the license to investigate and search minerals
(b) Annual listing fees paid to the stock exchanges
(c) Professional tax paid by a person carrying on the business or trade
(d) Amount paid to third parties in order to use his quota rights
(e) Entertainment expenditure incurred on opening a new branch.
(1 mark)
35. Which of the following conditions is/are to be satisfied for excluding the unrealized rent from the rent < Answer >
received/receivable?
I. The tenancy is bonafide.
II. The defaulted tenant has vacated or steps have been taken to compel him to vacate the property.
III. The defaulted tenant is not in the occupation of any other property of the assessee.
IV. The assessee has taken all the reasonable steps to institute legal proceedings for the recovery of the
unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless.
(a) Only (II) above (b) (II), (III) and (IV) above
(c) Both (I) and (II) above (d) (I), (II) and (IV) above
(e) (I), (II), (III) and (IV) above.
(1 mark)
36. Mrs.Bhanu owns a house property, which has 2 equal units, one of which is self -occupied and the other < Answer >
let out. The fair rent of the entire property is Rs.1,60,000, municipal value is Rs.1,65,000 and the
standard rent fixed by the rent controller is Rs.1,64,000. The rent received from the tenant is Rs.6,000
per month. Interest on the capital (borrowed in 2002 for the construction of the property) is Rs.72,000.
What is the annual income from the property to be taxed in the hands of Mrs.Bhanu for the assessment
year 2005-06?
(a) Rs.14,600 (loss) (b) Rs.36,000 (loss)
(c) Rs.21,400 (d) Rs.22,800 (e) Rs.43,500.
(2 marks)
37. Mr. Yash, a practicing consultant has an income of Rs.15,00,000 for the previous year 2004-05. The < Answer >
due date for the filing of the return of income for the assessment year 2005 -06 is
(a) June 30, 2005 (b) July 31, 2005
(c) September 30, 2005 (d) October 31, 2005
(e) August 31, 2005.
(1 mark)
38. Under which of the following situations, are the rules under Part B of Schedule III not applicable for < Answer >
valuation of a building?
I. The Assessing Officer, with the approval of Deputy Commissioner is of the opinion that it is not
practicable to apply the rules of Part B of Schedule III to a particular case.
II. The unbuilt area exceeds the specified area by more than 20% of the aggregate area.
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 III. The property is built on a leasehold land and the lease expires within a period of 15 years and the
lease deed does not give an option to the lessee for renewal of the lease.
(a) Only (I) above (b) Only (II) above
(c) Both (I) and (II) above (d) Both (I) and (III) above
(e) (I), (II) and (III) above.
(1 mark)
39. An assessee sells certain goods to a related person at a price of Rs.1,500 and the cost of those goods to < Answer >
the assessee is Rs.1,200. What is the assessable value of the goods sold to the related person?
(a) Rs.1,500 (b) Rs.1,200 (c) Rs.1,725 (d) Rs.1,380 (e) Rs.Nil.
(2 marks)
40. The salary details of Mrs.Vimala an employee of a private company for the previous year 2004-05 are < Answer >
as under:
Particulars Amount (Rs.)
Basic salary 2,50,000
Dearness allowance( not forming part of the salary) 40,000
Bonus 20,000
Commission 5,000
Leased/ furnished accommodation at a lease rent 60,000
Cost of the furniture (WDV as on April 1, 2004 Rs.10,000) 22,000
Rent of the other appliances at the accommodation 12,000
(yet to be paid by the employer)
What is the gross taxable salary of Mrs.Vimala for the assessment year 2005-06?
(a) Rs.3,56,700 (b) Rs.3,95,500 (c) Rs.3,93,800
(d) Rs.3,54,500 (e) Rs.3,98,500.
(2 marks)
41. The value of the perquisite in respect of the credit card, provided by the employer to the employee < Answer >
(including an add-on card) is taxable in the hands of
(a) An employee whose income is less than Rs.50,000
(b) All the employees
(c) An employee who has a substantial interest in the employer company
(d) An employee whose income is more than Rs.50,000
(e) An employee who is a director of the employer company.
(1 mark)
< Answer >
42. If the declared goods are sold to unregistered dealers, the rate of tax under the Central Sales Tax Act is
(a) 4% (b) 8% (c) 10%
(d) Twice the rate applicable to the local sales
(e) 10% or twice the local sales tax rate, whichever is higher.
(1 mark)
43. The cost of improvement for the purpose of the computation of capital gains is taken as ‘nil’ in which of < Answer >
the following cases?
I. Goodwill of a business.
II. Right to manufacture any article or thing.
III. Right to produce or process any article or thing.
IV. Right to carry on any business.
(a) Both (I) and (IV) above (b) Both (II) and (III) above
(c) (I), (II) and (III) above (d) (I), (II), (III) and (IV) above
(e) (II), (III) and (IV) above.
(1 mark)
< Answer >
44. The incidence of the wealth tax in the case of an individual depends on his
(a) Residential status (b) Economic status

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 (c) Citizenship (d) Residential status and nationality
(e) Residential status, citizenship and the economic status.
(1 mark)
45. The act of throwing goods into the sea with a view to lighten the ship in order to prevent it from < Answer >
sinking, is known as
(a) Derelict (b) Jetsam (c) Flotsam (d) Wreck (e) Peril.
(1 mark)
46. Which of the following is not considered as deemed income within the meaning of section 69 of the < Answer >
Income Tax Act?
(a) Unexplained investments (b) Unexplained money
(c) Investments not fully disclosed (d) Explained expenditure
(e) Amount borrowed or repaid on Hundi.
(1 mark)
47. Mrs.Malini has been provided a rent-free unfurnished accommodation by the employer and the lease < Answer >
rent of the same is Rs.96,000 per annum. She draws an amount of Rs.2,25,000 as basic, 20% of basic as
dearness allowance (50% forming part of the retirement benefits), and Rs.36,000 as commission for the
previous year 2004-05. What is the taxable value of the perquisite rent-free accommodation in the hands
of Mrs. Malini for the assessment year 2005-06?
(a) Rs.96,000 (b) Rs.28,350 (c) Rs.30,600
(d) Rs.24,750 (e) Rs.26,100.
(2 marks)
48. Which of the following deductions are allowed on the payment basis under the head ‘Income from < Answer >
house property’?
(a) Municipal taxes (b) Insurance premium
(c) Collection charges (d) Repairs (e) Maintenance
expenses.
(1 mark)
< Answer >
49. As per the provisions of the Income Tax Act, which of the following statements is false?
(a) An expenditure pertaining to the business, the benefit of which is enjoyed by some one other than
the assessee, is not deductible
(b) An expenditure the benefit of which extends beyond the previous year is allowed as a deduction
(c) No deduction is allowed in respect of the expenditure pertaining to a non-assessable business
(d) Anticipated losses though certain, cannot be deducted
(e) Ordinary expenditure incurred in carrying on the illegal business also is allowed as a deduction.
(1 mark)
50. Which of the following statements is true in respect of the income under the head ‘salary’? < Answer >

I. The relationship of the employer and employee exists between the payer and the payee.
II. The nature of the payment must be real and not fictitious.
III. Voluntary waiver or foregoing of the salary by an employee is chargeable to tax.
IV. Salary is taxed irrespective of whether it is received from the past, present or the prospective
employer.
(a) Both (I) and (II) above (b) Only (I) above
(c) Both (I) and (III) above (d) Both (III) and (IV) above
(e) (I), (II), (III) and (IV) above.
(1 mark)
51. Where the goods are sold to a government department and the local sales tax rate is lower than the < Answer >
Central Sales Tax rate of 4%, the applicable sales tax rate is
(a)Twelve percent (b) Local sales tax rate
(c) Four percent flat rate (d) Eight percent (e) Two percent.
(1 mark)

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52. The following are the details of taxable income of Mr.Agarwal and Mrs.Agrawal for the previous year < Answer >
2004-05:
(Rs.)
Particulars Mr. Agarwal Mrs. Agarwal
Salary from Ding Dong Ltd.(net) – 1,20,000
Income from House property 90,000 –
Business income 7,000 36,000
Income from other sources 3,000 40,000
1,00,000 1,96,000
Mr.Agarwal is a director of M/s.Ding Dong Ltd. and holds 22% share capital of the company. Mrs.
Agarwal is employed without any professional qualification. The taxable income of Mr.Agarwal for the
assessment year 2005-06 is
(a) Rs.1,00,000 (b) Rs.2,20,000 (c) Rs.1,90,000
(d) Rs.2,96,000 (e) Rs.2,66,000.
(2 marks)
< Answer >
53. As on March 31, 2005, Mr.Suraj, who is a non-resident Indian national, has the following assets:
Particulars (Rs)
Jewellery in India 56,00,000
Gold and silver held outside India 26,00,000
Residential property in India let out for 250 days 15,00,000
Loan taken for the purpose of buying the gold held abroad 56,000
Loan taken for the purchase of the property 9,75,000
Personal loan taken for the daughter’s marriage against the security of 9,50,000
the jewellery
Compute the taxable wealth of Mr.Suraj for the assessment year 2005 -06.
(a) Rs.46,25,000 (b) Rs.71,69,000 (c) Rs.62,19,000
(d) Rs.72,25,000 (e) Rs.61,25,000.
(2 marks)
54. When the imported goods are put to use for 28 months, the duty drawback allowed by the government < Answer >
is
(a) 40% (b) 50 % (c) 60 % (d) 70 % (e) 85%.
(1 mark)
55. The tax incidence under the Income Tax Act, is the highest in the hands of an assessee, if his residential < Answer >
status is
(a) Resident and ordinarily resident
(b) Resident but not ordinarily resident
(c) Non-resident
(d) Both resident and ordinarily resident and resident but not ordinarily resident
(e) Both resident and non-resident.
(1 mark)
56. Standard deduction under section 24 of the Income Tax Act, 1961 out of Net Annual Value (NAV) of a < Answer >
house property, is equal to
(a) 1/3 of NAV (b) 1/4 of NAV (c) 30% of NAV
(d) Rs.30,000 (e) Rs.1,50,000.
(1 mark)
57. An assessee is entitled for a weighted deduction in respect of the expenditure incurred on the in-house < Answer >
research and development expenses under Sec 35 (2AB) of the Income Tax Act, at
(a) 100% of the expenditure incurred
(b) 125% of the expenditure incurred
(c) 150% of the expenditure incurred
(d) 75% of the expenditure incurred
(e) 50% of the expenditure incurred.

10
 (1 mark)
58. Mr.Jacob holds 1500 shares in X Ltd., acquired at a cost of Rs.75,000, during December, 1995. During < Answer >
June, 1997, he was given a bonus allotment of 1000 shares. During March, 2002, he was given a rights
offer for 3000 shares at Rs.75 per share, which he acquired at the same time. During the month of
February, 2005, he sold all the shares in favour of Z at a price of Rs.90 per share. What is the amount of
the capital gains chargeable in the hands of Mr.Jacob, for the assessment year 2005 -06?
Cost of inflation index:
1995-96 - 281 2002-03 - 447
1997-98 - 331 2003-04 - 463
2001-02 - 426 2004-05 - 480

(a) Rs.1,13,365 (b) Rs.23,665 (c) Rs.1,95,000 (d) Rs.1,45,000 (e) Rs.Nil.
(2 marks)
59. Compute the taxable income of Ms.Bharati for the assessment year 2005-06 from the information given < Answer >
below:
Particulars Rs.
Net income from house property 1,25,000
Income from the business 1,35,000
Income from short term capital gains – sale of shares 56,000
Long term loss from the sale of property brought forward (90,000)
Income from the tea business 1,20,000
Dividends from the Indian companies carrying on agricultural operations 80,000
Current year depreciation, to be deducted from the business income 26,000
Brought forward business loss (loss incurred six years ago) (45,000)

(a) Rs.2,45,000 (b) Rs.2,93,000 (c) Rs.3,17,000

(d) Rs.2,03,000 (e) Rs.3,73,000.
(2 marks)
60. The income from the property, transferred to the wife, with an agreement to live apart is taxable in the < Answer >
hands of the
(a) Transferor, as the deemed owner
(b) Transferee
(c) Either the transferor or the transferee, whose income is higher
(d) Transferor and the transferee equally
(e) Transferee’s legal heir.
(1 mark)
61. As per the provisions of the Wealth Tax Act, the exemption in respect of the cash balance held by a < Answer >
business is restricted to
(a) An amount of Rs.50,000 (b) The amount recorded in the books of accounts
(c) The amount not recorded in the books of accounts
(d) Rs.1,00,000 (e) Rs.2,00,000.
(1 mark)
< Answer >
62. The ‘taxable event’ under the Central Excise Act is the date of
(a) Clearance from the factory (b) Manufacture
(c) Purchase of the raw material (d) Sale of the goods
(e) Clearance from the factory or the actual sale whichever is later.
(1 mark)
63. ABC Ltd. is a dealer in Andhra Pradesh. The aggregate interstate sales of the company during the < Answer >
period January to March 2005 were Rs.46,800. The sales tax rate in Andhra Pradesh is 5% on intrastate
sale. If a buyer from outside the state issues declaration in Form C, the tax payable on such goods
during the period will be

11
 (a) Rs.2,430 (b) Rs.2,340 (c) Rs.2,250 (d) Rs.1,872 (e) Rs.1,800.
(2 marks)
< Answer >
64. Which of the following deductions are covered by the section 16 of the Income Tax Act, 1961?
I. Standard deduction. II. Entertainment allowance.
III. House rent allowance. IV. Profession tax.
V. Special allowances.
(a) (I), (II) and (III) above (b) Both (III) and (V) above
(c) (I), (II) and (IV) above (d) (II), (III) and (V) above
(e) (I), (II), (III), (IV) and (V) above.
(1 mark)
Under the provisions of the Income Tax Act, the profit on the sale of which of the following assets is < Answer >
65.
taxed under the head capital gains?
(a) Personal computer (b) Personal household goods
(c) Personal house property (d) Personal car
(e) Personal apparel.
(1 mark)
< Answer >
66. During the previous year 2004-05, Ms.Kavya has the following income and the brought forward losses:

Particulars Rs.

Short term capital gains on the sale of the shares 1,50,000

Long term capital loss of the assessment year 1999 -2000 (96,000)
Short term capital loss of the assessment year 2000-01 (37,000)
Long term capital gain 75,000
What is the capital gain taxable in the hands of Ms. Kavya for the assessment year 2005-06?
(a) Rs.92,000 (b) Rs.1,88,000 (c) Rs.1,13,000
(d) Rs.1,29,000 (e) Rs.2,25,000.
(2 marks)
67. A resident individual has taken a loan for his higher education from a bank and paid an amount of < Answer >
Rs.25,000 towards the tenth and the final (annual) instalment of the loan during the previous year 2004 -
05. What is the deduction he is eligible to claim in computing his income for the assessment year 2005-
06?
(a) Rs.25,000 (b) Rs.40,000 (c) Rs.Nil
(d) Rs.15,000 (e) Rs.60,000.
(1 mark)
68. Under section 61 of the Customs Act, the goods (other than the capital goods) will be allowed to remain < Answer >
in the warehouse for a period of
(a) 6 months (b) One year (c) Two years (d) Three years (e) Five years.
(1 mark)
< Answer >
69. As per the provisions of the Central Excise Act, CENVAT scheme generally grants
(a) Credit of the duty paid on inputs (b) Credit of the duty paid on exports
(c) Credit of the duty paid on output (d) Credit of the duty paid on imports
(e) Credit of the duty paid on the inputs and the manufactured goods.
(1 mark)

70. As per the Wealth Tax Act, the standard deduction from the gross maintainable rent is allowed for the < Answer >
valuation of the property at
(a) 10% of the Gross maintainable rent (b) 12% of the Gross maintainable rent
(c) 15% of the Gross maintainable rent (d) 20% of the Gross maintainable rent
(e) 25% of the Gross maintainable rent.
(1 mark)

12
 < Answer >
71. Which of the following is not an indirect tax?
(a) Octroi (b) Entry tax (c) Gift tax (d) Service tax (e) Expenditure tax.
(1 mark)
< Answer >
72. The term ‘capital asset’ for the purposes of Income Tax Act, 1961 includes
I. Movable property. II. Immovable property.
III. Fixed and circulating property. IV. Tangible and intangible property.
(a) Both (I) and (II) above (b) Both (III) and (IV) above
(c) (I), (II) and (III) above (d) (II), (III) and (IV) above
(e) (I), (II), (III) and (IV) above.
(1 mark)
< Answer >
73. Which of the following is an interstate sale as per the provision s of the Central Sales Tax Act?
(a) Sale of shares in a company by Radha of Hyderabad to Sudha of Chennai
(b) Sale of the house property by Joy of Bangalore to Lovely of Nagpur
(c) Sale of Times of India by Raman of Goa to Suman of Mumbai
(d) Consignment sale of goods by a principal in Kolkata to an agent in Delhi
(e) Sale of the lottery tickets by a person in Kolkata to another person in Delhi.
(1 mark)
< Answer >
74. The duty levied on the imports into and exports out of the country is called
(a) Excise duty (b) Export duty (c) Import duty
(d) Customs duty (e) Estate duty.
(1 mark)
< Answer >
75. According to the provisions of Central Sales Tax Act, 1956, sales tax is collected in the state
(a) Where movement of goods commences
(b) Where the goods are agreed for sale
(c) Where the goods are received
(d) Where the dealer has the place of business and maintains the books of accounts
(e) Where the goods are resold.
(1 mark)
< Answer >
76. Which of the following statements is true in respect of the ‘income from the house property’?
I. The income from the vacant plot is not taxable under the head income from house property.
II. Income from subletting is taxable either as ‘business income’ or ‘income from other sources’.
III. The income from the property, the ownership of which is under a dispute is taxable.
IV. The rent charged by an assessee on the quarters constructed and let out to the employees is not
taxable under the head ‘income from house property’.
(a) Both (I) and (III) above (b) Both (II) and (IV) above
(c) (I), (II) and (IV) above (d) (I), (III) and (IV) above
(e) (I), (II), (III) and (IV) above.
(1 mark)

13
 Suggested Answers
Economic Legislation – II (162) : April 2005
1. Answer : (d) < TOP >

Reason : According to the second proviso to Section 35B(1) an appeal may be refused to be admitted
by the CEGAT in case the amount of fine or penalty under contest does not exceed
Rs.50,000.
2. Answer : (e) < TOP >

Reason : The aggregation of non-agricultural income is not required if (I) The non-agricultural
income does not exceed the basic exemption limit (II) The agricultural income does not
exceed Rs.5000. (III) The assessee is a firm (IV) The assessee is a co-operative society.
3. Answer : (d) < TOP >

Reason : In cases of the house property which is not actually occupied by the owner owing to the
employment or business and the same has neither been let out during the previous year nor
any benefit is received by the owner from the said property, the income from the property is
treated as self occupied. Hence the annual value is nil. Option (d) is the correct answer
4. Answer : (e) < TOP >

Reason : When the asset is converted into stock-in-trade before the assessment year 1985-86 i.e.
previous year 1984-85, it is not treated as transfer under the section 2(47) and hence nothing
is chargeable to tax as capital gains.
5. Answer : (a) < TOP >

Reason : The tax liability of Mrs.Malati for the assessment year 2005-06 is :
Particulars Rs.
Income from salaries (net) 80,000
Winnings from the lotteries 20,000
Profits from the poultry farming business 12,000
Interest on the Bank fixed deposits 15,000
Long term capital gains 25,000
Gross taxable income 1,52,000
Less deductions :
Section 80L 12,000
Net taxable income 1,40,000
Mrs. Malati has no other savings and she can only claim the rebate under section 88C -
Rs.5,000 for the women assessee below the age of 65 years.
6. Answer : (e) < TOP >

Reason : A relative in relation to an individual means the husband, wife, brother or sister or any lineal
ascendant or descendant of the individual.
7. Answer : (e) < TOP >

Reason : As per section 2(dd) of the Central Sales Tax Act, 1956, place of business includes (in case
the dealer carries on business through an agent) the place of business of such an agent, a
warehouse, a godown, or any other place where a dealer stores his goods and also a place
where a dealer keeps his books of account.
8. Answer : (a) < TOP >

Reason : Since 4/5 of the property is self occupied, the value of the property is calculated as under :
Self occupied (4/5)
Let out (1/5)
Self occupied property:

14
 Annual value 0
Less interest on the house loan (4/5 x 3,000) 2,400
Net loss from the property (2,400)
Let out property:
Municipal value (1/5 x 45,000) 9,000
Fair rent (1/5 x 42,000) 8,400
Actual rent received (12 x 1,000) 12,000
Since the actual rent is higher, it is taken as the gross annual value 12,000
Less municipal taxes (1/5 x 3,500) 700
Net annual value 11,300
Less the standard deduction at 30% 3,390
Less the interest on the loan (1/5 x 3,000) 600
Net income from the let out property 7,310
9. Answer : (b) < TOP >

Reason : The cost of the rights renounced in favour of another person for a consideration, is taken to
be nil. The consideration so received is taxed as short-term capital gains in full. The period
of holding is taken from the date of the rights offer to the date of the renouncement.
10. Answer : (c) < TOP >

Reason :
Value of interest on housing loan at concessional rate
6 Rs.13,500
(Rs.6,00,000 × 4.5% x 12 )
Value of computer (Rs.75,000 – 50% of Rs.75,000) Rs.37,500
Total value of perquisites Rs.51,000
The value of perquisite on account of housing loan is the excess of interest at charged by
SBI over the concessional rate From the asst. year 2005-06, the standard rate to be taken as
the interest chargeable on the interest free loan is the rate as fixed by the SBI for a similar
loan as on the first day of the relevant previous year, depending on the tenure of the loan.
For a loan of 5 years tenure the interest charged by SBI is 7.5%. Hence the taxable
perquisite is the interest calculated @ the differential rate of 4.5% (7.5-3). The perquisite in
respect of reimbursement of expenses incurred on mobile phone is not taxable. The value of
perquisite in respect of transfer of computers is the amount determined by reducing the
actual cost by 50% for each completed year of usage.
11. Answer : (a) < TOP >

Reason : The income from the business which is set up outside India, but is controlled wholly or
partly from India, is taxable in the hands of the resident (both ordinarily and not ordinarily)
but is not taxable in the hands of the non-resident. Hence the option (a) is the answer.
12. Answer : (d) < TOP >

Reason : No depreciation is allowed on the land

13. Answer : (a) < TOP >

Reason : Since the two properties are self occupied, one of them is treated as self occupied and the
other as let out in such a way that the tax on income from the properties is minimal.
Particulars Property II Self- Property I
occupied (II) Let out (I)
Step I – Fair rent or the municipal value N.A. 77,000
whichever is higher subject to a maximum of the
Step II – Actual rent received N.A. NA

15
 Step II – Actual rent received N.A. NA
Gross annual value (higher of the above two) Nil 77,000
Less municipal taxes Nil 9,360
Net annual value of the property Nil 67,640
Less standard deduction@ 30% Nil 20,292
Less Interest on the capital borrowed 35,000 46,000
Net income from the property (35,000) 1,348
Total income from the property (33,652)
14. Answer : (b) < TOP >

Reason : Independent contractor, in cases where the manufacture is carried out in the premises of the
raw material supplier is treated as manufacturer. All the others are not manufacturers.
15. Answer : (a) < TOP >

Reason : Computation of the wealth of Mr.Lal as on March 31, 2005:

Particulars Amount (Rs.)
Property at Mumbai let out for the business of a firm in which he is –
a partner – exempted as it is let out for the commercial use
Property at Chennai used for his own business – exempted –
Vehicles for personal use 12,50,000
Cash on hand (1,20,000-50,000) 70,000
Jewellery 7,50,000
Property gifted to the smaller HUF consisting of himself, wife and 9,50,000
children (The value as per the Schedule III is Rs.8,00,000)
Total 30,20,000
Less exemption under section 5(vi) is respect of one property ( the 9,50,000
property gifted to the smaller HUF)
Net wealth 20,70,000
16. Answer : (d) < TOP >

Reason : One declaration form can cover all the transactions in one whole financial year, irrespective
of the total amount or the value of the transactions during the year. But if a transaction
covers more than one financial year, separate ‘C’ form is required for each financial year.
Provisions of one ‘C' form per year was upheld in the case of Laxmi Agarbathi Factory.
17. Answer : (e) < TOP >

Reason : As per the section 5 of the Central Sales Tax Act, a sale or purchase is said to be in the
course of export if : The sale or purchase either occasions such export, The sale is effected
by a transfer of the documents of title to goods after the goods have crossed the customs
frontiers of India., Exports arranged through the agents are also a part of the sale in the
course of exports if the goods are not sold to the agents at any time. Hence the option (e) is
correct.
18. Answer : (c) < TOP >

Reason : The value of the property, which is self occupied for a part of the year and let out for the
rest, is calculated as if the property has been let out. Hence the option (c) is the answer. All
the other options are incorrect.
19. Answer : (e) < TOP >

Reason : All the following receipts are treated as deemed profits as per the provisions of section 41 of
the Income Tax Act :
• Recovery against any deduction of expenditure, loss or liability allowed in the earlier
years – section 41(1)

16
 • Profit on the sale of the asset used for the scientific research – section 41(3)
• Recovery of the bad debts allowed as a deduction in the earlier years – section 41(4)
• Recovery of the money after the discontinuance of the business or the profession. –
section 176(3A), (4).
Hence the option (e), which includes all the above alternatives is the answer.
20. 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

21. Answer : (a) < TOP >

Reason : The unloading of the goods can be done only after the grant of entry by the Customs officer
as per the section 31 of the Customs Act.
< TOP >
22. Answer : (a)
Reason : The capital gains are calculated as under;
Original Rights shares Right shares
shares purchased (600 renounced
(2000) shares) (400 shares)
Sale consideration 2,40,000 72,000 28,000
Cost of the acquisition (Rs.80,000 x 3,84,000 * 36,000 Nil
480 /100) (600 shares at Rs.60 per
share)
Long term capital gains (losses)
Short term capital gains (1,44,000) 36,000 28,000
Long term loss Rs.(1,44,000) and the short term gains Rs.64,000.
* Indexed cost of acquisition not allowed as the shares are held for less than 1 year.
< TOP >
23. Answer : (a)
Reason : As Kiran owns the car and used it for both private and official purposes, perquisite value of
the car will be decided as follows:
Amount reimbursed by the employer ( Rs.47,350 + Rs.22,200) = Rs.69,550
Less : Deduction available for driver and car used
for official Purpose (Rs.1200 × 12 + Rs.600 × 12) = Rs.21,600
Perquisite value of the car = Rs.47,950
24. Answer : (c) < TOP >

Reason : The entertainment allowance given to the government employees is exempted as under :
• Rs.5,000
• 20% of the basic salary = Rs.10,000
• Actual amount of the entertainment allowance received, whichever is lower Rs.7,200.
It is immaterial whether the money is utilised for official or personal purposes. Hence the
option (c) is correct as the actual amount received is more than Rs.5,000, the exemption is
restricted to Rs.5,000. All the other options are incorrect.
25. Answer : (a) < TOP >

Reason : Commuted value 25% of pension – Rs.80,000

17
 80, 000
Commuted value of full of pension = 25% = Rs.3,20,000
As Ms.Padma does not receive any gratuity, the commuted pension exempted is equal to ½
3, 20, 000
of the commuted value of the pension. i.e. 2 = Rs.1,60,000
As the amount received on commutation of pension is less than maximum amount exempt
from tax, the total amount of Rs.80,000 is exempted and nothing is chargeable to tax.
26. Answer : (c) < TOP >
Reason : Option (c) that in the case of the lease transaction, the depreciation can be claimed by the
lessee is false. In the case of a lease, the depreciation is allowed only to the lessor and not to
the lessee as the asset is owned by the lessor. All the other options are correct.
27. Answer : (b) < TOP >

Reason : The interest on the borrowed capital is allowed as a deduction under section 24(b) as per the
following : As the deduction is available on the accrual basis, it should be claimed as a
deduction on a yearly basis even if the interest is not actually paid during the previous year.
Deduction is available even if neither the principal nor the interest is a charge on the
property. Interest on the unpaid interest is not deductible Shew Kissen Bhatter v. CIT (1973)
89 ITR 61(SC). Interest on the fresh loan taken for the purpose of the repayment of the
original loan is deductible. Hence the option (b) that deduction is available only if either the
principal or the interest is a charge on the property is the false statement.
28. Answer : (a) < TOP >

Reason : The deduction that can be claimed is calculated as under;

Minor Son Minor Minor
daughter son
Interest on the bank deposits 1,250, 1,800 1,475
Deduction allowed 1,250 1,500 1,475
Total deduction allowed =
(1,250+1,500+1,475= 4,225)
The amount earned by them by the exercise of their professional skills does not qualify for
the deduction.
29. Answer : (a) < TOP >

Reason : The value of the perquisite in respect of the medical expenses incurred on the treatment of
the employee abroad is calculated as under :
The cost of the treatment is exempted to a maximum of the RBI Permit.
Taxable value = Rs.7,00,000 -6,50,000 = Rs.50,000
Travel expenses = Rs.1,75,000
Total value of the perquisite = Rs,2,25,000 .
The entire expenditure borne by the employer on behalf of Mrs.Raghavan is a taxable
perquisite as her gross total income exceeds Rs.2,00,000.
30. Answer : (c) < TOP >

Reason : The deduction under section 80 GG in respect of the rent paid by Mr.Parasuram is calculated
as under :
Income from the profession 75,000
Long term capital gains (excluded for this purpose) 0
Winnings from lotteries (Gross) 15,000
Income from other sources 20,000
Interest on the bank deposits 10,000
Total income 1,20,000
Less deductions
Under section 80D – Medical insurance,
18premium (self) 4,000
 Under section 80D – Medical insurance, premium (self) 4,000
Under section 80L - Interest from the Bank 10,000
Net Income for the purpose of Section 80GG 1,06,000
Deduction under section 80GG
Rs.2,000 per month 24,000
25% of the total income (25 % of 1,06,000) 26,500
Excess of the actual rent paid over the 10% of total income 25,400
(36,000-10,600)
Least of the above 3 alternatives is allowed as a deduction 24,000
31. Answer : (a) < TOP >

Reason : As per the provisions of section 10(10B) of the Income Tax Act, 1961, the maximum
amount that is exempt from tax in respect of the retrenchment compensation received by an
employee is Rs.5,00,000.
32. Answer : (e) < TOP >

Reason : The deduction under section 80D in respect of the mediclaim can be taken by an assessee on
the health of self, spouse, dependent parents or dependent children.
33. Answer : (b) < TOP >

Reason : Payment in commutation of pension received by a non-government employee is exempted

to the extent of one-third of such pension in cases where the employee also receives the
gratuity. Hence the option (b) is the correct answer.
34. Answer : (a) < TOP >

Reason : Options (b) to (e) i.e. Annual listing fees paid to the stock exchanges, Professional tax paid
by a person carrying on the business or trade, Amount paid to third parties in order to use his
quota rights, Entertainment expenditure incurred on opening a new branch are allowed
under the provisions of section 37(1). But the fees paid to obtain the license to investigate
and search for the minerals is not allowed. Hence the option (a) is the answer.
< TOP >
35. Answer : (e)
Reason : Unrealised rent shall be excluded from rent received / receivable only if the following
conditions are satisfied : The tenancy is bonafide. The defaulted tenant has vacated or steps
have been taken to compel him to vacate the property. The defaulted tenant is not in
occupation of any other property of the assessee. The assessee has taken all reasonable steps
to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing
Officer that legal proceedings would be useless .Hence the answer is (e).
36. Answer : (a) < TOP >

Reason : When a portion of the property is self-occupied and the other is let out, the income from
both is to be calculated separately.
Particulars Self- Let out
occupied
Step I – Fair rent or the municipal value N.A. 82,000
whichever is higher subject to a maximum of the
Step II – Actual rent received N.A. 72,000
Gross annual value (higher of the above two) Nil 82,000
Less municipal taxes Nil Nil
Net annual value of the property Nil 82,000
Less standard deduction@ 30% Nil 24,600
Less Interest on the capital borrowed 36,000 36,000
Net income from the property (36,000) 21,400
Total income from the property (14,600)

19
 Total income from the property (14,600)
37. Answer : (d) < TOP >

Reason : A professional having the income above Rs.10,00,000 has to get the tax audit done and
hence the return of income is to be filed on or before October 31, 2005.
38. Answer : (e) < TOP >

Reason : In the following cases, the rules under Part B of Schedule III are not applicable for valuation
of building : (I) The Assessing Officer, with the approval of Deputy Commissioner is of the
opinion that it is not practicable to apply the rules of Part B of Schedule III to a particular
case. (II) The unbuilt area exceeds the specified area by more than 20% of the aggregate
area. (III) The property is built on a lease hold land and the lease expires within a period not
exceeding 15 years and the lease deed does not give an option to the lessee for renewal of
the lease. Hence in situations (I), (II) and (III), the rules under Part B of Schedule III are not
applicable for valuation of building. Thus the answer is (e).
39. Answer : (d) < TOP >

Reason : In the case of the captive consumption, the assessable value is taken as the cost of the goods
plus 15%. Hence the answer is Rs.1,380.
40. Answer : (a) < TOP >

Reason : Calculation of the taxable salary of Mrs.Vimala for the assessment year 2005-06 :
Particulars Rs.
Basic salary 2,50,000
Dearness allowance [not forming part of retirement 40,000
benefits]
Bonus 20,000
Commission 5,000
Perquisite- Rent free furnished accommodation 10% of
salary or the lease rent whichever is lower: 10%
(Rs.2,50,000+Rs.20,000+Rs.5,000)
or Rs.60,000 whichever is less = Rs.27,500
Cost of furnishing 10% of the original cost =Rs.2,200
Hire charges (paid or payable) = Rs.12,000
41,700
Total taxable salary (Gross) 3,56,700
41. Answer : (b) < TOP >

Reason : If the amount of the expenses including the membership fees and the annual fees of the
credit card(including an add-on card)of an employee are either directly borne by the
employer himself or are reimbursed to the employee by the employer, the same is taxable in
the hands of all the employees whether specified or not.
42. Answer : (d) < TOP >

Reason : As per the section 8(2)(a) of the CST Act, if the declared goods are sold to unregistered
dealers, the rate of tax applicable is equal to twice the rate of local sales tax.
43. Answer : (d) < TOP >

Reason : The cost of improvement is taken to be nil in the following cases:

(I) Goodwill of a business
(II) Right to manufacture any article or thing
(III) Right to produce any article or thing
(IV) Right to carry on any business
Hence the option (d) is the answer.
44. Answer : (d) < TOP >

Reason : The incidence of the wealth tax in the case of an individual depends on his residential status
and the nationality whereas in the case of the HUF and the Company it is on the basis of the
residential status.
20
 residential status.
45. Answer : (b) < TOP >

Reason : Jetsam is where goods are thrown into sea with a view to lighten the ship in order to prevent
it from sinking.
46. Answer : (d) < TOP >

Reason : Any income for which no explanation is forthcoming from the assessee with regard to its
nature and source, is considered as deemed income by the Assessing Officer. If satisfactory
explanation is not given with regard to investment made, monies received recorded and
expended they are deemed incomes in the hands of assessee. Thus, the explained
expenditure (d) is not a deemed income but is allowed as an expenditure. Unexplained
investments (a) section 69; unexplained money (b) Section 69 A; Investments not fully
disclosed (c) 69B an amount borrowed or repaid on Hundi, Section 69 (D) (e) are
considered as deemed incomes if the assessee does not provide satisfactory explanation to
the Assessing Officer. Thus, the amounts stated in alternatives (a), (b), (c) and (e) are
deemed incomes and not (d).
47. Answer : (b) < TOP >

Reason : Calculation of the value of the lease rent accommodation :

Salary for the purposes of the rent free accommodation is taken as under :
Basic Rs.2,25,000
Dearness allowance (only 50% is to be taken)
(2,25,000 x 20% x ½) Rs. 22,500
Commission Rs. 36,000
Total Rs.2,83,500
Lease rent accommodation value is taken as the actual rent paid by the employer or 10% of
the salary whichever is lower.
Lease rent Rs.96,000
10% of the salary Rs.28,350
10% of the salary being less, the value of the perquisite is taken as Rs.28,350.
48. Answer : (a) < TOP >

Reason : Only the municipal taxes are allowed as a deduction on the payment basis. In respect of all
the others (b) Insurance premium (c) Collection charges (d) Repairs (e) Maintenance
expenses etc. no specific deduction is allowed. Under section 24 of the Income Tax Act,
1961, a standard deduction at the rate of 30% of the net annual value is allowed in respect of
all the above.
49. Answer : (a) < TOP >

Reason : Option (a) that an expenditure, the benefit of which is enjoyed by some one other than the
assessee, is not deductible is false. Since the expenditure is incurred primarily in connection
with the assessee’s business, though the benefit accrues to somebody, it is deductible. All
the other options are true statements.
50. Answer : (e) < TOP >

Reason : (I) The relationship of the employer and employee exists between the payer and the payee
(II) The nature of the payment must be real and not fictitious
(III) Voluntary waiver or foregoing of the salary by an employee is chargeable to tax
(IV) Salary is taxed irrespective of whether it is received from the past, present or the
prospective employer
All the above statements are true in respect of the salary.
Hence option (e) is the answer.
51. Answer : (b) < TOP >

Reason : The rate of tax payable on interstate sale of goods to a Government department(both central
or state) is 4%. In the cases where the local sales tax rate is lower than 4%, the local sales
tax rate is applicable.
52. Answer : (b) < TOP >

Reason : Since Mrs. Agarwal is employed without any professional qualification in a company in
which Mr. Agarwal has substantial interest,
21 the salary of Mrs. Agarwal is taxable in the
 which Mr. Agarwal has substantial interest, the salary of Mrs. Agarwal is taxable in the
hands of Mr. Agarwal.
Particulars Rs.
Salary of Mrs. Agarwal (net) 1,20,000
Income from house property 90,000
Business income 7,000
Income from other sources 3,000
2,20,000

53. Answer : (a) < TOP >

Reason : Computation of the taxable wealth of Mr.Suraj for the assessment year 2005 -06:
As he is a non-resident Indian national, only the assets held in India are taxable and those
held outside India are tax free.
Jewellery held in India 56,00,000
(The personal loan taken against the security of
the jewellery is disallowed) --- 56,00,000
Residential property let out for 250 days 15,00,000
Less the loan taken for the purchase of the
property 9,75,000 5,25,000
Taxable wealth in India 61,25,000
Less the amount exempted 15,00,000
Taxable wealth 46,25,000

54. Answer : (a) < TOP >

Reason : The Government by a notification has fixed that where the use of imported goods is over 24
months but not more than 30 months – 40% is the duty drawback allowed.
55. Answer : (a) < TOP >

Reason : The tax incidence is highest in the hands of a resident and ordinarily resident as both the
Indian and the foreign income are taxable in his hands. Whereas in the case of the resident
but not ordinarily resident and the non-residents, some incomes are exempt from tax. Hence
the option (a) is the answer.
56. Answer : (c) < TOP >

Reason : 30% of Net Annual Value is deductible irrespective of any expenditure incurred by the
taxpayer.
57. Answer : (c) < TOP >

Reason : An assessee is entitled for a weighted deduction in respect of the expenditure incurred on the
in-house research and development expenses at 150% i.e one and one-half times of the
expenditure so incurred.
58. Answer : (a) < TOP >

Reason : The capital gains are computed as follows :

Original shares Bonus shares Rights shares
No of shares 1500 1000 3000
Date of acquisition December, 1995 June, 1997 March, 2002
Sale consideration (@ Rs.90 per share) 1,35,000 90,000 2,70,000
Cost of acquisition (75,000 x 480 / 281)
(2,25,000 x 480 / 426) 1,28,114 Nil 2,53,521
Capital gains (long term) 6,886 90,000 16,479

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 Total long term gains = 6,886+90,000 + 16,479 = 1,13,365
59. Answer : (b) < TOP >

Reason : The gross taxable income of Ms.Bharati for the assessment year 2005-06 is calculated as
under :
I – Income from the house property 1,25,000
II – Income from the business
Profits before depreciation 1,35,000
Less current year depreciation 26,000
Less brought forward business loss 45,000
Net income from the business 64,000
III – Income from the capital gains
Short term gains 56,000
Long term loss from property (cannot be setoff) Nil
Capital gains 56,000
IV – Income from the tea business(taxable to the extent of 40%) 48,000
Gross taxable income 2,93,000
60. Answer : (b) < TOP >

Reason : In the case of the transfer of the property to a wife with an agreement to live apart, the
income from the said property is taxable in the hands of the transferee.
61. Answer : (b) < TOP >

Reason : In the case of the business enterprises, the amount of the cash balance on the valuation date
that is exempted is the amount recorded in the books of accounts. The amount over and
above that recorded in the books is taxable.
62. Answer : (b) < TOP >

Reason : The taxable event for the excise duty is the date of manufacture.
63. Answer : (e) < TOP >

Reason : Aggregate sale price = Rs.46,800 on account of interstate sales.

Submission of ‘C’ Form amounts to sale to registered dealers, the applicable sales tax rate is
4%
Rate of tax × Aggregate of sale price
Sales tax payable = 100 + Rate
Rs.46800 × 4
= 104 = Rs.1,800
Thus, all other alternative answers are incorrect.
As the buyer has furnished the ‘C’ form the sales are taxable @4% or local sales tax rate
whichever is lower.
64. Answer : (c) < TOP >

Reason : The following deductions are covered by the section 16 of the Income Tax Act, 1961:
Standard deduction, entertainment allowance and the profession tax. Hence the option (c) is
the answer. (as it covers all the above three)
65. Answer : (c) < TOP >

Reason : Except the personal house property, all the other personal assets like computer, car, apparel
and household goods are exempted from the capital gains.
66. Answer : (c) < TOP >

Reason : The capital gains taxable are as under :

Rs.
Short term capital gains on the sale of the shares 1,50,000
Long term capital gain (75,000-75,000) Nil
(Long-term capital loss can be setoff only to the extent

23
 the next assessment year Rs.21,000)
Short term capital loss of the assessment year (2000 -01) (37,000)
Net taxable gains 1,13,000
67. Answer : (c) < TOP >

Reason : The deduction under section 80E can be claimed only for a period of 8 years or till the
principal amount and the interest thereon are repaid in full, whichever is earlier. Hence no
deduction can be claimed for the assessment year 2005 -06.
68. Answer : (b) < TOP >

Reason : Under section 61 of the Customs Act, the goods (other than the capital goods) will be
allowed to remain in the warehouse for a period of one year.
69. Answer : (a) < TOP >

Reason : CENVAT scheme deals with the refund of the duty paid on the inputs.
70. Answer : (c) < TOP >

Reason : The standard deduction from the gross maintainable rent is allowed for the valuation of the
property for Wealth tax purposes at 15% of the Gross maintainable rent.
71. Answer : (c) < TOP >

Reason : Except the gift tax, all the other taxes are indirect taxes. Gift tax, is a part of the direct taxes
72. Answer : (e) < TOP >

Reason : Capital asset is defined to include property of any kind, whether fixed or circulating,
movable or immovable, tangible or intangible
73. Answer : (e) < TOP >

Reason : As per the provisions of the Central Sales Tax Act, the sale of the shares and newspapers are
not treated as sale. Also the consignment sale is not treated as a sale. Sale of the house
property also is not taxable under the CST Act as there cannot be any movement of the
goods. But the sale of lottery tickets is treated as a sale.
74. Answer : (d) < TOP >

Reason : The duty levied on the imports into and exports out of the country is called Customs duty
75. Answer : (a) < TOP >

Reason : Basically, the provisions of Central Sales Tax Act, aim at levying of tax on interstate sales
and it is payable in the state from where movement of goods begin (a) The Sales Tax is not
payable in the state where the goods are manufactured (b), where the goods are received(c),
where the goods are imported (d) or where the goods are resold (e).
76. Answer : (e) < TOP >

Reason : All the following statements are true under the head income from house property:
• The income from the vacant plot is not taxable under the head income from house
property.
• Income from subletting is taxable either as ‘business income’ or ‘income from other
sources’.
• The income from the property, the ownership of which is under a dispute is taxable.
• The rent charged by an assessee on the quarters constructed and let out to the
employees is not taxable under the head ‘income from house property’.
Hence the option (e) is the answer.
< TOP OF THE DOCUMENT >

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