Test Series: October, 2017

Time Allowed – 3 Hours Maximum Marks – 100

MOCK TEST PAPER – 2
INTERMEDIATE (IPC): GROUP – I
PAPER – 4: TAXATION
SECTION – A: INCOME TAX
(50 MARKS)
Question No. 1 is compulsory.
Attempt any four questions from the remaining five questions
1. Dr. Shilpa (age 35 years), is a child specialist in Delhi. Her Income and Expenditure account for the
financial year ended 31-03-2017 is given below:
Expenditure Amount Income Amount
(Rs.) (Rs.)
To Staff salary 12,78,000 By Fee receipts 56,76,000
To Administrative expenses 11,64,000 By Winning at TV game 35,000
show (Net of TDS)
To Medicine consumed 23,95,800 By LIC policy matured 1,15,000
To Consumables 57,500 By Honorarium for giving
To Depreciation 1,25,000 lectures at seminars 24,000
To Rent of clinic 1,20,000
To Donation to National Children’s 51,000
Fund
To Excess of income over expenditure 6,58,700
Total 58,50,000 Total 58,50,000
(i) Depreciation computed as per Income-tax Rules, 1962 has been ascertained at Rs. 75,000.
(ii) Medicines consumed include cost of medicine for self and family of Rs. 18,000 and for treating
poor patients of Rs. 24,000 from whom he did not charge any fee either.
(iii) Salary includes Rs. 30,000 paid in cash to a computer specialist who computerized her
patient’s data on 29 th September, 2016.
(iv) Donation to National Children’s Fund has been made by way of account payee cheque.
(v) She has paid a sum of Rs. 25,000 for a Life Insurance Policy (Sum assured Rs. 2,00,000) of
herself, which was taken on 1-07-2012.
(vi) She also contributed Rs. 1,20,000 towards Public Provident Fund.
(vii) Dr. Shilpa also paid interest of Rs. 10,000 on loan taken for higher education of her daughter.
(viii) Dr. Shilpa made investments in equity shares listed in a recognized stock exchange of
Rs. 30,000 and units of equity oriented fund of Rajiv Gandhi Equity Savings Scheme of
Rs. 40,000.
(ix) Dr. Shilpa also made donation of Rs. 1,00,000 to a charitable trust registered & eligible for
deduction under Income-tax Act, 1961.
You are required to compute the total income and tax payable by Dr. Shilpa for the Assessment
Year 2017-18. (10 Marks)
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 2. From the following details, find out the salary chargeable to tax in the hands of Mr. Anish for the
assessment year 2017-18:
Mr. Anish is a regular employee of Kalyani Ltd. in Mumbai. He was appointed on 01 -03-2016 in the
scale of 25,000-2,500-35,000. He is paid dearness allowance (which forms part of salary for
retirement benefits) @ 15% of basic pay and bonus equivalent to one and a half month's basic pay
as at the end of the year. He contributes 18% of his salary (basic pay plus dearness allowance)
towards recognized provident fund and the Company contributes the same amount.
He is provided free housing facility which has been taken on rent by the Company at
Rs. 15,000 per month. He is also provided with following facilities:
(i) The Company reimbursed the medical treatment bill of Rs. 40,000 of his daughter, who is
dependent on him.
(ii) The monthly salary of Rs. 2,000 of a house keeper is reimbursed by the Company.
(iii) He is getting telephone allowance @ Rs. 1,000 per month.
(iv) A gift voucher of Rs. 3,700 was given on the occasion of his marriage anniversary.
(v) The Company pays medical insurance premium to effect an insurance on the health of
Mr. Anish Rs. 12,000.
(vi) Motor car running and maintenance charges of Rs. 36,600 fully paid by employer. (The motor
car is owned and driven by Mr. Anish. The engine cubic capacity is below 1.60 litres. The
motor car is used for both official and personal purpose by the employee.)
(vii) Value of free lunch provided during office hours is Rs. 2,200. (10 Marks)
3. (a) ABC Ltd. commenced operations of the business of a new four-star hotel in Bangalore on
1.4.2016. The company incurred capital expenditure of Rs. 40 lakh during the period January,
2016 to March, 2016 exclusively for the above business, and capitalized the same in its books
of account as on 1 st April, 2016. Further, during the previous year 2016-17, it incurred capital
expenditure of Rs. 2.5 crore (out of which Rs. 1 crore was for acquisition of land) exclusively
for the above business.
Compute the income under the head “Profits and gains of business or profession” for the
assessment year 2017-18, assuming that ABC Ltd. has fulfilled all the conditions specified for
claim of deduction under section 35AD and has not claimed any deduction under Chapter VI -
A under the heading “C. – Deductions in respect of certain incomes”. The profits from the
business of running this hotel (before claiming deduction under section 35AD) for the
assessment year 2017-18 is Rs. 80 lakhs.
Also, assume that the company has another existing business of running a four-star hotel in
Kanpur, which commenced operations 5 years back, the profits from which was Rs. 130 lakhs
for assessment year 2017-18.
Would ABC Ltd. be entitled to deduction under section 35AD if it transfers the operation of the
hotel in Bangalore to PQR Ltd, while continuing to own the said hotel? (6 Marks)
(b) Aryan converts his plot of land purchased in July, 2002 for Rs. 80,000 into stock-in-trade on
31st March, 2016. The fair market value as on 31.3.2016 was Rs. 2,00,000. The stock-in-trade
was sold for Rs. 2,25,000 in the month of January, 2017.
Find out the taxable income, if any, and if so under which ‘head of income’ and for which
Assessment Year?
Cost Inflation Index: F.Y. 2002-03: 447; F.Y. 2015-16: 1081; F.Y. 2016-17: 1125. (4 Marks)
4. Ms. Seeta and Ms. Geeta constructed their houses on a piece of land purchased by them at New
Delhi. The built up area of each house was 500 sq.ft. ground floor and an equal area in the first
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 floor. Seeta started construction on 1-04-2015 and completed on 1-04-2016. Geeta started the
construction on 1-04-2015 and completed the construction on 30-06-2016. Seeta occupied the
entire house on 01-04-2016. Geeta occupied the ground floor on 01-07-2016 and let out the first
floor for a rent of Rs. 15,000 per month. However, the tenant vacated the house on 31-12-2016 and
Geeta occupied the entire house during the period 01-01-2017 to 31-03-2017.
Following are the other information
(i) Fair rental value of each unit Rs. 1,00,000 per annum
(ground floor /first floor)
(ii) Municipal value of each unit Rs. 72,000 per annum
(ground floor / first floor)
(iii) Municipal taxes paid by Seeta – Rs. 8,000
Geeta – Rs. 8,000
(iv) Repair and maintenance charges paid by Seeta – Rs. 28,000
Geeta – Rs. 30,000

Seeta has availed a housing loan of Rs. 20 lakhs @ 12% p.a. on 01-04-2015. Geeta has availed a
housing loan of Rs. 12 lakhs @ 10% p.a. on 01-07-2015. No repayment was made by either of them
till 31-03-2017. Compute income from house property for Seeta and Geeeta for the previous year
2016-17 (A.Y. 2017-18). (10 Marks)
5. (a) Mr. Dhanush and his wife Mrs. Meena furnish the following information:
Sl. No. Particulars Rs.

(i) Salary income (computed) of Mrs. Meena 4,60,000

(ii) Income of minor son ‘B’ who suffers from disability specified in 1,08,000
Section 80U
(iii) Income of minor daughter ‘C' from singing 86,000
(iv) Income from profession of Mr. Dhanush (computed) 7,50,000
(v) Cash gift received by 'C' on 2.10.2016 from friend of 48,000
Mr. Dhanush on winning of singing competition
(vi) Income of minor married daughter ‘A’ from company deposit 30,000
Compute the total income of Mr. Dhanush and Mrs. Meena for the Assessment Year 2017-18.
(4 Marks)
(b) For the Assessment year 2017-18, the Gross Total Income of Mr. Manish, a resident in India,
was Rs. 8,18,240 which includes long-term capital gain of Rs. 2,45,000 and Short-term capital
gain of Rs. 58,000. The Gross Total Income also includes interest income of Rs. 12,000 from
savings bank deposits with banks.
Mr. Manish has invested in PPF Rs. 1,40,000 and also paid a medical insurance premium
Rs. 31,000. Mr. Manish also contributed Rs. 50,000 to Public Charitable Trust eligible for
deduction under section 80G by way of an account payee cheque.
Compute the total income and tax thereon of Mr. Manish, who is 65 years old as on 31.3.2017.
(6 Marks)
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 6. (a) Bharti doing textiles business furnishes you the following information:
Total turnover for the financial year:
Rs.
2015-16 205,00,000
2016-17 95,00,000
State whether the provisions of tax deduction at source are attracted for the following
expenses incurred during the financial year 2016-17:
Rs.
Interest paid to Indian Bank on Term Loan 92,800
Advertisement expenses to R (two individual payments of Rs. 24,000 and 58,000
Rs. 34,000 on 1.7.2016)
Factory rent paid to C 1,85,000
Brokerage paid to B, a sub-broker (on 10.11.2016) 16,000
(4 Marks)
(b) State with reasons whether you agree or disagree with the following statements:
(i) Return of income of Limited Liability Partnership (LLP) could be verified by any partner.
(ii) Time limit for filing return under section 139(1) in the case of Mr. X having total turnover
of Rs. 190 lakhs for the year ended 31.03.2017, whether or not opting to offer
presumptive income under section 44AD, is 30th September 2017. (4 Marks)
(c) State with reasons, whether the following statements are true or false, with regard to the
provisions of the Income-tax Act, 1961:
(i) The Assessing Officer has the power, inter alia, to allot PAN to any person by whom no
tax is payable.
(ii) Where the Karta of a HUF is absent from India, the return of income can be verified by
any male member of the family. (2 Marks)

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 Section B: Indirect Taxes
Question No. 1 is compulsory
Answer any five questions from the rest
(50 Marks)
1. (a) Narayan Bank Ltd. furnishes the following information relating to the services provided and
the gross amount received. Compute the value of taxable services and service tax liability.
Particulars (Rs. in lakh)
(i) Sale and purchase of forward contract 25
(ii) Commission charged on debt collection services 18
(iii) Margin earned on reverse repo transactions 5
(iv) Administrative charges collected for extending home loans 12
Assume:
(i) Narayan Bank Ltd. is not eligible for small service provider exemption
(ii) Service tax is not included in the above amounts and is to be charged separately .
(6 Marks)
(b) The total CST sales of 'A' Ltd. for the current financial year is Rs. 75 lakhs. Company provides
the following additional information:
(i) Goods sold to Mr. X for Rs. 1,00,000 on 16.04.2017, were returned by him on 10.07.2017.
(ii) A buyer Mr. Y, to whom goods worth Rs. 50,000 were dispatched on 12.05.2017, rejected
such goods. The said goods were received back on 15.11.2017.
(iii) Goods sold to Mr. Z for Rs. 5,00,000 on 16.05.2017 were returned by him on 12.12.2017.
(iv) The total turnover of the year includes Dharmada Rs. 30,000.
(v) All the amounts mentioned are inclusive of tax.
Determine the amount of sale price under CST Act. (4 Marks)
2. (a) Compute the CENVAT credit available with Paaji Motors Ltd., a manufacturer of cars, in
respect of the following services availed by it in the month of July, 2017:
S. Services availed Service tax paid
No. (including SBC &
KKC) (Rs.)
(i) Sales promotion services 1,50,000
(ii) Market research for the new car launched by Paaji Motors Ltd. 3,00,000
(iii) Quality control services 1,50,000
(iv) Routine maintenance of the cars manufactured by Paaji Motors 75,000
Ltd.
(v) Insurance of the cars manufactured 1,05,000
(vi) Outdoor catering services provided to its employees 1,50,000
(6 Marks)

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 (b) Mr. Vipin rendered a taxable service on 05.06.2017. The date of issue of invoice was
01.07.2017. He had received the payment for the same on 20.08.2017. The aggregate value
of services provided by Mr. Vineet in the preceding financial year was Rs. 60 lakh.
Determine the point of taxation in the above case.
Will your answer be different if the aggregate value of services provided by Mr. Vipin in the
preceding financial year was Rs. 40 lakh? (4 Marks)
3. (a) Bhole has given his tempos on hire to Jaggi Brothers for transportation of food stuff for Rs.
14,00,000. He has also transferred the right to use such tempos to Jaggi Brothers. Bhole has
not paid any service tax on the consideration so received. Discuss whether Bhole is liable to
pay service tax on the said transaction. (4 Marks)
(b) Examine the following independent services provided in the month of August, 2017 and
determine the amount of service tax payable, if any, in each of these cases:
S. Particulars (Rs.)
No.
1. Services by way of waxing of apples to provide it an artificial sheen for 1,00,000
increasing its marketability
2. Admission to a Railway Museum 50,000
3. Transportation of patients to Jivan Nursing Home and Shanti 1,20,000
Multispecialty Hospital, in an ambulance owned by XYZ Ltd.
4. Admission to a Telly Award Function 5,10,000
[Value per ticket per person is Rs. 510]
5. Transportation of milk by a goods transport agency 1,50,000
Note: Ignore small service providers’ exemption. Wherever applicable, service tax and cesses
have been charged separately. (6 Marks)
4. (a) Mr. Aakash Goel is a service tax assessee. His service tax liability for the quarter
April - June was Rs. 35,000. However, on account of a clerical error, he paid Rs. 3,50,000 as
service tax for the said quarter. Now Mr. Aakash Goel wants to adjust the excess payment of
Rs. 3,15,000 against his service tax liability for the succeeding quarter. Can he do so? What
is the condition to be satisfied for it? (4 Marks)
(b) Star Export House exported some goods to Paris. Compute the export duty payable by it from
the following information available:
(i) Assessable value Rs. 55,00,000.
(ii) Shipping bill presented electronically on 26.06.2017.
(iii) Proper officer passed order permitting clearance and loading of goods for export on
04.07.2017.
(iv) Rates of export duty are as under:
Rate of export duty
On 26.06.2017 10%
On 04.07.2017 8%
(3 Marks)

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 (c) Gama Engineers are manufacturers of specialty articles. Such articles are sold through retail
shops.
MRP marked on the package Rs. 2,000 per piece
Price at which Gama Engineers sells articles to their Rs. 1,300 per piece
wholesalers
Price at which wholesalers sell the articles to retail shop Rs. 1,500 per piece
owners
Price at which articles are sold by retailers to final consumers Rs. 1,900 (Rs. 100
offered as discount on
printed retail sale price)
Excise duty 12.5%
Calculate excise duty payable on an article. Such articles are not covered under section 4A
of Central Excise Act, 1944. (3 Marks)
5. (a) Compute the service tax payable on the services provided in each of the following independent
cases:
Services Rs.
Sale of space for advertisement in a leading newspaper 55,000
Services related to preparation of advertisement 65,000
Sale of space for advertisements on internet websites 50,000
Sale of time for advertisement to be broadcast on TV Channel 1,00,000
Advertising in business directories 25,000
Advertising on film screen in theatres 90,000
Note: All the amounts stated above are exclusive of service tax and cesses. Ignore exemption
available to small service providers. (6 Marks)
(b) PQR Co. is buying oil in drums of 500 liters. They pack this oil in small tins of one litre each,
put their label giving details of contents, volume and MRP. Advise whether PQR Co. are liable
to pay excise duty on small tins sold by them. (4 Marks)
6. (a) Miss Vaanu, a Delhi resident, submits a cab request to Safe Cabs for travelling from Delhi to
Noida. Safe Cabs is a mobile application owned and managed by Safe Technologies Ltd.
located in India. The application facilitates a potential customer to connect with persons
providing cab service under the brand name of Safe Cabs. After Miss Vaanu pays the cab
charges using his debit card, he gets details of the driver, Mr. Y and the cab’s registration
number.
With reference to the Service Tax Rules, 1994, discuss who is liable to pay service tax in this
case. Will your answer be different, if Safe Technologies Ltd. is located in New York and does
not have a representative in India? (4 Marks)
(b) Mr. Ram, a registered dealer, sells his products to dealers in his State and in other States.
Profit margin is 15% of cost of production and VAT rate is 12.5% of sales. Following further
information is provided by Mr. Ram:
(i) Intra-State purchases of raw material Rs. 2,50,000/- (excluding VAT @ 4%)
(ii) Purchases of raw materials from an unregistered dealer Rs. 80,000/-.
(iii) High seas purchases of raw materials are Rs. 1,85,000/- (excluding custom duty @ 10%).
(iv) Purchases of raw materials from other States (excluding CST @ 2%) Rs. 50,000/-.
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 (v) Transportation charges, wages and other manufacturing expenses excluding tax
Rs. 1,45,000/-
(vi) Interest paid on bank loan Rs. 70,000/-. Loan is taken to acquire a land for building a
factory.
All the afore-mentioned purchases have been sold by Mr. Ram. You are required to compute
net tax liability and total sales value (invoice value) under value added tax. (6 Marks)

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