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Friends you must be feeling very tense. This tension is created by the institute to
develop more capabilities in you, so that you are prepared for the future
challenges.
It is said that the maximum development of the world took place during two world
wars. Because it is only during challenges that our mind becomes creative and our
capabilities increase.
Therefore take this tension as a challenge and just think that God has given you
this opportunity to grow.
Before the examination day
CA. AJAY JAIN www.caajayjain.com 2 (RTP – Nov 2010 – IPCC)
1. Don’t waste any time on checking the paper of Cost & FM. Just think what
next.
2. Keep in mind that the person who starts early always stays ahead. So
don’t get relaxed. Don’t think you have two days and you will work slowly.
Don’t unduly stick to one topic.
3. Allocate time for each and every topic before starting the revision and don’t at all
exceed those limits. Following should be a tentative time plan for revision:-
Service Tax & VAT 2 hour 30 minutes
Assessment Procedure 1 hour
Status 30 minutes
Salary 2 hour
House Property 1 hour
Capital Gain 2 hour
PGBP 2 hour 30 minutes
Other Sources 30 minutes
Clubbing & C/f 30 minutes
Deductions 1 hour 30 minutes
Trust and Agricultural 30 minutes
Miscellaneous 30 minutes
Total 15 hours
4. Don’t try to recall the things; just try to read the topic. Just keep on reading, don’t
think whether you will be able to recall or not in the examination hall.
You will be definitely able to recall the topics provided you have gone through that
topic before examination day.
5. Don’t at all compromise on your sleep. If you are fresh then you will solve even the
most difficult questions and vice-versa.
And as per Dr. Bruta before sleeping take bath, it will give you good sleep.
So, please, take proper sleep and not only in this paper but in all
the papers.
2. Even in the most difficult papers, there are always few questions which are very
easy. If you once start doing easy questions, your confidence boosts up and you
are able to do even the difficult ones. Therefore, instead getting demoralized from
difficult questions, try to search for the easier ones.
3. Allocate time for each question and don’t exceed the limits.
4. Don’t leave numerical questions for the end, try to attempt them somewhere in the
middle.
And finally friends, it is said that great battles are always won at the end. You still have
lots of time. If you work with regularity and discipline then your success is definite. Relax
and work hard.
For successful people there is only one second of tension and all, all the
remaining seconds of work
CA. AJAY JAIN www.caajayjain.com 3 (RTP – Nov 2010 – IPCC)
With Best Wishes
Ajay Jain
You are required to advise Mr. Manoj which of the two houses can be treated as self
occupied and the other deemed to be let out.
(8 marks)
(b) (i) Alpha Ltd. commenced operation of the business of laying and operating a cross-
country natural gas pipeline network of distribution on 1st April, 2009. The Company
incurred capital expenditure of Rs. 40 lakh during the period January to March, 2009
exclusively for the above business, and capitalized the same in its books of account
as on 1st April, 2009. Further, during the financial the same in its books of account as
expenditure of Rs. 150 lakh (out of which Rs. 50 lakh was for acquisition of land)
exclusively for the above business.
(ii)Ram, an assessee gives the following information for the Assessment year 2010-11:
Sr. Particulars
Rs.
a. Loss from profession
1,05,000
b. Capital loss on the sale of property-short term
55,000
c. Capital gains on Sales of Shares-long term
2,05,000
d. Loss in respect of self occupied property
15,000
e. Loss in respect of let out property
30,000
f. Share of loss from firm
1,60,000
CA. AJAY JAIN www.caajayjain.com 5 (RTP – Nov 2010 – IPCC)
Compute the net income/ loss of Ram. (2 x 4
= 8 marks)
(c) Explain the method of determining the amount of expenditure in relation to income
not includible in the total income. (8
marks)
Q. 3 State with reasons whether the following statements are true or false:-
(a) Mr. Raju, a non-resident, received consultancy income in India of Rs. 15,00,000 and
rental income outside India in respect of his house at London of Rs. 7,00,000, during
the financial year 2009-10.The total income chargeable to the Income –tax is Rs.
22,00,000.
(b) Ramesh gifted a house property to Miss Renu on 15.3.2009. Miss Renu married to
Ramesh’s son Shyam on 1-2-2010. The income from the gifted property was Rs.
50,000, which was added by the assessing officer in the hands of Ramesh under the
provisions of Section 64(1)(iv)
(c) Under Section 208 of the Income-tax Act, 1961, obligation to pay advance tax arises in
every case where the advance tax payable is Rs. 5,000 or more.
(d) The regime of the surcharge on Income-tax deduction has been abolished by the
Finance Act, 2009 except in the case when the recipient is the Foreign Company when
surcharge would be still levied if the income or aggregate of income paid or likely to be
paid and subject to deduction exceeds the specified amount.
(e) A businessman makes a cash payment of Rs. 33,000 on 03.10.2009 as lorry hire
charges to a transporter. It does not attract disallowance under Section 40A (3) of the
Income-tax Act, 1961.
(2 x 5 = 10
marks)
(a) Explain the special provision for payment of service tax in case of an air travel
agent.
(b) With reference to commercial training or coaching services, state whether service
tax is applicable in the following cases:
(i) Pinnacle Institute offering courses on personality development and grooming.
(ii) BTL Engineering College offering B.Tech to students. However, the college has
been derecognized by the All India Council for Technical Education
(c) How will a taxable service be valued when the consideration thereof is not in
wholly or partly in terms of money?
(d) Does service tax law provides any exemption to services provided to a developer
or units of special economic zone? If yes, discuss the same.
(2 x 4 = 8 Marks)
Q. 6 Shaurya is a Cost Accountant. He has furnished the following information for the
month of July , 2010:-
a) A bill for annual professional service was raised to Lifeline Ltd. for Rs.
6,10,000 on 22nd June, 2010. However, he received Rs.6,00,000 in full and final
settlement of the above bill on 23rd July, 2010.
b) Advance of Rs. 2,00,000 was received from Aarogya Ltd. for the services to
be provided in the months of August and September.
c) Services were provided to a friend gratuitously for which Shaurya normally
charges Rs. 1,00,000 from other clients.
Compute the service tax liability of Shaurya provided he furnishes the following
additional information:-
1. In all the aforesaid cases, he has not charged the service tax separately.
2. He is not eligible for the exemption available to the small service provider.
(8
marks)
Q. 9 Compute the VAT payable at each stage using ‘invoice method’ from the particulars
given below:-
Assume that the VAT rate is 4% and that there was no value addition at various
stages of sale except profit margin.
(8 marks)
ANSWERS
Ans. 1 Computation of total income of HUF and its members for A/Y 2010-2011
Income from business
(a) Out of own business 3,50,000
CA. AJAY JAIN www.caajayjain.com 8 (RTP – Nov 2010 – IPCC)
(b) As a partner of M/s sunil and co.
Remuneration 25,000 x 12
3,00,000
Share of profits received from M/s Sunil & co. is exempt Nil
6,50,000
Capital Gains
(a)STCG on sale of shares
1,20,000
(b)LTCG on sale of house
Sale price 20,00,000
COA as on 1.4.1981 1,00,000
ICOA 1,00,000 x 632/100 6,32,000 13,68,000
14,88,000
Income from other source
Dividend received Rs. 20,000 exempt u/s 10(34) Nil
GTA (6,50,000 + 14,88,000)
21,38,000
Srihari
Salary received as MD 6,50,000
Total Income 6,50,000
Income tax 99,000
Add education cess @ 2% 1,980
SHEC @ 1% 990
Tax payable
1,01,970
Ram
Income from business
3,00,000
Total income 3,00,000
Income Tax 14,000
Add: education cess @ 2%
280
SHEC @ 1% 140
Tax payable
14,420
Since Meghanathan and ravi has no separate income, there is no liability.
Since loss under option II is more, option II can be availed by Mr. Manoj which would
be more beneficial i.e. it is better to treat house II as self occupied property and
house I as deemed to be let out property.
(b)(i) (a) section 35AD has been introduced with effect from A/Y 2010 -2011 as
investment linked for specified business.
With the specific objective of creating rural infrastructure and environmental
friendly alternate means for transportation of the bulk goods, investme3nt linked
tax incentives have been introduced for the specific business which also includes
laying and operating a cross – country natural gas or crude or petroleum oil pipeline
network for distribution, including storage facilities being an integral part of such
network.
(b) 100% of the capital expenditure incurred during the p/y wholly and exclusively
for the above business would be allowed as deduction from the business income.
However, expenditure incurred on acquisition of land, goodwill of financial
investment would not be eligible for deduction.
(c) further, the expenditure incurred wholly and exclusively, for the purpose of
specified business prior to the commencement operation would be allowed as
deduction during the p/y in which the assessee commences operation of his
specified business. A condition has been inserted that such amount incurred prior to
the commencement should be capitalized in the books of account of the assessee
on the date of commencement of its operation.
Accordingly Alpha Ltd. Will be entitled for the deduction under 35AD for A/Y 2010-
2011 as under.
Capital Gains
Long term capital gain on sale of shares 2,05,000
Set off STCL on sale of shares (55,000)
Taxable LTCG 1,50,000
Less: Amount utilized to set off business loss (1,05,000)
Less: Amount utilized to set off loss from HP (45,000) Nil
Total Income
Nil
Notes:-
It has been assumed that in respect of LTCG on sale of shares, the shares are not
listed in stock exchange and STT was not paid. Hence, LTCG is not exempt under
section 10(38).
Ans.2(c) If the Assessing Officer, having regard to the accounts of the assessee of a
previous year, is not satisfied with –
The expenditure in relation to income not forming part of total income shall be the
aggregate of the following:
(i) the amount of expenditure directly relating to income which does not form part of
total income;
(ii) in a case where the assessee has incurred expenditure by way of interest during
the previous year which is not directly attributable to any particular income or
receipt, an amount computed in accordance with the prescribed formulae.
(iii) an amount equal to one-half per cent of the average of the value of investment,
income from which does not or shall not form part of the total income, as
appearing in the balance sheet of the assessee, on the first day and the last day of
the previous year.
(b) False
As per section 64(1)(iv), the income arising directly or indirectly to the son’s wife
from the assets transferred to her by such individuals otherwise than for
adequate consideration is taxable in the hands of the individual. As per this
provision on the date of transfer of the property, Renu should have been the wife
of Ramesh’s son. Since she was not the daughter- in –law on the date of the
transfer, the income from the transferred property cannot be taxed in the hands
of Ramesh. Hence, the statement is incorrect.
(c) False
The finance Act 2009 has revised the limit from Rs. 5,000 to Rs. 10,000 to
provide inflation adjustment. Accordingly, from F/Y 2009 -2010 onwards, advance
tax would be payable only if advance tax liability is Rs. 10,000 or more. Hence,
the statement is incorrect.
(d) True
The Finance Act 2009 has abolished surcharge on tax deduction at source with
effect from a/Y 2010 – 2011 except if the recipient is a foreign company. If the
recipient is a foreign company, surcharge @2% would be levied on such income
tax if the income or aggregate of income paid or likely to be paid exceeds Rs. 1
crore.
(e) True
As per section 40(A)(3), where the assessee incurs any expenditure in respect of
which a payment or aggregate of payments made to a person in a day,
otherwise than by an account payee cheque or account payee bank draft
exceeds Rs. 20,000 no deduction shall be allowed in respect of such
expe4nditure. However, as per amendment made by finance act 2009 w.e.f.
1.10.2009 in the case of payment made for plying, hiring or leasing goods
carriages, the limit has been increased to Rs. 35,000. Therefore the payment of
Rs. 33,000 is within the the maximum limit of exemption, hence does not
attract disallowance under section 40A(3) of the income tax act 1961.
Ans. 4 (a) Exemption limit for taxation of anonymous donation u/s 115 BBC
I) Anonymous donation received by wholly charitable trust and
institutions are subject to tax at a flat rate of 30% u/s 115BBC. Further
anonymous donation received by partly charitable and partly religious trusts
and institutions would be taxed @ 30%, only such anonymous donation is
made with a specific direction that such donation is for any university or
other educational institution or any hospital or other medical institution run
by such trust or institution.
II) In order to provide relief to these trusts and institutions and to reduce
their compliance burden an exemption limit has been introduced, and only
the anonymous donation in excess of this limit would subject to 30% u/s
115BBC.
III) The exemption is the higher of the following
a. 5% of the total donations received by the assessee.
b. Rs. 1 lakhs
IV) The total tax payable by the assessee would be:-
CA. AJAY JAIN www.caajayjain.com 12 (RTP – Nov 2010 – IPCC)
a. Tax @30% of the anonymous donation exceeding the exemption limit
as calculated above.
b. The tax on the balance i.e. total income as reduced by the aggregate
of anonymous donation received.
Transfer not revocable during the lifetime of the beneficiary or the transferee:
If there is a transfer of asset which is not revocable during the lifetime of the
beneficiary or transferee, the income from the transferred asset is not includible in
the total income of the transferor provided the transferor derives no direct or
indirect benefit from such income.
If the transferor receives direct or indirect benefit from such income, such income Is
to be included in his total income even though the transfer may not be revocable
during the lifetime of the transferee.
(d)
(i) Interest for non payment or short payment of advance tax (sec 234B)
(a) Interest under section 234 B is attracted for non-payment of advance tax or
payment of advance tax of an amount less than 90% of the assessed tax.
(b) The interest liability would be 1% per month or part of the month from 1st
April following the financial year up to the date of determination of income under
section 143(1).
(c) Such interest is calculated on the amount of difference between the assessed
tax and advance tax paid.
(d) Assessed tax is tax calculated on the total income less tax deducted at
source.
(ii)
(a) Interest under section 234C is attracted for deferment of advance tax beyond
due date.
CA. AJAY JAIN www.caajayjain.com 13 (RTP – Nov 2010 – IPCC)
(b) The interest liability would be @1% per month, for a period of 3 months, for
every deferment.
(c) However, for the last installment of 15th March the interest liability under this
section would be 1% for 1 month.
(d) The interest is to be calculated on the difference between the amount arrived
at by applying the specified %age of tax on the returned income and the actual
amount paid by the assessee sue date.
Ans. 5 (a) Special provision for payment of service tax in case of air travel agent:
Rule 6(7) of the Service Tax Rules, 1994 provides that the person liable for paying
the service tax in relation to the services provided by an air travel agent, shall have
the option:
(i) to pay an amount calculated at the rate of 0.6% of the basic fare in the case of
domestic bookings, and
(ii) at the rate of 1.2% of the basic fare in the case of international bookings,
of passage for travel by air, during any calendar month or quarter, as the case
may be.
(b) Section 65(105) provides that the scope of taxable service shall include any
service provided or to be provided to any person, by a commercial training or
coaching centre in relation to commercial training or coaching.
(ii) A B.Tech degree is recognised by law and thus institutes offering such degrees
are excluded from the scope of the said taxable service. An institution or
establishment which is derecognized by the professional councils are taxable
under the category of commercial coaching and training services.
Thus, BTL Engineering College being derecognized by All India Council for
Technical Education shall be liable to service tax.
(c) If the consideration for a taxable service is not wholly or partly in terms of money,
then the value of such service shall be such amount in money, with the addition of
service tax charged, is equivalent to the consideration.
In other words, where the service rendered is for a consideration not wholly or
partly consisting of money, the value of the taxable service is equivalent to the
total value of the consideration. However, the total of such money and non-money
value of the consideration has to be treated as inclusive the service tax payable
thereon.
Notes:-
1. Service tax is payable on the amount actually received i.e. Rs. 6,00,000 and not Rs.
6,10,000.
2. Where the gross amount charged by a service provider, for the service provided or
to be provided is inclusive of service tax payable, the value of such taxable service
shall be such amount as, with the addition of tax payable, is equal to the gross
amount charged.
3. If the value of taxable service is zero, tax will be also zero even though the service
may be taxable. Therefore, service tax is not payable on service provided to a friend
gratuitously.
Ans. 7
(a) Service tax paid by Ashiana Associates pvt ltd in the financial year 2009-2010 is Rs.
10,30,000(10.30% of Rs. 1,00,000). Proviso to rule 6(2) of the service tax rule 1994
has been amended to provide that an assessee shall deposit the service tax
electronically through internet banking if he has paid the total service tax of Rs.
10lakh or more (including the maount of service tax paid by the utilization of Cenvat
credit) in the preceding financial year. Therefore, Ashiana Associates private limited
is required to make e-payment of service tax in the financial year 2010-2011.
The due date for payment of service tax by a company is the 6th day of the month, if
the duty is deposited electronically through internet banking immediately following
the calendar month in which the payment is received, towards the value of taxable
services. Hence, in the given case, Ashiana Associates Pvt ltd is required to make e-
payment of the service tax by 6th May 2010.
(b) The facility of e-filling of returns was earlier optional for the assessee. Proviso
inserted to rule 7(2) of the service tax rules, 1994 has now made the electronic
CA. AJAY JAIN www.caajayjain.com 15 (RTP – Nov 2010 – IPCC)
filing of returns mandatory for the assessee who has paid total service tax of Rs. 10
lakh or more including the amount of service tax paid by the utilization of Cenvat
credit in the preceding financial year. Service tax paid by the Tarna ltd in the
financial year 2009-2010 is Rs. 10,30,000 (10.30% of Rs. 1,00,000). Therefore, it is
mandatory for Tarna ltd to file the return electronically for the financial year 2010-
2011.
(c) The demand raised by revenue is valid in law. The provision of chapter V has been
extended to any service provided or to be provided by or to the installations,
structures and vessels within the continental shelf and the exclusive economic zone
of India, constructed for the purpose of prospecting or extraction of production of
mineral oil and natural gas. Therefore, GONC is liable to pay service tax in the given
case.
(d) Rule 6(1) of the Service Tax Rules, 1994, inter alia, provides that service tax on the
value of taxable services received by an individual during any quarter is payable by
the 5th day of the month immediately following the said quarter. Therefore, in the
given case, the due date for payment of service tax is July 5, 2009.
Further, in case the amount of service tax is paid by cheque, the date of
presentation of cheque to the designated bank, subject to realization is the date of
payment. Thus, in this case, the date of payment will be 5th July, 2009 as the
cheque has been realized on 7th July, 2009.
Since, the service tax has been paid on the due date, no interest and penalty is
chargeable as there is no delay in payment of service tax.
Ans. 8
(a) Different variants of VAT
1. Gross product variant: Tax is levied on all sales and deduction for tax paid on
inputs excluding capital inputs is allowed.
2. Income variant: Tax is levied on all sales with set-off for tax paid on inputs and
only depreciation on capital goods.
3. Consumption variant: Tax is levied on all sales with deduction for tax paid on all
business inputs (including capital goods).
Among the three variants of VAT, the consumption variant is most widely used.
Reasons for preference of consumption variant:
(1) It does not affect decisions regarding investment because the tax on capital
goods is also set-off against the VAT liability. Hence, the system is tax neutral in
respect of techniques of production (labour or capital-intensive).
The consumption variant is convenient from the point of administrative
expediency as it simplifies tax administration by obviating the need to distinguish
between purchases of intermediate and capital goods on the one hand and
consumption goods on the other hand.
(b) Under VAT, credit of duty paid is allowed against the liability on the final product
manufactured or sold. Therefore, unless proper records are kept in respect of various
inputs, it is not possible to claim credit. Hence, suppression of purchases or production
will be difficult because it will lead to loss of revenue. A perfect system of VAT will be a
perfect chain where tax evasion is difficult.
(c) Tax rates under VAT:
1. Exempted category:- There are about 50 commodities which are
legally barred from taxation and items which have social implications.
CA. AJAY JAIN www.caajayjain.com 16 (RTP – Nov 2010 – IPCC)
2. 4% VAT category:- Under 4% VAT rate category, there are largest
number of goods comprising of items of basic necessities, all agricultural and
industrial inputs, capital goods and declared goods.
3. 12.5% category:-The remaining commodities, common for all the
States, fall under the general VAT rate of 12.5%.
4. 1% Category:-The special rate of 1% is meant for precious stones,
bullion, gold and silver ornaments etc.
5. Non-VAT goods:- Petrol, diesel, ATF, other motor spirit, liquor and
lottery tickets are kept outside VAT. The States may or may not bring these
commodities under VAT laws.
(d) The policy in the White Paper lays down that in relation to capital goods set off will
be available to traders and manufacturers. Tax credit on capital goods may be adjusted
over a maximum of 36 equal monthly instalments. The States may at their option
reduce this number of instalments. The State of Maharashtra has decided to give full
input tax credit in the month of purchases only. However, if the capital asset is sold
within the period of 36 months proportionate input tax credit will be withdrawn. There
will be a negative list for capital goods not eligible for input tax credit.
Ans. 10
(a) Addition method aggregate all the factors payment including profits to arrive at the
total value addition on which the rate is applied to calculate the tax. This type of
calculation is mainly used with income variant of vat. Addition method does not
easily accommodate exemptions of intermediate dealers.
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A drawback of this method is that it does not facilitate matching of invoices for
detecting evasion.
(b) Chartered Accountants have the following key role to play in proper implementation
of VAT:
(c) The following purchases are not eligible for input tax credit:
(a) purchases from unregistered dealers;
(b) purchases from registered dealers who opt for composition scheme under the
provisions of the Act;
(c) purchase of goods as may be notified by the State Government;
(d) purchase of goods where the purchase invoice is not available with the claimant
or there is evidence that the same has not been issued by the registered selling
dealer from whom the goods are purported to have been purchased;
(e) purchase of goods where invoice does not show the amount of tax separately;
(f) purchase of goods which are being utilized in the manufacture of exempted
goods;
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(g) purchase of goods used for personal use or consumption or provided free of
charge as gifts;
(h) goods imported from other States;
(i) goods imported from outside the territory of India;
(j) goods in stock which have suffered tax under an earlier Act but under VAT Act
they are covered under exempted items.
Out of the above, any six purchases may be mentioned in the answer.
(d) VAT returns are to be filed monthly/quarterly/annually along with tax paid challans
according to the provisions of the State Acts. They should contain details of output
tax liability, value of input tax credit and payment of VAT and should be filed within
the prescribed time schedule. In case of any mistakes, revised returns may be filed.
The returns will be checked and any deficiency in payment of tax may have to be
made good.
Filing of returns are designed with a view:
(i) to reduce cost of compliance
(ii) to encourage businesses to comply with their obligations; and
(iii) to ensure efficient processing of data.