N13 IPCC Tax Guideline Answers Web

Gurukripas Guideline Answers for Nov 2013 CA Inter (IPC) Income Tax, Service Tax and VAT
Nov 2013.1

Gurukripas Guideline Answers to Nov 2013 Exam Questions
CA Inter (IPC) Income Tax, Service Tax and VAT

Question No.1 is compulsory (4 X 5 = 20 Marks).
Answer any five questions from the remaining six questions (16 X 5 = 80 Marks). [Internal Choice in Qn.7(b)]
Working Notes should form part of the answer.
Wherever necessary, suitable assumptions should be made and stated clearly by way of a Note.

Note: All questions pertaining to the Income Tax in Nov 2013 Question Paper relate to Assessment Year 20132014.
However, in this Guideline Answers, they have been solved for the Assessment Year 20142015,
which is relevant for May 2014 and Nov 2014 Exams.

Question 1 (a): Computation of Total Income (10 Marks)
The following is the Profit and Loss Account of Mr. Aditya, aged 58 years, a resident, for the year ended 31.03.2014:
Particulars Particulars
Rent 60,000 Gross Profit 1,85,000
Repair of Car 3,000 Gift of Cash froma Friend (received on 15.09.2013) 25,000
Wealth Tax 5,000 Sale of Car 17,000
Medical Expenses 4,500 Interest on IncomeTax refund 3,000
Salary 18,000
Depreciation on Car 3,000
Advance IncomeTax 1,500
Net Profit 1,35,000
Total 2,30,000 Total 2,30,000
Other information:
1. Aditya bought a Car during the year for 20,000. He charged depreciation @ 15%on the value of the Car. The above Car
was sold during the year for 17,000. The use of the car was 3/4
th
for business and 1/4
th
for personal use.
2. Medical Expenses were incurred for the treatment of Nikita, his wife.
3. Salary had been paid on account of Car Driver.
4. Rent includes Arrears of Rent fromApril 2013 to October 2013 @ 5,000 p.m. paid in cash on 01.11.2013.
5. Mr. Aditya had also let out a House Property at a monthly rent of 25,000. The annual letting value is considered to be
2,50,000. The Municipal Taxes are 6,000, out of which 3,000 are paid by the Tenant and 3,000 are yet to be paid
by Mr. Aditya. Interest on Loan taken for the House Property is 20,000.
6. Mr. Adityas Minor Daughter received 75,000 fromStage Acting. Interest on Company Deposits of Mr. Adityas daughter
(Deposit was made out of Income fromStage Acting) was 10,000.
7. Aditya incurred an expense of 50,000 on the medical treatment of his dependent son, who has disability of more than 80%.
8. Aditya had taken a Loan during the year 20132014 for the education of his son, who is pursuing B.Com. in Delhi
University. Interest paid on the same during the year was 10,000.

Compute the Total Income of Mr. Aditya for the Assessment Year 20142015.

Solution: Note: Application of various provisions of law above have been illustrated in Chapter 6, 14 and 27.

Assessee: Mr. Aditya Previous Year: 20132014 Assessment Year: 20142015

Computation of Total Income
Particulars
1. Income from House Property (Refer Working Note 1) 1,90,000
2. Profits and Gains of Business or Profession (Refer Working Note 2) 1,44,250
3. Capital Gains on Sale of Car (Sale Value 17,000 less Cost of Acquisition 20,000) (3,000)
4. Income from Other Sources (Refer Working Note 3) 11,500
Gross Total Income 3,42,750
Nov 2013.2
Particulars
Less: Deductions under Chapter VIA
U/s 80DD Expenses on Medical Treatment of Son (Severe Disability) 1,00,000
U/s 80E Interest on Education Loan 10,000 (1,10,000)
Total Income 2,32,750

Working Note 1: Computation of Income from House Property (Let out Property)
Particulars
Gross Annual Value (25000 x 12) 3,00,000
Less: Municipal Taxes paid (No deduction as actual payment not made by Assessee.
Amount paid byTenant is not allowable as deduction.)
NIL
Net Annual Value 3,00,000
Less: Deductions u/s 24 30%of NAV ( 3,00,000 30%) 90,000
Interest on Borrowed Capital 20,000 (1,10,000)
I ncome from House Property 1,90,000

Working Note 2: Computation of Profits and Gains of Business or Profession
Particulars Deduct Add
Net Profit as per Profit & Loss Account given 1,35,000
Add / Less:
Gift from Friend considered separately 25,000
Sale of Car considered separately 17,000
Interest on Income Tax Refund considered separately 3,000
Arrears of Rent paid in Cash, disallowed u/s 40A(3) (Apr to Oct = 7 5,000 pm) 35,000
Repairs of Car 1/4
th
not allowed being personal use = 1/4
th
of 3,000 750
Wealth Tax, not allowable u/s 40(a)(iia) 5,000
Medical Expenses incurred for Spouse, being personal expenses disallowed 4,500
Car Driver Salary 1/4
th
of Car Driver Salary not allowed being used for personal use 4,500
Depreciation on Car considered separately 3,000
Advance Income Tax, not allowable u/s 40(a)(ii) 1,500
SubTotal of Adjustments 45,000 54,250 + 9,250
Profits and Gains from Business or Profession 1,44,250

Working Note 3: Computation of Income from Other Sources
Particulars
1. Interest on Income Tax Refund 3,000
2. Cash Gift from Friend (not taxable since amount is less than 50,000) Nil
3. Income earned by Minor Daughter from Stage Acting (i.e. by exercise of Skill, Talent, etc.), is
assessable only in her hands, and not clubbed in the Parents hands. However, Interest on
Bank Deposit shall be included, i.e. clubbed in Parents hands u/s 64(1A)
10,000
Less: Exemption u/s 10(32) (1,500) 8,500
Income from Other Sources 11,500

Question 1 (b): Service Tax Value of Taxable Service and Service Tax Payable (5 Marks)
Professionals Ltd is engaged in providing services which became taxable with effect from1
st
July 2013. Compute the Service
Tax payable by Professionals Ltd on the following amounts (exclusive of Service Tax) received for the month of March 2014:
Particulars
Services performed before such service became taxable (Invoice issued on 28
th
June 2013) 5,00,000
Services by way of renting of Residential Dwelling for use as Residence 1,50,000
Free Services rendered to the friends of Directors 20,000
Advance Received for services to be rendered in July 2014 5,00,000
Other Receipts 12,00,000
Rate of Service Tax is 12%Education Cess is 2%Secondary &Higher Education Cess is 1%.

Nov 2013.3
Solution: Similar to Q.No.30, Page 24.33 Padhukas Students Referencer on Income Tax, Service Tax & VAT
Also refer Q.No.30, Page 24.18 Padhukas Revision Guide for Taxation CA I PCC / I nter

Computation of Service Tax Payable by Professionals Ltd
Particulars
Services performed before such service became taxable (Note 1) Nil
Services by way of renting of Residential Dwelling for use as Residence (Note 2) Nil
Free Services rendered to the Friends of Directors (Note 3) Nil
Advance Received for the services to be rendered in J uly 2013 (Note 4) 5,00,000
Other Receipts 12,00,000
Total 17,00,000
Service Tax @ 12% 2,04,000
Add: Education Cess @ 2% 4,080
Add: Secondary and Higher Education Cess @ 1% 2,040
Service Tax Payable 2,10,120
Notes:
1. Under Rule 5, no Service Tax is payable for the value of services, which is attributable to services provided during the
period when such services were not taxable even if the amount is realized after such services have become taxable.
2. Services by way of renting of residential dwelling for use as residence are included in the Negative List of Services.
Hence, they are not subject to service tax.
3. Service Tax is not leviable in case of Free Services, since no consideration is involved.
4. Advance Received for the services to be rendered in J uly 2014, is liable for Service Tax.
5. It is assumed that Service Tax is collected on all Invoices, irrespective of Basic Exemption.

Question 1 (c): Computation of VAT Liability (5 Marks)
Compute Net VAT Liability of Sachin fromthe following information:
Particulars
RawMaterials fromForeign Market (includes Duty paid on Imports @ 20%) 1,20,000
RawMaterials purchased fromlocal market
Cost of RawMaterial 2,50,000
Add: Excise Duty @ 12% 30,000
2,80,000
Add: VAT @ 4% 11,200 2,91,200
RawMaterials purchased fromNeighbouring State (includes CST @ 2%) 51,000
Storage and Transportation Cost 9,000
Manufacturing Expenses 30,000
Sachin sold goods to Madan, and earned profit @ 12%on the Cost of Production. VAT Rate on Sale of such goods is 4%. There
is no Opening or Closing Stock.

Solution:
Similar to I llustration in Page 26.23 Padhukas Students Referencer on I ncome Tax, Service Tax and VAT
Also refer Page No.26.29, Q.No.18 Padhukas Revision Guide for Taxation CA I PCC / I nter [N 10 Qn]

Dealer: Sachin Computation of Net VAT Liability
Particulars
Raw Materials from Foreign Market 1,20,000
Raw Material from Local Market (Cost of Raw Material including Excise Duty) 2,80,000
Raw Materials purchased from Neighbouring State 51,000
Storage and Transportation Cost 9,000
Manufacturing Expenses 30,000
Cost of Production 4,90,000
Add: Profit Margin at 12% 58,800
Sale Value 5,48,800
Nov 2013.4
Particulars
VAT on Sale Value at 4% 21,952
Less: VAT Credit Available on Local Purchases (given) (11,200)
Net VAT Liability 10,752

Question 2 (a): Income fromHouse Property (8 Marks)
Mr. Krishna owns a Residential House in Delhi. The House is having two identical units. First Unit of the House is self
occupied by Mr. Krishna, and another unit is rented for 12,000 p.m. The rented unit was vacant for three months during the
year. The particulars of the house for the previous year 20132014 are as under:

Standard Rent 2,20,000 p.a.
Municipal Valuation 2,44,000 p.a.
Fair Rent 2,35,000 p.a.
Municipal Tax paid by Mr. Krishna 12%of the Municipal Valuation
Light and Water Charges 800 p.m.
Interest on Borrowed Capital 2,000 p.m.
Insurance Charges 3,500 p.m.
Painting Expenses 16,000 p.a.

Compute Income fromHouse Property of Mr. Krishna, for the Assessment Year 20142015.

Solution:
Also refer Page No.5.18, Q.No.5 Padhukas Revision Guide for Taxation CA I PCC / I nter [N 08 Qn]

Assessee: Mr. Krishna Previous Year: 20132014 Assessment Year: 20142015

Computation of I ncome from House Property
Particulars 1
st
Unit () 2
nd
Unit ()
Nature of House Property Self Occupied Let Out
Annual Value u/s 23(1)(a) / (b) (See Notes 1 & 2) NIL 1,08,000
Less: Municipal Taxes paid ( 2,44,000 12% 50%) NIL (14,640)
Net Annual Value NIL 93,360
Less: Deduction u/s 24
30% of NAV ( 93,360 30%)
Interest on Borrowed Capital ( 1,000 p.m. 12 months) each for 2 units
NIL
(12,000)
(28,008)
(12,000)
I ncome from House Property (12,000) 53,352
Taxable I ncome from House Property (after intersource adjustment) 41,352
Notes:
1. Annual Value of 2
nd
Unit is determined as under: Since it is identical units, both the House Properties occupy equal
floor space. [For Municipal Value & Tax Apportionment.] [So, 50% of each amount is considered in computations.]
(a) Higher of Municipal Value ( 1,22,000) or Fair Rent ( 1,17,500), i.e. 1,22,000.
(b) Lower of 1,22,000 (as per (a) above) or Standard Rent ( 1,10,000) , i.e. 1,10,000.
(c) Actual Rent Receivable for the whole year of 1,44,000 (12,000 12) and the Standard Rent of 1,10,000 which
ever is higher is the Annual Value.
(d) However, the annual value shall be the Actual Rent received for let out period, if it is lower owing to vacancy.
Hence, Annual Value is 1,08,000 ( 12,000 9).
2. Annual Value of 1
st
Unit: Since the House Property is self occupied by the Assessee, the Annual Value of the property
is taken as NIL.
3. Setoff of Losses: Loss from one House Property can be set off against Income from another Property, u/s 70.
4. Light and Water Charges, Insurance Charges and Painting Expenses are not allowable as deduction u/s 24.

Nov 2013.5
Question 2 (b): Service Tax Excess Service Tax, use of Single Challan, etc. (4 Marks)
(i) What will be the obligation of the Service Provider, in respect of excess Service Tax collected fromthe Recipient under the
Service Tax law?
(ii) Can a Multiple Service Provider use a single challan for payment of Service Tax for various services rendered by it?

Solution: Refer following pages of Padhukas Students Referencer on Income Tax, Service Tax and VAT
Qn Reference Answer
(i)
Page 24.30, Para 24.3.6
Point 1
Excess Collection [Sec.73A]: Assessee who has collected an amount in excess of
the amount required to be collected under Service Tax Law, should deposit such
amount with the Government. If not paid, the Central Excise Officer (CEO) shall serve
a show cause notice and after giving the Assessee a reasonable opportunity of being
heard, determine the amount payable by / refundable to him.
(ii)
Page 24.2, Para 24.1.1,
Point 5(b)
A Multiple Service Provider can either use single GAR 7 Challan for making payment in
respect of all services, or separate challans for each services rendered.

Question 2 (c): VAT Credit utilization against VAT &CST Payable (4 Marks)
Mayank, a Dealer, furnished the following details for the month of January 2014:
Inputs purchased within the State 1,00,000
Finished Goods sold within the State 2,00,000
Goods sold in the course of interState trade 1,00,000
Capital Goods procured during the month 1,00,000
VAT paid on Capital Goods 12.5%
Input VAT Rate 12.5%
Output VAT Rate 4%
Central Sales Tax Rate 2%

Compute the Total Tax Liability under the State VAT Law.

Note: The Capital Goods are not goods included in the Negative List. Input Tax Credit on Capital Goods is available in full in
the year of purchase.

Also refer Q.No.42, Page 26.19 Padhukas Revision Guide for Taxation CA I PCC / I nter

Computation of the Tax Liability for the month of J anuary 2014
Particulars
1. Output VAT = Output Sold in the month (within the State) 4% = 2,00,000 4% 8,000
2. Input VAT Credit (including Capital Goods) ( 2,00,000 12.5%) = ( 12,500 + 12,500) 25,000
3. Excess VAT Credit carried forward (1 2) 17,000
4. CST for InterState Sale = 1,00,000 2% 2,000
5. Balance VAT Credit carried forward to subsequent period (4 5) 15,000
6. State VAT Payable ( 8,000 25,000), sufficient Credit is available. Hence, VAT Payable = Nil
7. CST Payable ( 2,000 17,000), sufficient VAT Credit is available. Hence, CST Payable = Nil
Note: It is assumed that the respective State provides for Claim of Credit against CST Payable on InterState Sales.

Question 3 (a): Computation of Salary Income 8 Marks
Fromthe following details, find out the Salary chargeable to tax of Mr. Anand for the Assessment Year 20142015:

Mr. Anand is a regular employee of Malpani Ltd in Mumbai. He was appointed on 01032013 in the scale of 25,0002,500
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 months 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.

Nov 2013.6
He is provided free housing facility which has been taken on Rent by the Company at 15,000 per month. He is also provided
with following facilities:
(i) The Company reimbursed the medical treatment bill of 40,000 of his daughter, who is dependent on him.
(ii) The monthly salary of 2,000 of a housekeeper is reimbursed by the Company.
(iii) He is getting Telephone Allowance @ 1,000 per month.
(iv) A Gift Voucher of 4,700 was given on the occasion of his marriage anniversary.
(v) The Company pays Medical Insurance Premiumto effect an insurance on the health of Mr. Anand 12,000.
(vi) Motor Car running and maintenance charged fully paid by Employer of 36,600. (The Motor Car is owned and driven by
Mr. Anand. The engine cubic capacity is below1.60 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 2,200.

Also refer Q.No.38, Page 4.27 Padhukas Revision Guide for Taxation CA IPCC / I nter (N 10 Qn)

Assessee: Mr. Anand Previous Year: 20132014 Assessment Year: 20142015

Computation of Income under the Head Salaries
Particulars
Basic Salary ( 25,000 11) + ( 27,500 1) 3,02,500
Dearness Allowance ( 3,02,500 15%) 45,375
Bonus ( 27,500 x 1.5) 41,250
Employers Contribution to Provident Fund in excess of 12% [( 3,02,500 + 45,375) (18% 12%)] 20,873
Rent Free Unfurnished Accommodation [See Note below] 60,169
Medical Treatment of Daughter dependent on the Assessee ( 40,000 15,000) 25,000
Medical Insurance Premium on self (Not Taxable being paid by Employer) Nil
House Keepers Salary reimbursed ( 2,000 12) 24,000
Gift Voucher (Below 5,000. Hence not Taxable) NIL
Telephone Allowance = ( 1,000 12) 12,000
Motor Car = Amount incurred by Employer less 1,800 pm = [36,600 (1,800 x 12)] 15,000
Value of Free Lunch Provided Fully Exempt (Assumed not exceeding 50 per meal) Nil
Gross Salary 5,46,167
Less: Deduction u/s 16 NIL
Income under the head Salaries 5,46,167

Note: Valuation of Rent Free Unfurnished Accommodation
Particulars
I . Computation of Salary for Valuation of Accommodation Facilities
Basic + DA + Bonus + Telephone Allowance ( 3,02,500+ 45,375 + 41,250 + 12,000) 4,01,125
II. Computation of Taxable Value of Unfurnished Accommodation
Rent paid by Employer or 15% of Salary, whichever is lower = 1,80,000 or 15% of 4,01,125 60,169
Less: Rent recovered from employee Nil
Taxable Value of Unfurnished Accomodation 60,169

Question 3 (b): Service Tax First ST Return Enclosures (4 Marks)
List out the documents to be submitted along with the first Service Tax Return.

Solution: Refer Page 25.5, Para 25.2.1 Padhukas Students Referencer on Income Tax, Service Tax & VAT
Also refer Q.No.6, Page 25.4 Padhukas Revision Guide for Taxation CA IPCC / I nter (N 09 Qn)

Nov 2013.7
Question 3 (c): VAT Composition Scheme 4 Marks
What happens to VAT Chain when a Seller opts for Composition Scheme? Who are not eligible for Composition Scheme under
the VAT regime? Discuss briefly.

Solution: Refer Page 26.25, Para 26.8 Padhukas Students Referencer on Income Tax, Service Tax & VAT
Also refer Q.No.19, Page 26.10 Padhukas Revision Guide for Taxation CA I PCC / I nter (M 10 Qn)

Question 4 (a): Capital Gains Value adopted by Stamp Valuation Authority, Land vs Building LT / ST, etc. 4 Marks
Mr. Vaibhav sold a house, held as a Capital Asset, to his friend Mr. Dhanush on 1
st
December 2013, for a consideration of
25,00,000. The SubRegistrar refused to register the document for the said value, as according to him, Stamp Duty
Valuation based on State Government Guidelines was 45,00,0000. Mr. Vaibhav preferred an appeal to the Revenue
Divisional Officer, who fixed the value of the House as 35,00,000 ( 22,00,000 for Land and the balance for Building
portion). The differential Stamp Duty was paid, accepting the said value determined. Mr. Viabhav had purchased the Land
on 1
st
June 2006, for 5,19,000 and completed the construction of the House on 1
st
October 2011, for 14,00,000.

Cost Inflation Indices may be taken as 519 for the Financial Year 20062007, 785 for the Financial Year 20112012 and 939 for
the Financial Year 20132014.

Briefly discuss the tax implications in the hands of Mr. Vaibhav for the Assessment Year 20142015 and compute the Capital
Gains chargeable to tax.

Also refer Q.No.24, Page 7.23 Padhukas Revision Guide for Taxation CA IPCC / I nter (M 10 Qn)

Assessee: Mr. Vaibhav Previous Year: 20132014 Assessment Year: 20142015

Computation of Capital Gains
Particulars Land () Bldg ()
Sale Consideration (Note 1) 22,00,000 13,00,000
Less: Expenses on transfer
Net Consideration 22,00,000 13,00,000
Less: Cost of Acquisition / Indexed Cost of Acquisition (COA / ICA) (Note 2)
Land LTCA Indexed Cost of Acqn = ( 5,19,000
519
939
) (Refer Note 2)
(9,39,000)
Building STCA So, Cost of Acquisition (14,00,000)
Capital Gain/ (Loss) 12,61,000 (1,00,000)
Nature of Capital Gain / Loss LTCG STCL
Notes:
1. Sale Consideration: Value fixed in appeal, i.e. 35,00,000 ( 22,00,000 for Land and 13,00,000 for Building) shall be
taken as Sale Consideration.
2. Nature of Asset: Capital Gain arising out of Land will be LTCG (if Holding Period is > 36 months). Capital Gain arising out of
superstructure will be STCG. (if Holding Period is < 36 months). [C.R.Subramanian 242 ITR 342 (Kar.),
Dr.D.L.Ramachandra Rao 236 ITR 51 (Mad.) and Vimal Chand Golecha 201 ITR 442 (Raj.)]
Asset Purchase/ Construction completed Date Sale Date Period of Holding Nature of Asset
Land 01.06.2007 01.12.2013 > 36 Months LTCA
Building 01.10.2011 01.12.2013 < 36 Months STCA
3. STCL can be set off against LTCG u/s 70. So, LTCG of 11,61,000 ( 12,61,000 1,00,000) is taxable at 20%.

Question 4 (b): Taxability of Certain Receipts 4 Marks
State with brief reasoning whether the following receipts are chargeable to IncomeTax or are exempt (if chargeable, the
amount taxable is to be mentioned) for the Assessment Year 20142015. Computation is NOT required.
Nature of Receipts
(i) Interest on Enhanced Compensation received in 12032014 for acquisition of Urban Land, of which 40%
relates to the earlier year.
96,000
(ii) Rent Received for letting out Agricultural Land for a movie shooting 72,000

Nov 2013.8
Solution: For Previous Year: 20132014 Assessment Year: 20142015
I tem and Taxability Taxable Amount () Reference
1. Interest on Enhanced Compensation received in
the currxent year is taxable under the head
Income from Other Sources.
2. However u/s 57, 50% of deduction is available
on such enhanced compensation received.
48,000

Padhukas Students Referencer on
Income Tax, Service Tax & VAT
Page 8.2, Para 8.1.1, I tem 18, and
Page 8.3, Para 8.1.2, I tem 6.
Rent Received for letting out Agricultural Land for
a movie shooting is fully taxable, as it is not
considered as Agricultural Income.
72,000 Padhukas Students Referencer on
Income Tax, Service Tax & VAT
Page 13.2, Para 13.1.2

Question 4 (c): Service Tax Advance Received Service not rendered Amount Refunded Effect 4 Marks
Mr. Suresh Karthik, a Service Provider, received an Advance of 3 Lakhs fromMr. Dinesh Raina on 12042013. Even when the
Advance was received, there was some doubt as to whether any service will be rendered. No services were rendered to
Mr.Dinesh Raina, and ultimately on 12032014, Mr. Suresh Karthik refunded the amount to him. Mr. Suresh Karthik wants to
knowwhether
(i) Any Service Tax is payable when the advance was received, and
(ii) He can make selfadjustment of Service Tax while remitting Service Tax due for the quarter ended 31032014.

Solution: See following pages of Padhukas Students Referencer on Income Tax, Service Tax & VAT
Qn Reference Answer
(i)
Page 20.10, Para 20.3.10
Point 2
Service Tax is payable on amounts received as Advance, i.e. received for services
agreed to be provided.
(ii)
Page 24.28, Para 24.3.3,
Rule 6(3) / 6(4A)
SelfAdjustment can be done only in the subsequent month / quarter.

Question 4 (d): VAT Basics 2 +2 =4 Marks
(i) What are the items aggregated in the Addition Method to calculate the VAT payable? When is this method mainly used?
(ii) Is any threshold exemption limits fixed for Dealers to obtain VAT Registration, as per the White Paper? If yes, why is the
same provided?

Solution: See following pages of Padhukas Students Referencer on Income Tax, Service Tax & VAT
Qn Reference Answer
(i) Page 26.8, Para 26.3.1
All the Factor Payments including Profits, are added to arrive at the Total Value
Addition. This method is mainly used with Income Variant of VAT.
(ii) Page 26.32, Para 26.13
Threshold Exemption Limits are fixed to provide relief to Small Dealers. Small Dealers
with Gross Annual Turnover not exceeding 5 Lakhs will not be liable to pay VAT, but
State can extend upto 10 Lakhs.

Question 5 (a): Sec.10(48) of Income Tax Act 4 Marks
Briefly explain the exemption available under Section 10(48) of the IncomeTax Act, 1961 in respect of Income received by
certain Foreign Companies fromSale of Crude Oil.

Solution: See Page 3.6, Para 3.2.5 Padhukas Students Referencer on I ncome Tax, Service Tax & VAT

Any Income received in India in Indian Currency by a Foreign Company on account of sale of Crude Oil, or (w.e.f
01.04.2014, any other goods or rendering of services), as notified by Central Government in this behalf, to any
person is exempt, based on following conditions
1. Such Income is received in India by the Foreign Company, pursuant to an agreement or arrangement entered into by
Central Government or approved by Central Government.
2. Having regard to the national interest, the Foreign Company and the agreement or arrangement are notified by the
Central Government in this behalf. (Note: National Iranian Oil Company is notified vide Notfn No.22/2012 dt 14.6.2012)
3. The Foreign Company is not engaged in any activity in India, other than the receipt of such income.

Nov 2013.9
Question 5 (b): Power Sector WDV Option Depreciation and Additional Depreciation 4 Marks
Mr. Abhimanyu is engaged in the business of generation and distribution of electric power. He always opts to claim
depreciation on Written Down Value for IncomeTax purposes. Fromthe following details, compute the Depreciation allowable
as per the provisions of the IncomeTax Act, 1961 for the Assessment Year 20142015:

Particulars in Lakhs
(i) Opening WDV of Block (15%Rate) 42
(ii) NewMachinery purchased on 12102013 10
(iii) Machinery imported fromColombo on 12042013. This Machine has been used only in Colombo earlier and
the Assessee is the first user in India.
9
(iv) NewComputer installed in Generation Wing of the unit on 15072013 2

Also refer Q.No.27, Page 6.22 Padhukas Revision Guide for Taxation CA IPCC / I nter

Assessee: Mr. Abhimanyu Previous Year: 20132014 Assessment Year: 20142015

Computation of Depreciation allowable u/ s 32 (in )
Particulars Block I (15%) Block I I (60%)
Opening WDV as on 01.04.2013 42,00,000
Add: Additions made during the year
Second hand Machinery (Imported from Colombo) (12.04.2013) 9,00,000
New Machinery (12.10.2013) 10,00,000
New Computer Installation (15.07.2013) 2,00,000
Value of Block before charging Depreciation 61,00,000 2,00,000
Less: Depreciation for the year
Normal Depreciation (for entire year) (42,00,000+9,00,00)
15% = 7,65,000
2,00,000 60%
= 1,20,000
On New Plant and M/c put to use for less than 180 days at 50% 10,00,000 15%
50% = 75,000

Additional Depreciation on New Machinery
(restricted to 50% being less than 180 days of use)
10,00,000 20%
50% = 1,00,000

Total Depreciation Allowable u/ s 32 9,40,000 1,20,000
Closing WDV on 31.03.2014 51,60,000 80,000

Notes:
(a) Additional Depreciation is not allowed in respect of Second Hand Machinery, even if Assessee is the first user in India.
(b) No Additional Depreciation is allowed in respect of Assets other than Plant & Machinery. Hence, New Computer
Installation is not considered as Eligible Asset for the purpose of Additional Depreciation.

Question 5 (c) : Service Tax Value of Taxable Services and ST Payable 4 Marks
Mr. Visvakshena, who has been regularly assessed to Service Tax for the past four years, with taxable Service Tax Receipts of
21 Lakhs in the earlier financial year, furnishes the following details for the quarter ended 31032014:
Nature of Receipts Amount ( Lakhs)
Accounting Services rendered to Charitable Trusts 26
Selling Time Slots for T.V. Advertisements 32
Selling Time Slots for Advertisements in Newspapers 24
Compute the Value of Taxable Services and the Total Service Tax Payable by him.
Is he required to efile his Service Tax Return for the halfyear ended on 31032014?

Solution: See Page 21.5, Para 21.1.8 Padhukas Students Referencer on Income Tax, Service Tax & VAT
See Page 25.7, Para 25.2.3, Point 2 Padhukas Students Referencer on I ncome Tax, Service Tax & VAT

Nov 2013.10
Computation of Value of Taxable Services for the quarter ended 31.03.2014
Nature of Receipts Taxability Lakhs
Accounting Services rendered to Charitable Trusts Yes (No specific exemption given) 26.00
Selling Time Slots for T.V. Advertisements Yes [Not covered u/s 66D(g)] 32.00
Selling Time Slots for Advertisements in Newspapers No. Covered by Negative List Sec.66D(g)
Total Value of Taxable Service 58.00
Service Tax Payable at 12.36% (including EC & SHEC) 7.17
W.e.f. 01.10.2011, all Assessees have to file returns electronically. [Notification No 43/ 2011ST, dt 25.08.2011]

Question 5 (d): VAT Fill up the Blanks for the following items in the context of VAT. 4 Marks

Qn Question
Answer Reference
(i) The most commonly used method for computing VAT is the
Method.
I nvoice Method. Page 26.8, Para 26.3.2
(ii) The most widely used variant amongst the various ones is
the Variant.
Consumption Variant. Page 26.6, Para 26.2.3
(iii) When a Dealer opts for Composition Scheme, the VAT Chain
(continues / gets broken).
Gets broken. Page 26.25, Para 26.8
(iv) amongst the following is not an applicable VAT
rate : 0, 1, 8 and 12.5.
8% Page 26.4, Para 26.1.4

Question 6 (a) 8 Marks
Compute the Total Income of Mr. Krishna for the Assessment Year 20142015 fromthe following particulars:
Particulars
Income fromBusiness before adjusting the following items 1,75,000
(a) Business Loss brought forward fromAssessment Year 20122013 70,000
(b) Current Depreciation 40,000
(c) Unabsorbed Depreciation of earlier year 1,55,000
Income fromHouse Property (Gross Annual Value) 4,32,000
Municipal Taxes paid 32,000
Mr. Krishna sold a Plot at Noida on 12
th
September 2013 for a consideration of 6,40,000, which had been
purchased by himon 20
th
December 2010 at a cost of 4,10,000.

LongTermCapital Loss on Sale of Shares sold through Recognized Stock Exchange (STT paid) 75,000
LongTermCapital Gain on Sale of Debentures 60,000
Dividend on Shares held as StockinTrade 22,000
Dividend froma Company carrying on agri business 10,000
During the previous year 20132014, Mr. Krishna has repaid 1,67,000 towards Housing Loan froma Scheduled Bank. Out
of 1,67,000, 97,000 was towards Payment of Interest and rest towards Principal Payments. Cost Inflation Indices are as
under Financial Year 20102011: 711, Financial Year 20132014: 939.

Solution:
Also refer Page No.10.18, Q.No.10 Padhukas Revision Guide for Taxation CA I PCC / I nter

Assessee: Mr. Krishna Previous Year: 20132014 Assessment Year: 20142015

Computation of Total Income
Particulars
Income from House Property (assumed Let Out)
Gross Annual Value 4,32,000
Less: Municipal Taxes paid ( 2,44,000 12% 50%) 32,000
Net Annual Value 4,00,000
Less: Deduction u/s 24: 30% of NAV ( 4,00,000 30%) (1,20,000)
Interest on Borrowed Capital (97,000) (2,17,000)
Nov 2013.11
Particulars
I ncome from House Property 1,83,000
Profits and Gains of Business or Profession
Income from Business 1,75,000
Less: Setoff of the following:
Current Year Depreciation (40,000)
Unabsorbed Business Loss (Brought Forward from AY 20122013) (70,000)
Unabsorbed Depreciation of earlier year 1,55,000 (restricted to balance
Business Income) i.e. 1,75,000 40,000 70,000

(65,000) NI L
Balance Unabsorbed Depreciation for other Head Adjustments = 90,000
Capital Gains:
A. Long Term Capital Gain on Sale of Debentures 60,000
Long Term Capital Loss on Sale of Shares (Long Term Capital Gain on Sale of
Listed Securities, STT paid is fully exempt from tax. Hence, any Loss arising
from such Sale cannot be setoff.)

Nil
Total of above 60,000
Less: Unabsorbed Depreciation 90,000 available for set off, restricted to (60,000)
Long Term Capital Gains Nil
B. Short Term Capital Gain on Sale of Plot (Holding Period < 36 months)
Sale Consideration 6,40,000 less Cost of Acquisition 4,10,000 2,30,000
Less: Unabsorbed Depreciation 90,000 60,000 used against LTCG (Balance
setoff against Short Term Capital Gains)]
(30,000) 2,00,000
I ncome from Other Sources:
Dividend on Shares held as StockinTrade 22,000
Dividend from a Company carrying on agricultural activities 10,000 32,000
Less: Exemption u/s 10(34) (32,000) NI L
Gross Total Income 3,83,000
Less: Deduction under Chapter VIA:
U/s 80C Repayment of Housing Loan Principal ( 1,67,000 97,000) (70,000)
Total Income 3,13,000

Question 6 (b): Service Tax Meaning of Terms 4 Marks
In the context of chargeability of service tax, what are the implications of the termprovided or agreed to be provided?

Solution: See Page 20.10, Para 20.3.10 Padhukas Students Referencer on I ncome Tax, Service Tax & VAT

Question 6 (c): VAT Ineligible for ITC 4 Marks
List the purchases which are not eligible for Input Tax Credit under VAT Legislation.

Solution: Refer Page 26.14, Para 26.4.1, Point 6
Padhukas Students Referencer on Income Tax, Service Tax & VAT

Question 7 (a): Assessee as per Income Tax Act 4 Marks
Define the termAssessee as per the IncomeTax Act, 1961.

Solution: Refer Page 1.15, Para 1.8.1, Padhukas Students Referencer on Income Tax, Service Tax & VAT

Question 7 (b): EITHER Option Sec.10AA Exemption 4 Marks
Mr. Pranya is running two Industrial Undertakings, one in a SEZ (Unit A) and another in a DTA (Unit B). The brief details for the
year ended 31.03.2013 are as under: (amounts in Lakhs)

Nov 2013.12
Particulars Unit A Unit B
Domestic Turnover 10 100
Export Turnover 120 Nil
Gross Profit 20 10
Less: Expenses and Depreciation 07 06
Profits derived fromthe Units 13 04

The Brought Forward Business Loss pertaining to Assessment Year 20112012 for Unit B is 3.2 Lakhs. Briefly compute the
Business Income of the Assessee.

Solution:
Also refer Page No.3.13, Q.No.2 Padhukas Revision Guide for Taxation CA I PCC / I nter [M 11 Qn]

Assessee: Mr. Pranay Previous Year: 20132014 Assessment Year: 20142015

Computation of Business Income ( In Lakhs)
Particulars A B
Profits derived from the Units 13.00 4.00
Less: Exemption u/s 10AA

Turnover Total
Turnover Export
g Undertakin the of Business of Profit = 13.00
10 + 120
120

(12.00)
Taxable Profits 1.00 4.00
Less: Brought Forward Business Loss (3.20)
Business Income 1.00 0.80
Note: It is assumed that the above Financial Year falls within the first 5year period commencing from the year of
manufacture or production of articles / things, or provision of services, by Unit A.

Question 7 (b): OR Option Conditions to be satisfied by Charitable Trust 4 Marks
What are the conditions to be fulfilled by a Charitable Trust u/s 12A for applicability of exemption provisions contained in
Sections 11 and 12 of the IncomeTax Act, 1961?


Question 7 (c) : Service Tax Consideration not wholly in money 4 Marks
Describe briefly the manner of determination of value for service tax purposes, when consideration is not wholly/partly
consisting of money.

If Consideration partly in cash and partly in nonmonetary form, Value of Taxable service is such value which
together with the Service Tax is the consideration. [i.e. consideration shall be deemed as inclusive of service tax.].
Consideration shall include any amount that is payable for the taxable services provided or to be provided.

Question 7 (d): VAT Deficiencies of VAT 4 Marks
What are the deficiencies of VAT System?
[


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