CA. AJAY JAIN, 9310167881 1 May.

2012 - IPCC
Time Allowed - 3 hours Maximum marks - 100
Answers to question are to be given only in English except in the case of candidate who have opted for Hindi
medium. If a candidate has not opted for Hindi medium, answer in Hindi Will not be valued.
Question No. 1 is compulsory.
Attempt any five questions from the remaining Six questions.
Working notes should form part of the answer.
Wherever necessary suitable assumptions may be made by the candidates.
1. (a) Balamurugan furnishes the following information for the year ended 31-03-2012:
`
Income from business (1,35,000)
Income from house property (15,000)
Lottery winning (Gross) 3,00,000
Speculation business income 1,00,000
Income by way of salary 60,000
Long term capital gain 70,000
Compute his total income and tax liability . (5 marks)

(b) Discuss the applicability of presumptive taxation provisions under the income-tax Act, 1961 in the
following cases:-
(i) Mr. A, a resident individual, owning 10 goods carriages, opts for the presumptive
taxation scheme for the P.Y. 2011-12. He owns 5 heavy vehicles for 12 months, 3 medium
goods carriages for 10 months and 20 days and 2 light goods carriages for 5 months and
10 days. Compute his business income for the A.Y. 2012-13.
(ii) Mr. B, a resident individual, running a retail trade business, has a turnover of ` 58 lakh
during the P.Y. 2011-12. is he eligible to opt for presumptive taxation scheme and if so,
under which section? Would your answer be different if his turnover for the year was `
62 lakh instead of ` 58 lakh? (5 marks)

(c) AVJ Institute a coaching centre, is providing coaching to CA students. The institute has
furnished the following details for the period ended on 31.3.2012:-
(i) Registration fees received from the students for next batches 15,00,000
(ii) Amount received from the students of past batches in the form of
late fees invoice was issued at that time in p.y.10-11 5,00,000
(iii) Amount received for training of dance 3,00,000
(iv)Received car from students instead of fees, the market value of which is ` 8,00,000
(v) Total no. students of current batch 700
Fees per student 14,300
Services provided to charitable institutions 300 students
Services provided to kids of all foreign diplomats 150 students
Remaining students paid full fees.
Total receipts of the institute in the year 10-11 were 10 lacs.
You are required to calculate the value of taxable services and the service tax payable, briefly
explaining the treatment of each item above. (5Marks)

(d) The particulars regarding sale, purchase etc. of Mahavir Corporations for the first quarter of the
year 2011-12 are as under:
Particulars `
Purchases of raw material within the State (tax rate 12.5%) 60,00,000
Purchases of raw material within the State (VAT paid @ 4%, however , invoice 10,00,000
does not show the amount of tax separately)
High seas purchases (import duty paid @10%) 25,00,000
CA. AJAY JAIN, 9310167881 2 May. 2012 - IPCC
Taxable sale within the state (tax rate 4%) 1,00,00,000
Exempted sale within the State 10,00,000
(raw material worth ` 20,00,000 is used for producing such goods, VAT paid
on such input @ 12.5%)
Sale in the course of Inter-State trade or commerce (tax rate 2%) 10,00,000
Compute the amount of Value Added Tax (VAT ) M/S Mahavir Corporation for the relevant quarter.
There is no opening and closing stock of goods. How can he utilize the balance of input tax credit
available, if any? (5 marks)

2.(a)(i) List any five transaction for which quoting of permanent account number is mandatory.
(4 marks)
(ii) Who are the authorized signatories to the return of income in the following cases?
(a) Limited Liability Partnership;
(b) Hindu undivided Family, Where the Karta is absent from India: and
(c) Political party referred to in section 139(4B). (4 marks)
(b) Discuss, in detail, the Optional Composition Scheme for payment of service tax in case of life
insurance premium. (4 marks)
(c) Briefly discuss the addition method of computation of VAT. (4marks)

3.(a) Compute total income and tax payable of Mrs. X(59 years, blind) with the following information:-

1. Basic Salary from employer 2,00,000

2. Children education allowance for one child 4,800
3. Paid by cheque health insurance premium for her parents 18,000
4. She purchased infra bonds during the year 25,000
5. She is doing CA since last 40 years for which she took education loan and repaid principal of `
30,000 and interest of ` 8,000 during the year
6. Received Rent from building 50,000
7. Municipal taxes paid on the above building 10,000
8. Paid interest on loan taken for purchasing above building 6,000
9. Profit on sale of equity shares of RIL sold on 1-2-2012(purchased on 1-9-2011) 3,00,000
10. Profit on sale of building sold on 1-2-2012(purchased on 1-9-2010) 3,00,000
11. Sale price of Jewellery ( sold on 1-6-2011) 1,00,000
(purchased on 1-4-81 for ` 10,000)
12. Winning from lottery 4,00,000
(lottery ticket was purchased for ` 5,00,000)
13. Dividend received from Infosys ltd. 50,000
14. Interest received on debentures 20,000
15. She has a 5 year old son whose income from interest is 25,000 (8 mrks)

(b) What are the contents of the return? (4 marks)

(c) State the difference between compulsory registration and voluntary registration (4marks)

4.(a) (i) What are the special provisions of advance tax in case of casual incomes like lottery etc?
(4 marks)
(ii) Write a note on cases when exemption to charitable trust is not available u/s 13. (4 marks)
CA. AJAY JAIN, 9310167881 3 May. 2012 - IPCC

(b) Write a note on service of a practicing chartered accountant. (4 marks)

(c) State with reasons in the brief whether the following statements are correct or incorrect with
reference to the provision of value Added Tax & service tax. (2x 2 = 4 marks)
(i) Consumption variant is convenient from the point of administrative expediency. Is the
proposition true? If yes, briefly explain any other benefits that consumption variant might
accrue.
(ii) Wipro ltd. developed software for internal security of government. Service tax is not leviable on
such services provided to government.

5.(a) XYZ Ltd. made the following payment during the P.Y. 2011-12. Discuss whether disallowance
under section 40(a)(ia) is attracted for not deducting tax at source or not depositing such tax within
the prescribed time, as the case may be, in respect of each of the following payments:- (8 marks)
(i) ` 28,000 paid to Mr. Arjun, a resident, towards fees for technical services and ` 25,000 towards
fees for professional services in January, 2012. No tax has been deducted at source. No other
payment has been made to Mr. Arjun during the year.
(ii) Rental payment of ` 12,000 per month to Mr. Raghav, a resident. No tax has been deducted at
source.
(iii) ` 80,000 paid to Mr. Akash in April 2011, a resident contractor, for contract work. Tax deducted
at source under section 194C was deposited only on 14th May, 2012.
(iv) ` 35,000 paid to Mr. Ranjit, a resident, towards fees for professional services in March, 2012. Tax
deducted at source under section 194J was deposited on 2nd November, 2012.

(b) Write a note on general exemptions available in case of all services. (4 marks)

(c) “VAT system reduces the compliance cost for both assessee and government.” explain the
validity of the given statement. (4 marks)

6.(a) From the following particulars, compute the total income of Mr. raj for the A.Y. 2012-13 and the
losses, if any, to be carried forward to A.Y.2013-14:- (8 marks)
Particulars `
(i) Salaries 2,75,000
(ii) Loss from textile business 3,50,000
(iii) Profit from retail trade 1,95,000
(iv) Long-term capital loss on sale of listed equity shares (STT paid) 25,000
(v) Long-term capital gains on sales on land 40,000
(v) Short-term capital loss on sale of listed equity shares (STT paid) 50,000
(vi) Loss from speculative business 15,000
(vii) Loss from house property 75,000

(b) Write a note in brief on amount collected from receiver as service tax to be deposited with
Central Government. (4 marks)

(c) Discuss the words “certainty” and “transparency” in the context of VAT system. (4 marks)

7. (a) i) What shall be the tax liability of Mrs. Chameli if

 LTCG 2,00,000
 Income from salary 1,00,000
 Lottery 50,000
CA. AJAY JAIN, 9310167881 4 May. 2012 - IPCC
 Agricultural income 6,00,000
 Tuition fees of children 20,000

(ii) Employer has provided with a car. The expenses of the car are as follows:-
Petrol 4,000 p.m., Hire charges of car 10,000 p.m., Driver salary 8,000 p.m.
(A) Car is used only for official purpose
(B) Only for personal purposes
(C) 20% for official and 80% personal purposes (2 x 4 = 8 marks)

(b) Ahmed & Co. of Srinagar rendered taxable services both within and outside the State of Jammu

& Kashmir. It received ` 26,12,000 for the services rendered inside the State of Jammu &

Kashmir and ` 18,00,000 for the services rendered outside the State of Jammu & Kashmir.

Compute its taxable service value and service tax liability.

In case, Ahmed & Co. was situated in Mumbai, what would be value of its taxable service and
service tax liability? (4 marks)

(c) The particulars regarding sale, purchase etc. of Shubham Udyog for the last quarter of the year
2010-2011 are as under:
1. Purchases of raw material within the State
(i) Taxable @ 1% 40,00,000
(ii) Taxable @ 4% 60,00,000
(iii) Taxable @ 12.5% 10,00,000
2. Sale of goods manufactured from raw material
purchased @ 4% tax rate
(i) Taxable sale within the State (tax rate 4%) 20,00,000
(ii) Exempted sale within the State 10,00,000
(iii) Sale in the course of Inter-State trade or commerce (CST rate 2%) 10,00,000
3. Sale of raw material purchased @ 1% tax rate 44,00,000
4. Goods manufactured from the raw material purchased @ 12.5% tax rate were given on lease.

The deemed sale price of such goods is ` 12,00,000, taxable @ 12.5%.

You may assume that input tax credit of tax paid on raw material used in manufacture of leased
goods is available immediately. Compute the amount of Value Added Tax (VAT) payable by M/S
Shubham Udyog for the relevant quarter. There was no opening or closing inventory.
How can he utilise the balance of input tax credit available, if any? (4 marks)
CA. AJAY JAIN, 9310167881 5 May. 2012 - IPCC

SUGGESTED ANSWERS
Ans.1(a) Computation of total income of Balamurugan for the year ended 31.03.2012
Particular ` `
Salaries 60,000
Less: Loss from house property (15,000)
Net salary (after set off of loss from house property) 45,000
Profits and gains of business or profession
Speculation business income
Less: Business loss set-off
Net business loss to be set –off against long-term capital 1,00,000
gain (1,35,000)
Capital gains (35,000)
Long term capital gain
Less: Business loss set-off
Long term capital gain after set off of business loss 70,000
Income from other sources (35,000)
Lottery winnings (Gross) 35,000
Total income
3,00,000
3,80,000

Computation of tax liability

Particulars `
On total income of ` 80,000 (excluding lottery winning)
Nil
On lottery winnings of ` 3,00,000 @ 30% 90,000
Add: Education Cess @ 2% and Secondary and higher education cess @ 1% 2,700
Total tax liability
92,700
Note :-
(1) The basic exemption limit of ` 1,80,000 has to be first exhausted against salary income of `
45,000. The unexhausted basic exemption limit of ` 1,35,000 can be adjusted against long-
term capital gains of ` 35,000 as per sec 112, but not against lottery winnings which are
taxable at a flat rate of 30% u/s 115BB.

Ans.(b)(i) Section 44AE provides for estimating business income of an owner of goods carriages from
the plying, hiring or leasing of such goods carriages. The scheme applies to person owning not
more than 10 goods carriages at any time during the previous year.
The profit and gains from each heavy goods vehicle will be deemed to be ` 5,000 for every
month or part of a month during which the heavy goods vehicle is owned by the assessee in the
previous year or an amount claimed to have been actually earned from such vehicle, whichever
is higher. In case of a goods vehicle, other than a heavy goods vehicle, the profits and gains
from each such vehicle shall be ` 4,500 for every month or part of the month during which such
CA. AJAY JAIN, 9310167881 6 May. 2012 - IPCC
goods vehicle is owned by the assessee in the previous year or an amount claimed to have been
actually earned from such vehicle, whichever is higher.
Therefore, the business income of Mr. A under section 44AE would be computed as follows:-
Particulars `
5 heavy goods vehicles for 12 months (5 x 12 x 5,000) 3,00,000
3 medium goods vehicles for 10 months and 20 days (3x11x4,500) 1,48,500
2 light goods vehicles for 5 months and 10 days (2x6x4,500) 54,000
5,02,500
(ii) The presumptive taxation scheme, so far restricted to civil construction and retail trade, would
now cover all small businesses with total turnover/gross receipts of up to RS.6 lakh. Section
44AD has been substituted w.e.f. A.Y.2011-12, to include within its scope all such businesses
(except the business of playing, hiring and leasing goods carriages covered under section44AE).
Consequently, section 44AF dealing with presumptive taxation for retail trade would not be
applicable w.e.f. A.Y. 2011-12 sine retail trade would also fall within the scope of section 44AD.
Resident individuals, HUFs and partnership firm (but not LLPc) would be covered under this
scheme. Such assessees opting for the presumptive scheme are not required to maintain books
of account under section 44AA or get them audited under section 44AB.
Since Mr. B is a resident individual and his turnover during the P.Y. 2011-12 is less than
RS.60 lakh, he is eligible to opt for presumptive taxation scheme under section 44AD.
The presumptive rate of tax would be 8% of total turnover or gross receipts. Therefore, if Mr. B
opts for presumptive taxation scheme under section 44AD, his business income would be
`4,64,000 (i.e., 8% of `58 lakh).
If the turnover of Mr. B from retail trade is `62 lakh instead of `58 lakh, he would not be
eligible to opt for the presumptive taxation scheme under section 44AD, since the business
would not fall within the meaning of "eligible business” as defined in Explanation (b) to section
44AD on account of the turnover exceeding RS.60 lakh in the relevant previous year. Therefore,
he has to maintain books of account under section 44AA and get them audited under section
MAB and compute his income as per the other provisions of the Income-tax Act, 1961.

Ans.(c) Calculation of Value of Taxable Service for the period ended on 31.3.2011
Particulars `
Total Fees received from the current batch [Refer note I] 78,65,000
Add: Advance received i.e. Registration fees [Refer note II] 15,00,000
Add: Amount received for services rendered earlier [Refer note III] NIL
Add: Amount received for training of singing [Refer note IV] NIL
Add: Market value of car received [Refer note V] 8,00,000
Value of Taxable services 1,01,65,000
Computation of Service Tax payable
Total value of Taxable services [Refer note VI] 91,65,000
Service Tax payable (91,65,000 x 10.3) 8,55,843
110.3
Notes:
I. Fees payable by the current batch (700 x ` 14,300) 1,00,10,000
Less: Services to kids of foreign diplomat (150 x Rs 14,300) 21,45,000
Total Fees received from the current batch 78,65,000
II. As per Rule 6, service tax has to be paid on advance payment also. As registration
fees for next batch is received in advance. Therefore, ` 15,00,000 shall be Taxable.
III. As per PTR 2011, point of taxation takes place at that time when service is deemed
to be provided.
(i) If Invoice is issued in 14 days from completion of service:-
CA. AJAY JAIN, 9310167881 7 May. 2012 - IPCC
Date of Payment or date of invoice
whichever is earlier.
(ii) If invoice is not issued in 14 days of completion of service:-
Date of Payment or date of completion
whichever is earlier.
IV. As per Section 65(105) Recreational training relating to activities such as dance,
singing or hobbies is not taxable under Commercial Training or Coaching Service.
V. As per section 67 where the consideration for providing services is received in
Kind, value of such services shall be equivalent to the money value of the
consideration. Therefore, Market value of car ` 8,00,000 shall be taxable.
VI. As per Notification no. 6/2005 Service tax has been exempted on the value of
services upto ` 10 lakhs as the total taxable services in the preceding year does not
exceeds ` 10 lakhs.
Therefore, Total value of Taxable services is ` 91,65,000 (` 1,01,65,000 – 10,00,000)

Ans.(d) Computation of VAT payable for the quarter ending 30th June, 2011:
Particulars ` `
Output tax payable = ` 1,00,00,000 x 4% 4,00,000
Less: Input tax credit
On raw material purchased @12.5%
(60,00,000x12.5%) 7,50,000
Less: Inputs used in the manufacture of exempted
goods sold(20,00,000x12.5%) (Note-1) 2,50,000 5,00,000
Net VAT payable (1,00,000)
CST payable on inter state sale adjusted(10,00,000x2%) 20,000
Balance of input tax credit carried forward to next
quarter(20,000-1,00,000) 80,000
Note:
1. If the goods manufactured from raw material are exempt from tax, no input tax credit is
available on such raw material.
2. Import duty paid on high seas purchases is not eligible for input tax credit.
3. Purchases of raw material within the state on which VAT has been paid @ 4% are not eligible
for input tax credit because invoice for the said purchases does not show the amount of the
separately.

Ans.2(a)
(i) Transactions for which quoting of PAN is mandatory
(a) Sale or purchase of any immovable property valued at `5 lakh or more;
(b) Sale or purchase of mot e or other vehicle(other than two wheeled motor vehicle)which
requires registration under section 2(28) of the Motor vehicle Act, 1988;
(c) A time deposit exceeding ` 50,000 with a banking company;
(d) A deposit exceeding ` 50,000 in any account with Post office Savings Bank;
(e) A contract for sale or purchase of securities exceeding value of ` 1 lakh;

Note- For detailed list, refer to Chapter 10 of the Study Material. Any 5 of the transactions listed
therein can be given in the answer.

(ii) (a) Limited Liability Partnership:- Designated partner. Where there is no designated
CA. AJAY JAIN, 9310167881 8 May. 2012 - IPCC
partner or for any unavoidable reason, such designated partner is not able to sign and
verify the return, any partner of the LLP can sign the return of income.
(b) Hindu Undivided Family, where the Karta is absent from India – any other adult
member of the family;
(c) Political party referred to in section 139(48) - the chief executive officer of such party
(whether he is known as secretary or by any other designation).

Ans.(b) [If the whole premium is not towards risk cover in life then insurer has the option to pay
(i) tax @ 10.3% on the gross premium charged reduced by the amount of investment or savings
on behalf of policyholder, if such amount is intimated to policy holder or
(ii) [1.545%] of gross premium as tax .]

Ans.(c) Addition Method

Under this method VAT is calculated using the following formula
VALUE ADDITION = Profit + Trading and Manufacturing Expenses

A drawback of this method is that it does not require invoices of suppliers for detection of tax
evasion. Also it is not possible to find out at the time of sale, exact expenses related to that
sales. It may possible only after the end of the year. And indirect taxes have to be determined at
the time of sales itself, because they have to be recovered from the customer.
Ans.3(a) Computation of Total Income of Mrs. X for A/Y 12-13
1. Income u/h salary
(i) Basic Salary 2,00,000
(ii) Children education allowance (4800 – 1200) 3,600 2,03,600
2. Income u/h house property [Refer Note 1] 22,000
3. Income u/h capital gain [Refer Note 2 ] 6,21,500
4. Income u/h other sources [Refer Note 3] 4,43,500
Gross total Income 12,90,600
(i) Winning from lottery 4,00,000
(ii) LTCG 21,500
(iii) STCG u/s 111A 3,00,000
(iv) Other Incomes 5,69,100
( 12,90,600 - 4,00,000 - 21,500 – 3,00,000)
Less: Deductions u/c VI-A
1. 80CCF 20,000
2. 80D 18,000
3. 80E 8,000
4. 80U 1,00,000 (1,46,000) 4,23,100
Total Income 11,44,600
Statement of Taxes
1. Tax on Other Income 23,310
2. Tax on LTCG (21,500 X 20%) 4,300
3. Tax on STCG u/s 111 A (3,00,000 X 15% ) 45,000
4. Tax on Lottery (4,00,000 X 30%) 1,20,000
1,92,610
Add: Education Cess @ 2% 3,852
Add: SHEC @ 1% 1,926
Total Tax liability 1,98,388
Rounded off 1,98,390
NOTES:
CA. AJAY JAIN, 9310167881 9 May. 2012 - IPCC
1. Income under head House Property:
Gross Annual Value 50,000
Less: Municipal Taxes paid (10,000)
40,000
Less: Deduction u/s 24(i)Standard Deduction @ 30% (12,000)
(i) Interest on loan for bldg (6,000) (18,000)
Taxable Income u/s 22 22,000
2. Income under head Capital Gains:
(i) STCG under 111 A 3,00,000
(ii) STCG on bldg 3,00,000
(iii) Sale consideration of Jewellery 1,00,000
Less: Indexed Cost of Acquisition (10,000X 785/100) (78,500)
Long term Capital Gain 21,500 21,500
Income taxable u/s 45 6,21,500
3. Income under head Other Sources:
(i) Lottery 4,00,000
(ii) Dividend from Indian co. exempt
(iii) Interest on debentures 20,000
(iv) Income from minor son [25000 – 1500] 23,500 4,43,500
Ans.(b) Following are the contents of the RETURN:
a) Amount received
b) Amount billed for exempted
service or for exported service
c) Amount received in advance
d) Exemption Notification, if any
e) Credit details for service tax provider/receiver
f) Education cess and SHEC payable
g) GAR – 7 challan (old name TR-6 challan) date and number
h) Service tax payable

Ans.(c) Difference between compulsory registration and voluntary registration:-

Compulsory registration
If an assessee fails to obtain registration under the VAT Act, he may be registered compulsorily
by the Commissioner. The Commissioner may assess the tax due from such person on the basis
of evidence available with him. In this event the assessee shall have to forth with pay such
amount of tax. Further, failure to get registered shall result in attracting default penalty and
forfeiture of eligibility to set off all input tax credit related to the period prior to the compulsory
registration.
Voluntary registration
A dealer otherwise not eligible for registration may also obtain registration if the Commissioner
is satisfied that the business of the applicant requires registration. The Commissioner may also
impose any terms or conditions that he thinks fit.
Ans.4(a)(i)
1. Advance tax is payable by an assessee on his total income, which includes capital gains and casual
income like income from lotteries, crossword puzzles etc.
2. Generally it is not possible to estimate his capital gains, income from lotteries etc.
3. Therefore it has been provided that if any such income arises after the due date for any installment,
then, the entire amount of tax payable on such capital gains or casual income should be paid in the
remaining installments of advance tax which are due.
If such incomes are earned after 15th March, the entire tax should be paid by 31st march of
the relevant financial year.
CA. AJAY JAIN, 9310167881 10 May. 2012 - IPCC
4. No interest liability would arise if the entire tax liability is so paid.
(ii)
1. Income of a trust for religious purposes which is not for the benefit of the public.
2. Income of a charitable trust which is created for the benefit of any particular community.
3. Any income of a religious or charitable trust if such income is used or applied for the benefit of the
(i) Author
(ii) Any person whose total contribution at the end of the relevant p/y exceed ` 50,000
(iii) Family member of the HUF which is author
(iv) Any trustee or manager of the trust
(v) Any relative of author, trustee, such person.
4. Anonymous donations i.e. when name and address of donor is not maintained, [shall be taxable
(except in the case of religious trust, for which they shall be exempt) highest rate of 30% to extent
such donation exceeds-.
a) 5% of total income or
b)1,00,000 whichever is more]
(b) “Practicing chartered accountant”–
Who is member of the ICAI and
 is holding a certificate of practice granted under the provisions of the Chartered
Accountants Act, 1949 (38 of 1949)
 and includes any concern engaged in rendering services in the field of CA.
Notification No. 59/98, granting exemption to CA/CS/CWA was withdrawn w.e.f. 1.3.06.
Hence services provided by CA in respect of
(a) Preparing and filing of returns (Income tax, service tax, VAT etc.)
(b) Providing opinions on any matter including taxation, preparation of project report
(c) Providing consultancy on any issue including taxation.
(d) Conducting audit, certification etc.
(e) services provided by CA in respect of proceedings under any law for representation
with any statutory authority
shall remain taxable.
Note:- All persons whose names are entered in the register maintained under the provisions of
the ICAI Act shall be known as members of the institute.
(c)(i) Yes, the given proposition is correct. The consumption variant is convenient from the point of
administrative expediency as it simplifies tax administration by obviating.
One hand and consumption goods on the other hand.
Besides, 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).
In practice, therefore, most countries use the consumption variant.
(ii) Correct: Information technology software services provided to government or charitable institute
are exempt u/s 65(105)
Ans.5.(a) The scheme of disallowance under section 40(a)(ia) has been amended by the Finance Act,
2010, with effect from A.Y.2010-11, to extend the time limit for depositing tax deducted during
the entire year up to the due date of filing return of income to ensure compliance with the
statutory requirement to avoid disallowance of expenditure under section 40(a)(ia).
However, even under the new scheme, tax is required to be deducted during the
relevant previous year, in cases where TDS provisions are attracted. The tax, so deducted, has to
be deposited on or before the due date of filing of return to claim deduction of the expenditure
in the relevant previous year to which it relates.
(i) The limit of `30,000 under section 194J is applicable separately for fees for professional
services, fees for technical services, royalty and non-compete fees referred to in section
28(va). It implies that if the payment to a person towards each of the above is less than
CA. AJAY JAIN, 9310167881 11 May. 2012 - IPCC
RS.30,000 no tax is required to be deducted at source, even though the aggregate
payment or credit exceeds `30,000.
Therefore, if XYZ Ltd. makes a payment of `28,000 to Mr. Arjun towards fees for
technical services and another payment of `25,000 to him towards fees for professional
services during the P.Y.2011-12, TDS under section 194J would not get attracted, since
the limit of `30,000 is applicable for fees for professional services and fees for technical
services, separately. Therefore, disallowance under section 40(a)(ia) for non-deduction of
tax at source is not attracted in this case.
(ii) The threshold limit for deduction of tax at source under section 194-1 for rental
payments has been increased from `1,20,000 to `1,80,000 with effect from 1st July, 2011.
Therefore, since the rental payment to Mr. Raghav is less than `1,80,000 in the P.Y.2011-
12, there is no requirement to deduct tax at source under section 194-1. Therefore,
disallowance under section 40(a)(ia) for non deduction of tax at source is not attracted in
this case.
(iii) In this case, since the tax deducted under section 194C during the P.Y.2011-12 has been
paid before the due date of filing of return i.e., before 30th September, 2012,
disallowance under section 40(a)(ia) is not attracted.
(iv) Since tax deducted under section 194J during the P.Y.2011-12 has been paid after the due
date of filing of return i.e., after 30th September, 2012, the payment of `35,000 towards fees
for professional services would be disallowed under section 40(a)(ia) while computing
income under the head "Profits and gains of business or profession" for A.Y.2012-13.
(b) The following General exemptions available in case of all services are:-
(a) Services provided to United Nations or International Organisation or officers of any
foreign diplomatic mission in India.
(b) Services provided to a developer or units of special Economic Zone.
(c) As per Notification No. 6/2005 Service tax has been exempted on value of services
upto 10 lakhs.
But this exemption is available only if value of taxable services in the preceding year
does not exceed ` 10 lakhs.

(c) No, The statement is not valid

Compliance cost to dealers:-
For complying with the VAT provisions, the accounting costs will increase. The burden
of this may not be commensurate with the benefits to traders and small firms.
Cost of administration to the State:-
On the other hand, the administration cost to the State can increase significantly as the
number of dealers to be administered will go up significantly.
Therefore it can not be said that VAT reduces the compliance cost, rather it can be
said that this is the only major disadvantage of VAT.
Ans.6(a) Computation of total income of Mr. Raj for the A.Y.2012-13
Particulars ` `
Salaries 2,75,000
Less: Set-off of loss from house property as per section 71 (75,000) 2,00,000
Profit from retail trade 1,95,000
Less: Set-off of loss from textile business as per section 70 (1,95,000) Nil
to the extent of `1,95,000
Long term capital gains on sale of land 40,000
Less: Short-term capital loss on sale of listed equity shares as per
section74(1) set-off to the extent of long-term capital gains 40,000 Nil
CA. AJAY JAIN, 9310167881 12 May. 2012 - IPCC
Total Income 2,00,000
Losses to be carried forward to A.Y. 2013-14
Loss from textile business (`3,50,000-`1,95,000) 1,55,000
Loss from speculative business 15,000
Short-term capital loss (` 50,000-` 40,000) 10,000
Notes:
(1) Loss from an exempt source cannot be set-off against profit from a taxable source. Long-term
capital gains on sale of listed equity shares on which securities transaction tax is paid is exempt
under section 10(38). Therefore, long-term capital loss on sale of listed equity shares is a loss
from an exempt source, and therefore it cannot be set-off against long-term capital gains on sale
of land.
Short-term capital loss on sale of listed equity shares on which securities transaction tax
is paid is not a loss from an exempt source but a loss from a taxable source, since short-term
capital gains from sale of such shares is taxable@15% under section 111A. Therefore, such short-
term capital loss can be set-off against long-term capital gains on sale of land.
It may be noted that short-term capital loss can be set-off only against income under the
head ‘Capital gains’ and not against any other income. Therefore, the remaining short-term
capital loss of `10,000 cannot be set-off against salary income. The same has to be carried
forward for set-off against capital gains, if any, in the next year.
(2) Loss from speculative business cannot be set-off against profits from ordinal business as per
section 73(1). It has to be set-off only against profits from any other speculative business. Since
there is no such profit in the current year, such loss can be carried forward to the next year for
set-off against profits from any other speculation business in that year as per section 73(2).

(3) Business loss cannot be set-off against salary income as per section 71(2A). Therefore, the
balance loss of `1,55,000 from textile business cannot be set-off against salary income.
(b) As per Section 73A
 Every person who has collected any amount from receiver as service tax, in excess of actual tax,
must pay the amount immediately to the Central Government.
 If the amount is not so paid, the officer may serve on such person a notice requiring to show
cause why the said amount should not be paid by him.
 Officer shall, after considering the reasons given by such person, determine amount payable.
 Such excess amount shall either be credited to the consumer welfare fund or refunded to the
person who has borne the incidence of such amount.
(c) Transparency:-
In the single point tax system, the tax component is hidden in the sale price of a commodity.
But under present VAT system, the buyer knows the exact amount of tax he pays to the govt.
What the final buyer pays to his seller is the total amount of tax that government gets from that
commodity, neither less nor more.
No tax is hidden and everything is known to the customer, which is called transparency.
Certainty
Certainty is a system where the amount of tax required to be paid is fixed, where it cannot be
changed.
Prior to implementation of VAT in India, sales tax assessment was done by the department. It
was not certain that tax will be on the actual sale price at which goods will be sold to the
ultimate consumer. Tax paid on first stage could be more or less than the amount at which
goods were sold to ultimate consumer. After introduction of VAT it is now very much certain
that tax will be charged only on actual sale price. Hence VAT system brings certainty of tax.
Ans.7(a)(i) Calculation of Gross total Income of Mrs. Chameli
Income u/h `
1. Salary 1,00,000
CA. AJAY JAIN, 9310167881 13 May. 2012 - IPCC
2. Capital Gain- LTCG 2,00,000
3. Other Source- Lottery 50,000
3,50,000
1. Lottery 50,000
2. LTCG 2,00,000
3. Other Income 1,00,000
Less: Ded. u/s 80C 20,000 80,000
3,30,000
Computation of tax liability of Mrs. Chameli
Step I Tax on agricultural income + non-agricultural income [50 + 2,00 + 80 + 6,00] `
1. Lottery 15,000
30% X 50,000
2. Tax on [Other incomes][80,000+6,00,000] i.e. 6,80,000 67,000
3. LTCG
[20% of 2,00,000] 40,000
1,22,000
Step 2
Tax on [Exemption limit of Mrs. Chameli+ Agri. Income]
[1,90,000+6,00,000] 7,90,000 89,000
Step3 Step1 - Step2
1,22,000-89,000 33,000
Add: Education cess 3% of 33,000 990
33,990
(ii)(a) Car is used only for official purpose Nil
(b) Only for personal purposes(22,000x12) 2,64,000
(c) Partly official partly personal purposes 32,400
(1,800 assuming upto 1.6 ltr cc + 900 driver) p.m. 2700 x 12

Ans.(b)Eligibility to service tax for services rendered in Jammu & Kashmir and other places:-
The services rendered inside the State of Jammu and Kashmir are not liable to service tax and
hence, ` 26,12,000 is not chargeable to service tax.
The services rendered outside the State of Jammu and Kashmir are liable to service tax. Hence,
receipts of ` 18,00,000 is liable to service tax.
The service tax liability would be ` 18,00,000 x 10.30 = ` 1,68,087.
110.30
In case Ahmed & Co. was in Mumbai, the services rendered in the State of Jammu and Kashmir
would not be liable to service tax levy and the services rendered at any place other than Jammu
and Kashmir would be liable to service tax.
In effect, the value of taxable service and service tax liability would be the same. There won’t be
any change in value of taxable service and service tax liability.

(c) Ans. Computation of VAT payable for the quarter ending 31st March, 2011
Particulars `
(A) Output tax payable
(i) On sale of taxable finished goods within the state (` 20,00,000 x 4%) 80,000
(ii) 44,000
(iii) On raw material (` 44,00,000 x 1%) 1,50,000
On leased goods (` 12,00,000 x 12.5%) (Deemed sale) 2,74,000
(B) Total (A)
(i) Input tax credit available 4,000
CA. AJAY JAIN, 9310167881 14 May. 2012 - IPCC
(ii) On raw material purchased @ 1% (` 40,00,000 X 1%) 1,80,000
(iii) 1,25,000
On raw material purchased @ 4% (` 60,00,000 X 4%) X 75% (Note 1) 3,45,000
On raw material purchased @ 12.5% (` 10,00,000 X 12.5%) (71,000)
Total (B) 20,000
Net VAT payable = (A) - (B) 51,000
CST payable on inter state sale adjusted (` 10,00,000 x 2%) (Note-2)
Balance of input tax credit carried forward to next quarter (` 20,000 – ` 71,000)

Notes:-
1. It has been assumed that the amount of raw material used in the manufacture of exempted
goods is proportionate to amount of the exempted sale in the total sales of goods
manufactured from raw material purchased @ 4% assuming the input output ratio to be
constant (10/40*60 = 15 lakh). Since credit is not allowed in respect of inputs used in
manufacture of exempt goods input tax credit has been allowed to the extent of 75% [(60-
15)/60*100 = 75%]

2. If finished goods are sold in the course of inter-state trade and commerce, input tax can be
set off against the output tax liability.