Intermediate Examination Syllabus 2016 Paper 7: Direct Taxation (DTX)

Mock -1 Question Paper and Model Answers for Online Examination
INTERMEDIATE EXAMINATION
Syllabus 2016
Paper 7: DIRECT TAXATION (DTX)

Time Allowed: 3 Hours Full Marks: 100
There are Sections A, B, C and D to be answered subject to instructions given against each.
(Time allotted for Sections A and B shall be limited to a maximum of 50 minutes)
Section A 20
Marks
1. You are required to answer all the questions. Each question carries 1 mark. 20 X 1
Instructions: Each question is followed by 4 Answer choices and only one is correct. You are required to = 20
select the choice which according to you represents the correct answer.
a. The number of identities included in the definition of persons is

(i) Five
(ii) Six
(iii) Seven A
(iv) Eight
b. The basic exemption limit for a resident super senior citizen above the age of 80 is
(i) 200,000
(ii) 2,50,000
(iii) 5,00,000 A
(iv) None of the above
c. When Mr. B paid royalty to Dr. P of Sweden for use of know-how in India, such payment is
(i) Exempted income
(ii) Income accruing in India A
(iii) Income accrues in Sweden
(iv) Income received in India
d. When an employee receives money on closure of National Pension System Trust Account it is
(i) chargeable to tax
(ii) exempt from tax
(iii) 40% is exempt from tax A
(iv) 60% is exempt from tax
e. When the shares are held in unlisted company, it is treated as long term capital asset when the
holding period exceeds
(i) 36 months
(ii) 24 months A
(iii) 12 months
The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1
(iv) 6 months
f. Which of the following is not a case of deemed ownership of house property?

(i) Transfer to spouse for inadequate consideration
(ii) Transfer to minor child for inadequate consideration
(iii) Co-owner of a Property A
g. An individual estimates that he is required to pay Rs. 100,000 as advance tax. By 15th of December,
how much amount must be paid by the individual?
(i) Rs. 30,000
(ii) Rs. 75,000 A
(iii) Rs. 100,000
(iv) Nil
h. Preliminary expenses that can be amortized under the Income-tax Act, 1961 has to be restricted to
________ of the cost of the Project.
Fill in the above blank from among the choices as below.
(i) 5% A
(ii) 15%
(iii) 20%
i. Maximum Marginal Rate for the A.Y. 2021-22 is ______ .

Fill in the blank from among the choices as below.
(i) 44.568%
(ii) 33.996%
(iii) 35.532%
(iv) 42.744% A
j. Rebate u/s 87A can be claimed by

(i) Any resident
(ii) Resident Individual A
(iii) Any person
(iv) Any person other than non-resident
k. ICDS VIII deals with which of the following?

(i) Government Grants
(ii) Securities A
(iii) Revenue Recognition
(iv) Construction Contracts
l. Paintings are not considered as______ in the context of “capital asset” definition
(i) Liability
(ii) capital gains
(iii) Expenditure
(iv) personal effects A
m. Revision by commissioner is done under section

(i) 44AD
(ii) 140
(iii) 263 A
(iv) 80EE
n. Exemption in respect of Post office SB interest

(i) 60%
(ii) 40%
(iii) 4000
(iv) 3500 A
o. Additional depreciation for plant used for more than 180 days
(i) 10%
(ii) 20% A
(iii) 30%
(iv) 25%
p. Which of the following can be corrected while processing the return of income under section
(i) Any arithmetical error in the return A
(ii) Any mistake in the return of income
(iii) Any error of principle in the return of income
(iv) Any claim by taxpayer which is against law
q. The threshold exemption limit for Equalization levy is?

(i) 5 lakh
(ii) 3 lakh
(iii) 2 lakh
(iv) 1 lakh A
r. Investment under Sukanya Samrudhi Scheme is allowed as deduction under Section

(i) 80G
(ii) 80D
(iii) 80C A
(iv) 80CCD
s. Mr. H resident in India received Rs. 11 lakhs by way of dividend from Indian companies. Such
dividend is
(i) exempt from tax
(ii) taxable at regular rates

(iii) taxable at maximum marginal rate
(iv) taxable at 10% A
t. Speculation loss can be carried forward for a maximum period of ____ years after the year of such
loss.
Fill in the above blank from among the choices as below.
(i) 4 A
(ii) 5
(iii) 8
(iv) 10
Section B 20
Marks
2. You are required to answer all the questions. Each question carries 1 mark. 20 X 1
Instructions: Each question is followed by a space where you are required to type your answer. = 20
a. As per section 115BBDA dividend from Indian companies is taxable in the hands of certain
recipients at _____ when the aggregate dividend exceeds ______________ .
State the word(s) and/or figure(s) according to you which most appropriately fills the above blanks.
Type your answer here 10%, Rs.10 lakhs
b. Section 80 RRB the Income-tax Act, 1961 deals with deduction from gross total income in respect
of income by way of _______________________ .
State the word(s) according to you which most appropriately fills the above blank.
Type your answer here Royalty on patents
c. Income escaping assessment is covered under section _________________________ .

State the figure according to you which most appropriately fills the above blank.
Type your answer here 147
d. Unabsorbed depreciation shall be allowed to be carried forward for any number of years and such
carried forward unabsorbed depreciation may be set off against any income, other than … .
Complete the sentence.
Type your answer here Income under the head “Salaries”, Winning from lotteries, cross word
puzzles, etc.
e. Income referred to in sec. 68 to sec. 69D shall be taxable @ ___________ (excluding Surcharge
and Cess).
State the % according to you which most appropriately fills the above blank.
Type your answer here 60%
f. When unrealized rent is received based on court decree but at the time of receipt the property was
not owned by the assessee, it is taxable under the head ________.
Type your answer here Income from house property
g. The Income Computation Disclosure Standards (ICDS) will apply only when the assessee
adopts____________________method of accounting.
Type your answer here Mercantile (or accrual)
h. A start-up can claim deduction under section 80-IAC for_________consecutive years beginning
from the year in which the eligible start-up was incorporated.
State the figure according to you which most appropriately fills the above blank.
Type your answer here 3
i. When the return of income for the assessment year 2021-22 is filed under section 139(4), the
Assesse can revise the return on or before ______________ .
State the date in DD.MM.YYYY format according to you which most appropriately fills the above
blank.
Type your answer here 31.03.2023
j. Scholarship received by a student was Rs. 2,000 p.m. He spends Rs. 16,000 for meeting the cost of
education. The Balance Rs. 8,000 is ________________ .
State the word according to you which most appropriately fills the above blank.
Type your answer here exempt
k. Period for holding bonus shares or any other financial asset without any payment shall be reckoned
from the date of ______________ .
State the word according to you which most appropriately fills the above blank.
Type your answer here allotment
l. Notice under section 156 is given for _____________ .

Type your answer here tax demand
m. As per section 271H, where a person fails to file the statement of tax deducted/ collected at source
i.e. TDS/TCS return on or before the due dates prescribed in this regard, then he shall be liable to
pay penalty under section 271H. Maximum penalty that can be levied is … .
Complete the sentence.
Type your answer here Rs.1,00,000, but not exceeding the amount of TDS/TCS.
n. A trust shall not be considered as charitable trust for according to the benefits of section II, when
the commercial activities in the previous year exceed_______.
State the word(s) and/or figure(s) according to you which most appropriately fills the above blank.
Type your answer here 20% of Gross Receipt
o. Expenditure incurred by a businessman for ready to use software is entitled to benefit of … .

State the word(s) and/or figure(s) according to you which most appropriately fills the above blank.
Type your answer here 100% as revenue expenditure
p. In the case of foreign company with total income of more than Rs. 1 crore but less than Rs. 10
crores the surcharge leviable is @ __________ .
q. When employer contributes to approved superannuation fund it is chargeable to tax as perquisite

when the contribution exceeds Rs. ___________ .
State the figure(s) according to you which most appropriately fills the above blank.
Type your answer here Rs. 150,000
r. Long term capital gain arising from transfer of unlisted securities in the hands of non-resident/
foreign company is chargeable to tax @ ____________ .
s. Interest on housing loan taken by individual being his first residential house is eligible for deduction
under section 80EE up to a maximum of Rs. _________ .
State the figure(s) according to you which most appropriately fills the above blank.
Type your answer here 50,000
t. When a director of a company received Rs. 30 lakhs by way of non-compete fee, it is taxable under
the head _ ____________ .
Type your answer here Profits and Gains of Business or Profession
Section C 40
Marks
You are required to answer any 4 out of 6 questions in this section 10 X 4
3. a. State whether the following transactions attract tax deduction at source (TDS) provisions and the 2x3=6
rate of tax & the amount of tax deductible in applicable cases.
(i) Interest on recurring deposit of Rs. 12,000 paid by a nationalized bank to Mr. D.
Type your answer here
Section 194A is applicable for recurring deposit interest paid by bank when it exceeds Rs. 10,000.
The tax deductible at source is @ 10% being Rs.1,200.

(ii) Prize amount of Rs. 8,000 paid by Excellence Ltd. to Mr. S, a winner of crossword puzzle contest
conducted by the company.
As per Section 194B winning by way of crossword puzzle is liable for tax deduction when the
amount of winning exceeds Rs.10,000
As the amount of winning is only Rs. 8,000, no tax is deductible at source.
(iii) Commission of Rs. 21,000 paid to K & Co. by D Co. Ltd. for purchase of raw materials.
Section 194H will apply when commission/brokerage exceeds Rs. 15,000. The tax deductible is @
5% on Rs. 21,000 being Rs.1,050.
b. State the taxability of the following transactions for the Assessment Year 2021-22: 4
(i) Mrs. J got a gift of 500 listed equity shares of a company from her husband when the market
value of the share was Rs. 150 per share. After a month, the company issued bonus shares in 1:1
ratio. The original shares were acquired by her husband 4 months before the date of gift for Rs.
50,000. All the 1000 shares were sold for Rs. 1,50,000 through off-market transaction. How much is
taxable and in whose hands it is taxable as income?
Short-term capital gain arising from sale of original shares gifted i.e., Rs. 25,000 (Rs.75,000 - Rs.
50,000) shall be taxed in the hands of husband of Ms. J under section 64.
Capital gain attributable to bonus shares will not be liable for clubbing under section 64 since it is
an accretion to the original shares. Therefore, Rs. 75,000 being the sale consideration from sale of
bonus shares whose cost of acquisition is Nil is taxable in the hands of Mrs. J as short-term capital
gain.
(ii) R & Co. a partnership firm engaged in trading of vacant lands. It sold vacant land for Rs. 40 lakhs
when the stamp duty valuation of the lands was Rs. 55 lakhs.
Even where the immovable property being land or building or both is dealt with as stock-in-trade
of a business, as per section 43CA the difference between stamp duty value and the actual
consideration would be taxable as income from business.
Hence, Rs. 15 lakhs would be taxable as business income under section 43CA in the hands of R &
Co.
4. a. G Industries furnishes you the following details: 6

Amount (Rs.)
Particulars
Machinery Computers Furnitures
WDV as on 01.04.2020 20,00,000 6,00,000 2,00,000
Purchased during the year and used for more than 4,00,000 1,00,000 40,000
180 days
Purchased and used w.e.f. 01.01.2021 1,00,000 2,00,000 20,000
Sold a group of assets on 01.03.2021 2,00,000 1,00,000 50,000
Compute depreciation allowable for the Assessment Year 2021-22. Ignore additional depreciation.

G Industries Computation of depreciation for the Assessment Year 2021-22
Particulars Machinery Computers Furniture
(Rs.) (Rs.) (Rs.)

WDV as on 01.4.2020 20,00,000 6,00,000 2,00,000
Purchased during the year and used for more than 4,00,000 1,00,000 40,000
180 days
Purchased and used w.e.f. 01.01.2021 1,00,000 2,00,000 20,000
25,00,000 9,00,000 2,60,000
Less: Sold on 01.3.2021 2,00,000 1,00,000 50,000
WDV before depreciation 23,00,000 8,00,000 2,10,000
Depreciation
For assets used for more than 180 days:
Amount 22,00,000 6,00,000 1,90,000
Rate of Depreciation (Full) 15% 60% 10%
Amount of Depreciation (A) 3,30,000 3,60,000 19,000
For assets used for less than 180 days:
Amount 1,00,000 2,00,000 20,000
Rate of Depreciation (Half) 7.5% 30% 5%
Amount of Depreciation (B) 7,500 60,000 1,000
Total Depreciation [(A) + (B)] 3,37,500 4,20,000 20,000
Working Notes:
It is also possible to take the view that for computing depreciation, the position of the block, as at
the year-end is to be taken.
Alternatively,
Value of any asset sold can first be deducted from assets purchased during the year and used for
less than 180 days and only if required, from the balance value in the block in such case,
depreciation will be:
Particulars Machinery Computers Furniture
(Rs.) (Rs.) (Rs.)
For assets used for more than 180 days:
Amount 23,00,000 7,00,00 21,00,000
Rate of Depreciation (Full) 15% 60% 10%
Amount of Depreciation (A) 3,45,000 4,20,000 2,10,000
For assets used for less than 180 days:
Amount Nil 1,00,000 Nil
Rate of Depreciation (Half) 7.5% 30% 5%
Amount of Depreciation (A) Nil 30,000 Nil
Total Depreciation [(A) + (B)] 3,45,000 4,50,000 2,10,000
b. Who must sign the return of income in the following cases: 4

(i) Hindu undivided family when Karta is bedridden

Under section 140, where the Karta is absent from India or is mentally incapacitated from
attending to his affairs, any other adult member of such family must sign the Return of Income.
(ii) Political party
Under section 140, the Chief Executive Officer of such party (whether known as Secretary or any
other designation) must sign the Return of Income.
(iii) Local authority
Under section 140, Return of Income is to be signed by the Principal Officer.
(iv) Limited Liability Partnership
Under section 140, Return of income is to be signed by a designated partner or where for any
unavoidable reason such designated partner is not able to sign or where there is no designated
partner, it can be signed by any partner thereof.
5. a. Mr. A of Chennai sold a vacant site for Rs. 30 lakhs to Mr. R on 01.05.2020. The value of land for 7
stamp duty purposes was Rs. 25 lakhs. The vacant site was acquired in April, 2000 for Rs. 3 lakhs.
The fair market value of the vacant site on 01.04.2001 was Rs. 4 lakhs. The entire sale
consideration plus a housing loan of Rs. 38 lakhs from a nationalized bank was availed for acquiring
a residential building for Rs. 68 lakhs in Pune on 01.07.2020. The stamp duty paid for the purpose
of acquisition was Rs. 2, 90,000. The property was let out for a monthly rent of Rs. 10,000 from
01.07.2017. Interest on housing loan during the year till its closure, amounted to Rs. 2, 80,000.
Mr. A sold yet another vacant site for Rs. 28 lakhs on 21.01.2021. This vacant site was acquired in
October, 2015 for Rs. 20 lakhs. He utilized the entire sale proceeds realized in January 2018 for
repaying the housing loan.
His other incomes are
(i) Income from business (computed) Rs. 3,90,000 and
(ii) Bank interest of Rs. 60,000 from Term Deposits and Rs. 15,000 from Savings Bank Account.
Compute the total income of Mr A for the assessment year 2021-22.
Cost Inflation Index : F. Y. 2001-02 = 100; F.Y. 2015-16 = 254; F.Y. 2017-18 = 272; F.Y. 2018-19 =
280; F.Y. 2019-20 = 289; F.Y. 2020-21 = 301
Computation of Total Income Mr. A for Assessment Year 2021-22
Rs. Rs.
Income from House Property:
Rent for 9 months (Rs.10,000 × 9) 90,000
Less: Deduction U/s. 24 @ 30% 27,000
Interest on money borrowed 2,80,000
3,07,000
2,17,000
Loss from House Property - but limited to (2,00,000)
Income from Business: Computed 3,90,000
Capital Gains:
Sale of vacant site -1 30,00,000

Less: Indexed cost of acquisition (Rs. 4,00,000 × 272 /100) 10,88,000
Long term Capital Gains - (A) 19,12,000
Sale of vacant site - 2 28,00,000

Less: Indexed cost of acquisition (Rs. 20,00,000 × 272 /254) 21,41,732
Long term Capital Gains - (B) 6,58,268
Total Capital Gain (A) + (B) = 25,70,268

Taxable Capital Gains NIL
Other Sources:
Interest from Term Deposits 60,000
Savings Bank Interest 15,000
75,000
Gross Total Income 2,65,000
Deduction under Chapter Vl A
(i) Section 80 C in respect of stamp duty limited to Rs. 1,50,000 1,50,000
(ii) Section 80TTA for Savings Bank Interest 10,000
1,60,000
Total Income 1,05,000
Working Notes
As the new residential house was acquired for Rs. 58 lakhs and the entire sale consideration is also
Rs. 58 lakhs, the entire capital gain is exempt U/s.54 F
b. State with brief reasons whether the following are agricultural income either in whole or in part. 3
(i) Purchase of standing sugarcane crop by Mr. A for Rs. 2 lakhs and after cutting the canes, selling
them for Rs. 2, 50,000.
To term an income as agricultural income, both basic operations and subsequent operations must
be present. A standing crop purchase will not lead to agricultural activity and hence the profit
earned cannot be termed as agricultural income.
(ii) Income from sale of plants Rs. 1, 00,000 earned by Mr. J who maintains a nursery by name
Soundarya Nursery.
Running a nursery with plants seeks both basic operations and subsequent operations; Further, as
per definition, it is deemed to be agricultural income and therefore the entire income would be
agricultural income.
(iii) Income from sale of rubber Rs. 3,20,000 realized by Mr. R who owns the rubber estate and
cultivates rubber.
Income from rubber cultivation is partly agricultural income and partly non- agricultural income.
65% of the income is agricultural income and 35% of the income is non-agricultural income which is
chargeable to income-tax.
6. a. Mr. S (aged 65 years) is a retired person drawing a monthly pension of Rs. 6,000. His taxable long- 7
term capital gain from sale of painting during the previous year 2020-21 is Rs. 2, 75,000. He has no
other income during the year.
Compute his tax liability for Assessment Year 2021-22 (i) if he is Resident and (ii) if he is Non-
Resident.
(i) Tax Liability of Mr. S for the A.Y. 2021-22 if he is Resident
Particulars Rs. Rs.
Pension Income (Rs. 6,000 X 12) 72,000
Other Income: Long-term capital gain from sale of painting (Taxable) 2,75,000
Total income 3,47,000
Tax on income other than long-term capital gain Nil
Tax on long-term capital gain:
Excess of basic exemption limit on Other Income 2,28,000
20% of (Other Income – Excess of Basic Exemption Limit) 9,400
Education HEC @ 4% 376
Tax Liability 9,776
Working Notes:
Excess of basic exemption limit on other income (Rs.3,00,000 - Rs. 72,000) = Rs. 2,28,000
20% of (Other Income – Excess of Basic Exemption Limit) = 20% of (Rs. 2,72,000 – Rs. 2,28,000)
(ii) Tax Liability of Mr. S for the A.Y. 2021-22 if he is Non-Resident
Particulars Rs.
Tax on income other than long-term capital gain Nil
Tax on long-term capital gain: 20% of Rs. 2,75,000 55,000
Education HEC @ 4% 2,200
Tax Liability 57,200
Working Notes:
Non-residents Individuals do not enjoy any basic exemption limit.
b. Mr. V received following gifts during the financial year 2020-21: 3

(i) Gift on the occasion of marriage from friends Rs. 70,000.
(ii)Gift on the occasion of birthday from friends Rs. 55,000.
(iii)
Gift from maternal uncle on birthday Rs. 35,000.
(iv)Gift of motor car by grandfather's younger brother. Fair market value of the car on the date of
gift Rs. 3, 50,000.
Compute the amount of gifts includible in the total income of Mr. V for the Assessment year 2021-
22.
Computation of Taxable Value of Gifts of Mr. V for the A.Y. 2021-22
Sl. No. Particulars Rs.
(i) Gift on occasion of marriage from relatives and friends Nil
(ii) Gift on the occasion of birth day from friends 55,000
(iii) Gift from maternal uncle on birthday Nil
(iv) Gift of motor car by grandfather’s younger brother Nil
Taxable Gifts 55,000

Working Notes:
Gift on occasion of marriage from relatives and friends of Rs. 70,000 is fully exempt
Maternal uncle is covered by the definition of “relative”. Hence, Gift from maternal uncle on
birthday of Rs. 35,000 is exempt.
Grandfather’s younger brother is not covered by the definition of “relative”. However, motor car is
not covered by in the definition of the term “property” in Explanation to section 56(2)(vii)
As the aggregate amount of gift chargeable to tax exceeds Rs. 50,000, the entire amount is
includible in the total income of Mr. V.
7. a. S has two houses, both of which are self-occupied. 8

The particulars of these are given below:
(Value in Rs.)
Particulars
House-I House-II
Municipal Valuation per annum 1,30,000 1,15,000
Fair Rent per annum 1,10,000 1,70,000
Standard rent per annum 1,00,000 1,65,000
Date of completion 31.03.1999 31.03.2001
Municipal taxes payable during the year (paid for House II only) 12% 8%
Interest on money borrowed for repair of property during current year — 55,000
i. What would be the Taxable Income from House, if both are houses are deemed to be let
out?
ii. What would be the Taxable Income from House, if both are houses are assumed to be self-
occupied?
iii. Suggest which house should be opted by S to be assessed as self-occupied so that her
Income from House Property for the Assessment Year 2021-22 is minimum.
(i) Computation of Income from House Property assuming both are Deemed to be let out
Particulars House 1 (Rs.) House II (Rs.)
Gross Annual Value 1,00,000 1,65,000
Municipal Tax Nil 9,200
Net Annual Value 1,00,000 1,55,800
Deductions under Section 24 30,000 1,01,740
Income from House Property (Deemed to be let out) 70,000 54,060
Working Notes:
Gross Annual Value = Expected Rent = Higher of Municipal Value and Fair Rent, but restricted to
Standard Rent
Deduction for Municipal Taxes paid = It is applicable only if paid by the owner during the previous
year
Deduction under Section 24:
(1) 30% of Net Annual Value
House-I: 30% of Rs. 1,00,000 = Rs.30,000
House-II: 30% of Rs. 1,55,800 = Rs.46,740
(2) Interest on borrowed capital (fully allowable for let out house property) for House-II: Rs.
55,000
(ii) Computation of Income from House Property assuming both are Self-occupied
Particulars House 1 (Rs.) House II (Rs.)

Net Annual Value NIL NIL
Deductions under Section 24 NIL 30,000
Income from house property (Self-occupied) NIL (30,000)
Working Notes:
Interest on borrowed capital for repairs of Rs. 55,000, limited to Rs. 30,000
(iii) Computation of Income from House Property of S for the Assessment Year 2021-22
Particulars Amount (Rs.)
House-I: Deemed to be let out 70,000
House-II: Self-occupied (30,000)
Income from House Property 40,000
S should opt House-I as Deemed to be let out and House-II as self-occupied as exercising this
option would she would be able to report minimum taxable income from house property.
Working Notes:
Comparison of Options available to S
Particulars House Option 1 (Rs.) Option 2 (Rs.)
House-I NIL
Self-occupied
House-II (30,000)
House-I 70,000
Deemed to be let out
House-II 54,060
Income from House Property 54,060 40,000
b. State the due dates of installment for payment of advance tax and the amount of installment for 2
such assesses who are not covered under the provisions of section 44AD.
Due date of installment Amount payable
On or before 15th June of the previous year Not less than 15% of such advance tax
On or before 15th September of the previous Not less than 45% of such advance tax, as
year reduced by the amount paid in the earlier
installment
On or before 15th December of the previous Not less than 75% of such advance tax, as
year reduced by the amount paid in the earlier
installment
On or before 15th March of the previous year The whole amount of such advance tax, as
reduced the amount or amounts paid in the
earlier installment or installments
8. You are required write Short Notes on any 4 out of 5 4 X 2.5

= 10
a. Adjustments in course of processing of return under section 143(1)
In course of processing the return of income the Assessing Officer shall make the following
adjustments:
a) any arithmetical error in the return.
b) an incorrect claim, if such incorrect claim is apparent from any information in the return.
c) disallowance of loss claimed, if the return of the previous year for which set off of loss is
claimed was furnished after due date.
d) disallowance of expenditure indicated in the audit report but not taken into account in
computing the total income in the return.
e) Disallowance of deduction claimed under sections 10AA, 80-IA, 80-IAB, 80-IB, 80- IC, 80-ID
or 80-IE, if the return is furnished after the due date.
f) addition of income appearing in Form 26AS or Form 16A or Form 16 which had not been
included in computing the total income in the return.
Such adjustments shall not be made unless an intimation is given to the assessee of such
adjustments either in writing or in electronic mode. The response received from the assessee, if
any shall be considered before making any adjustment and in a case where no response is received
within 30 days of the issue of such intimation, such adjustments shall be made.
b. ICDS: Accounting Policies

Accounting policies adopted by a person shall be such so as to represent a true and fair view of the
state of affairs and income of the business or profession or vocation.
The treatment and presentation of transactions and events shall be governed by their substance
and not merely by the legal form.
Marked to market loss or an expected loss shall not be recognized unless the recognition of such
loss is in accordance with the provisions of any other Income Computation and Disclosure
Standards.
The fundamental accounting assumptions i.e., going concern, consistency and accrual are assumed
as followed. However, if any such assumption is not followed, the fact shall be disclosed.
An accounting policy shall not be changed without reasonable cause.
All significant accounting policies adopted by a person shall be disclosed.
Any change in accounting policy which has a material effect shall be disclosed with monetary
impact. If such impact is not ascertainable, the fact must be disclosed.
c. Revised Return
When a person has furnished a return under section 139(1) (i.e. within prescribed time limit) or a
belated return under section 139(4) he can file a revised return.
The filing of revised return is to correct any omission or wrong statement therein.
The time limit is any time before expiry of one year from the end of the assessment year or before
the completion of assessment, whichever is earlier.
Assessment for this purpose means regular assessment under section 143(3) or best judgment
assessment under section 144. In other words the assessee can file a revised return of income after
completion of summary assessment under section 143(1) but before completion of regular
assessment under section 143(3) or best judgment assessment under section 144.
The assessee can revise his return for more than once within the time prescribed in section 139(5).
d. Tax Planning, Tax Avoidance and Tax Evasion

Tax planning is a way to reduce tax liability by taking full advantages provided by the Act through
various exemptions, deductions, rebates & relief. In other words, it is a way to reduce tax liability
by applying script & moral of law. It is the scientific planning so as to attract minimum tax liability
or postponement of tax liability for the subsequent period by availing various incentives,
concessions, allowance, rebates and relief provided in the Act.
Tax avoidance is an exercise by which the assessee legally takes advantages of loopholes in the Act.
Tax avoidance is a practice of bending the law without breaking it. It is a way to reduce tax liability
by applying script of law only. Most of the amendments are aimed to curb such loopholes.
Tax evasion is the illegal way to reduce tax liability by deliberately suppressing income or sale or by
increasing expenses, etc., which results in reduction of total income of the assessee. Tax evasion is
illegal, both in script & moral. It is the cancer of modern society and work as a clog in the
development of the nation.
e. “Charitable purpose” as envisaged by Section 2(15) of Income Tax, 1961

As per section 2(15), “charitable purpose includes the following:
a. Relief of the poor
b. Education
c. Yoga
d. Medical relief
e. Preservation of environment (including water sheds, forests and wild life)
f. Preservation of monuments or places or objects of artistic or historic interest
g. Advancement of any other object of general public utility.
The advancement of any other object of general public utility shall not be treated charitable
purpose, if it involves any activity in the nature of trade, commerce or business or any activity of
rendering any service in relation to any trade, commerce or business, for any consideration,
irrespective of the nature of use or application or retention of the income from such activity.
However, the above restriction is not applicable if such activity is undertaken in the course of
carrying out of such advancement of any other object of general public utility and the aggregate
receipts from such activity or activities during the previous year, do not exceed 20% of the total
receipts of the charitable trust.
Audit of accounts of charitable trust is mandatory, if the total income without considering
exemption under sections 11 and 12, exceeds the basic exemption limit.
Section D 20
Marks
You are required to answer all the questions in this section 10 X 2
Marks
9. Mr. K is an engineer aged 37 years, who recently joined the company R Manufacturing Co. Ltd., of
Mumbai as the General Manager after an experience of over a decade in the industry.
The company holds a bright prospect for Mr. K offering a higher pay package, health policy
reimbursement schemes, gym allowances, retirement benefits like contributions towards National
Pension scheme, Provident Fund and other benefits.
The company is known for its performance rewards, congenial work environment and ample
opportunities for individual growth.
He initially lived in Thane area to save on rent and it was convenient for him to travel to his
previous work. After he joined the new company, travelling expenses increased due to the distance
from Thane to Navi Mumbai.
He thereby shifted to a new space in Navi Mumbai on 1st October, 2020.
Although the rent is higher here, by about Rs 5000 per month, yet it is convenient and saves him
time.
He gifted himself a brand new Honda City car for his success and hard work.
Given his role as the General Manager that requires numerous business meets in and around the
city, the employer agreed to reimburse the maintenance expenses of the car along with the mobile
phone bill expenses.
Within a year of joining the company, he was able to exhibit results which were highly appreciated
by the management.
At the end of the year he furnishes the following information for the year ended 31.03.2021:
Particulars Amount (Rs.)
Basic Salary (per month) 50,000
Dearness Allowance (eligible for retirement benefits) 80% of Basic Salary
House Rent Allowance (per month) 10,000
Rent paid by him Rs. 15,000 per month for 6 months and Rs. 20,000
per month for balance 6 months (at Mumbai)
City Compensatory Allowance (per month) 2,500
Medical reimbursements (annual) 13,000
Gymkhana club annual membership fee reimbursed by employer 20,000
Mobile phone bill reimbursed by the employer (Used for both official 37,500
and personal use)
Motor car (cubic capacity of engine 2.2 litres) owned by the employee 85,800
but the maintenance expenses fully met by the employer (Motor car
was used both for personal and official use)
Cash gift paid by the employer in appreciation of performance on 30,000
01.01.2021
Employees’ Contribution to Recognized Provident Fund 1,20,000
Employer’s Contribution to Recognized Provident Fund 90,000
Medical Insurance Premium paid by cheque 18,000
a. You are required to compute the Taxable portion of House Rent Allowance of Mr. K for the 2
Assessment Year 2021-22.
Computation of Taxable Portion of House Rent Allowance
Particulars Rs. Rs. Rs.
House Rent Allowance received 1,20,000
50% of Salary (Basic Salary + DA) 5,40,000
Actual HRA 1,20,000
Rent Paid 2,10,000

10% of Salary (Basic Salary + D.A.) 1,08,000
Excess of Rent paid over 10% of salary 1,02,000
Exemption U/s.10(13A) – least of the above 1,02,000

Taxable House Rent Allowance 18,000
b. You are required to compute the Taxable portion of Motor Car Perquisite of Mr. K for the 2
Assessment Year 2021-22.
Computation of Taxable Portion of Motor Car Perquisite
Particulars Rs.
Motor car (cubic capacity of engine 2.2 litres) owned by the employee but the 85,800
maintenance expenses fully met by the employer (Motor car was used both for
personal and official use)
Tax free @ Rs. 2,400 per month (assuming chauffeur is not provided) 28,800
Taxable Portion of Motor Car Perquisite 57,000
c. How will you treat the following items? 2

SI. No. Items
(i) Medical reimbursement
(ii) Gymkhana club annual membership fee
(iii) Mobile phone bill
(iv) Cash gift paid by the employer
(v) Employer’s Contribution to Recognized Provident Fund

SI. No. Items Treatment
(i) Medical reimbursement Medical reimbursement of Rs. 13,000 being below Rs.15,000
is not taxable
(ii) Gymkhana club annual Gymkhana club annual membership fee reimbursed by
membership fee employer of Rs. 20,000 is fully taxable
(iii) Mobile phone bill Mobile phone bill reimbursed by the employer (Used for
both official and personal use) of Rs. 37,500 is fully taxable
(iv) Cash gift paid by the Cash gift paid by the employer in appreciation of
employer performance on 01.01.2021 of Rs. 30,000 is fully taxable
(v) Employer’s Contribution to Employer’s Contribution to Recognized Provident Fund of Rs.
Recognized Provident Fund 90,000 is taxable only if such is in excess of 12% of
Employee’s Salary (Basic Salary + D.A.) i.e., 12% of Rs.
10,48,000 or Rs. 1,04,800. Hence, it is not taxable.
d. You are required to compute the Gross Total Income of Mr. K for the Assessment Year 2021-22. 4
Computation of Gross Total Income of Mr. K for the Assessment Year 2021-22
Particulars Rs.
Basic Salary 6,00,000
Dearness Allowance 4,80,000
City Compensatory Allowance 30,000
House Rent Allowance (Taxable) 18,000
Medical Reimbursements Nil
Gymkhana Club Membership Fee – Reimbursed by employer 20,000
Mobile Phone Bill - Reimbursed by employer 37,500
Motor Car Perquisite (Taxable) 57,000
Cash Gift paid by employer 30,000
Employees’ Contribution to Recognized Provident Fund NIL
Employer’s Contribution to Recognized Provident Fund (Taxable) NIL
Medical Insurance Premium paid by cheque NIL
Gross Total Income 12,15,500
10. Mr. R is a resident individual who is engaged in a wholesale business of health products in Gujarat.
He has ventured into the business since his graduation. Since then he has expanded his current
business and has been successfully running it.
Mr. R recently became a partner in XYZ & Co., a partnership firm that deals in cosmetic products.
This has only allowed him to increase his income and has been regularly receiving an interest on
capital of 15% on capital.
His capital in the partnership firm stood at Rs. 10,00,000 throughout the financial year 2020-21.
He has made some judicious investments in fixed deposit from where he earns an annual interest.
He has taken a life insurance policy on his only son who recently completed his MBA and has joined
a reputed MNC.
He has invested in Public Provident Fund but in the name of his wife.
He pays all his dues regularly in time, but due to shortage in cash, he was unable to pay the second
installment of Municipal Tax within the due date.
He was hoping there would be some relief provided by the government, given the uncertain
scenario in the country.
He recently received an Income Tax refund, which has helped him to ease some financial pressure
and immediately used it to pay the due Municipal Tax and made a cash payment of Rs. 21,000 to
clear the Manager’s salary.
He now provides the following details to you for the year ended 31.03.2021 to aid him in return
filing:
SI. No. Particulars Rs. Rs.
(i) Interest on capital received from XYZ & Co. 1,50,000
(ii) Interest form bank on fixed deposit (Net of TDS Rs. 1,500) 13,500
(iii) Income-tax refund received relating to assessment year 2019-20 34,500
including interest of Rs. 2,300
(iv) Net Profit from wholesale business as per P&L A/c 5,60,000
(v) Amounts debited to P&L A/c include the following:
Depreciation as per books 34,000
Motor car expenses 40,000
Municipal Taxes for the shop (two half-yearly payments - one 7,000
made on 12.07.2020 and the other made after due date for filing
of return of income)
Salary to manager by way of a single cash payment 21,000
(vi) The WDV of the assets (as on 01.04.2020) used in the above
wholesale business is as under:
Computers (Depreciation: 60%) 1,20,000
Motor Car of which 20% used for personal use (Depreciation: 3,20,000
15%)
(vi) LIP paid for independent son 60,000
(vii) PPF contribution in his wife’s name 70,000
a. Calculate the amount of Depreciation and Closing WDV of Computer for the Assessment Year 2
2021-22.
Computation of Depreciation and Closing WDV of Assets used in the Wholesale Business of
Health Products of Mr. R for the Assessment Year 2021-22
Particulars Computer (Rs.)
Opening WDV 1,20,000
Additions/Disposals during the year NIL
Rate of Depreciation (%) 60
Amount of Depreciation 72,000
Closing WDV 48,000
b. Calculate the amount of Depreciation and Closing WDV of Motor Car for the Assessment Year 2
2021-22.
Computation of Depreciation and Closing WDV of Assets used in the Wholesale Business of
Health Products of Mr. R for the Assessment Year 2021-22
Particulars Motor Car
(Rs.)
Opening WDV 3,20,000
Additions/Disposals during the year NIL
Rate of Depreciation (%) 15
Amount of Depreciation 38,400
Closing WDV 2,81,600
Working Note:
Amount of Depreciation on Motor Car, being used 80% for business = 80% of 15% of Rs.3,20,000
c. How will you treat the following items? 2

SI. No. Items
(i) Payment of Municipal Tax
(ii) Payment of Manager’s salary
(iii) Motor Car used for personal uses

SI. No. Items Treatment
(i) Payment of Municipal Tax Payment of Municipal Tax (second half-yearly payment)
amounting to Rs.3,500 (i.e. Rs.7,000/2) made after the due
date for filing of return of income is disallowed expenditure
under section 40A(3)
(ii) Payment of Manager’s Payment of Manager’s salary of Rs. 21,000 in single cash
salary payment exceeding Rs. 20,000 is disallowed expenditure
under section 40A(3)
(iii) Motor Car used for personal Motor Car used 20% for personal uses is Personal expenses
uses which are disallowed u/s 37(1). Hence, Rs. 8,000 (i.e., 20% of
Rs.40,000) is disallowable.
d. Compute the Profits from Wholesale Business of Health Products of Mr. R for the Assessment Year 4
2021-22.
Computation of Profits from Wholesale Business of Health Products of Mr. R for the Assessment
Year 2021-22
Particulars Rs. Rs.
Net Profit as per books 5,60,000
Add:
Depreciation as per P&L A/c 34,000
Disallowed Expenditure: Municipal Tax paid after the due date for 3,500
filing the return of income
Disallowed Expenditure: Manager’s salary paid in single cash 21,000
payment exceeding Rs. 20,000
Disallowed Expenditure: Motor Car expenses for personal use 8,000
66,500
6,26,500
Less:
Depreciation allowable under the Income-tax Act 1,10,400
Profits from Wholesale Business of Health Products 5,16,100
END

Intermediate Examination Syllabus 2016 Paper 7: Direct Taxation (DTX)

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Intermediate Examination Syllabus 2016 Paper 7: Direct Taxation (DTX)

Uploaded by

Copyright:

Available Formats

Mock -1 Question Paper and Model Answers for Online Examination

Paper 7: DIRECT TAXATION (DTX)

a. The number of identities included in the definition of persons is

f. Which of the following is not a case of deemed ownership of house property?

i. Maximum Marginal Rate for the A.Y. 2021-22 is ______ .

j. Rebate u/s 87A can be claimed by

k. ICDS VIII deals with which of the following?

m. Revision by commissioner is done under section

n. Exemption in respect of Post office SB interest

q. The threshold exemption limit for Equalization levy is?

r. Investment under Sukanya Samrudhi Scheme is allowed as deduction under Section

(ii) taxable at regular rates

c. Income escaping assessment is covered under section _________________________ .

l. Notice under section 156 is given for _____________ .

o. Expenditure incurred by a businessman for ready to use software is entitled to benefit of … .

q. When employer contributes to approved superannuation fund it is chargeable to tax as perquisite

The tax deductible at source is @ 10% being Rs.1,200.

4. a. G Industries furnishes you the following details: 6

Type your answer here

(Rs.) (Rs.) (Rs.)

b. Who must sign the return of income in the following cases: 4

Type your answer here

Income from Business: Computed 3,90,000

Sale of vacant site -1 30,00,000

Sale of vacant site - 2 28,00,000

Total Capital Gain (A) + (B) = 25,70,268

b. Mr. V received following gifts during the financial year 2020-21: 3

Taxable Gifts 55,000

7. a. S has two houses, both of which are self-occupied. 8

Particulars House 1 (Rs.) House II (Rs.)

8. You are required write Short Notes on any 4 out of 5 4 X 2.5

b. ICDS: Accounting Policies

d. Tax Planning, Tax Avoidance and Tax Evasion

Type your answer here

e. “Charitable purpose” as envisaged by Section 2(15) of Income Tax, 1961

Rent Paid 2,10,000

Exemption U/s.10(13A) – least of the above 1,02,000

Taxable Portion of Motor Car Perquisite 57,000

c. How will you treat the following items? 2

Type your answer here

c. How will you treat the following items? 2

Type your answer here

Profits from Wholesale Business of Health Products 5,16,100

You might also like