Direct Taxation Paper: Key Highlights

Paper 7: Direct Taxation [December_2021_Term]
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.
Section A [20 Marks]
You are required to answer all the questions. Each question carries 1 mark. [20x1=20]
Instructions: Each question is followed by 4 Answer choices and only one is correct. You are
required to select the choice which according to you represents the correct answer.
1. Which of the following can be adjusted against Long term capital loss?
(i) Any income excluding winning from lottery
(ii) Any capital gain
(iii) Any long term capital gain
(iv) Any speculative business income
2. Which of the following is not a head of income?

(i) Income from House Property
(ii) Salaries
(iii) Income from Interest on securities
(iv) Capital Gains
3. Which of the following income is an agricultural income?

(i) Revenue from sale of flowers grown in a nursery
(ii) Income from dairy farm
(iii) Income from poultry farm
(iv) Dividend from a company engaged in agriculture.
4. Which of the following is an exception of “Gift of a capital asset is not considered as transfer”?
(i) Shares acquired under the Employees Stock Option Plan
(ii) Jewellery
(iii) Immovable property
(iv) Nil
5. Which of the following statement is incorrect?

(i) Share in the total income of the firm is exempt in the hands of partner u/s 10(2A)
of the Income-tax Act
(ii) Dividend income from domestic company is exempt u/s 10(34) of the Income-tax Act
(iii) Daily allowance of MP is exempt u/s 10(17) of the Income-tax Act
(iv) Income from leasing of aircraft u/s 10(15A) of the Income-tax Act
6. Interest free loan to an employee, where the amount of such loan does not exceed Rs.
____________ shall be treated as the tax-free perquisite in all cases under section 17(2) of
the Income-tax Act.
Fill in the blanks.
(i) 15,000
The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1
(ii) 20,000
(iii) 30,000
(iv) 25,000
7. W h i c h o f t h e f ol low i n g i s t he rate of depreciation applicable for the purpose of

valuation of perquisite being car sold by an employer to employee as per Income-tax Act?
(i) 20%
(ii) 10%
(iii) 25%
(iv) 15%
8. An individual can avail the benefit of exemption in respect of leave travel concession offered
by his employer twice in a block of years.
Fill in the blanks.
(i) Three years
(ii) Four years
(iii) Five years
(iv) Six years
9. Which one of the following is not a tax-free perquisite in the hands of all employees?
(i) Telephone or mobile phone facility
(ii) Tea, similar non-alcoholic beverages and snacks provided during working hours.
(iii) Pick and drop facility
(iv) Free accommodation provided in a hotel
10. What is the taxability of income from sub-letting of a house property?

(i) Taxable under the head ‘Income from House Property’
(ii) Taxable under the head ‘Income from Other Sources’
(iii) Exempted
(iv) Taxable under the head ‘Capital Gains’
11. Which of the following is correct in relation to deduction of e xpenditure incurred by a

company for the purpose of promoting family planning among its employees, being of a
capital nature?
(i) Is not allowed as a deduction
(ii) Allowed as deduction in 4 equal installments in 4 years
(iii) 1/5 of expenditure is allowed as deduction in the previous year
(iv) 2/5 of expenditure is allowed as deduction in 4 equal installments in 4 years after the
previous year
12. Block of asset is required to be increased by an amount which is the actual cost of the asset
being covered u/s 35AD of the Income-tax Act. What is that amount?
(i) Actual expenditure
(ii) Nil
(iii) 50% of actual expenditure
(iv) None
13. The benefit of Sec.44AD of the Income-tax Act can be availed by which of the following
assessee?
(i) Limited Liability Partnership
(ii) Partnership Firm
(iii) Domestic Company
(iv) Foreign Company
14. The additional or accelerated depreciation, for an eligible assessee, for machinery installed
and used after 31.03.2005 is % of the actual cost of the machinery.
Fill in the blanks.
(i) 15%
(ii) 20%
(iii) 25%
(iv) 30%
15. Which of the following is the correct regarding Capital gain on Slump sale?
(i) always short-term capital gain
(ii) always long-term capital gain
(iii) Depends on period of period of holding of capital asset being undertaking
transferred
(iv) Not taxable
16. The maximum amount of rent payment where deduction of tax at source is not required
in a financial year is:
(i) Rs. 2,40,000
(ii) Rs. 2,50,000
(iii) Rs. 2,00,000
(iv) Rs. 1,50,000
17. Section of the Income-tax Act deals with the provisions relating to deduction of
tax at source on interest other than interest on securities paid to a resident.
Fill in the blanks.
(i) 192
(ii) 194J
(iii) 194IA
(iv) 194A
18. Where an application for rectification is made by an assessee, order u/s 154 can be made
within __________________.
Fill in the blanks.
(i) 4 years from the end of the financial year in which the order sought to be amended
was passed
(ii) 4 years from the date of the order sought to be amended was passed
(iii) 12 months from the end of the financial year in which the order sought to
be amended was passed
(iv) 6 months from the end of the month in which the application is received by the
authority
19. Which one of the following is specified goods u/s 206C?

(i) Timber
(ii) Scrap
(iii) Tendu leaves
(iv) All
20. Which of the following is taxable under the head ‘salaries’?

(i) Salary received by a Member of State Legislature.
(ii) Commission received by an employee director of a company.
(iii) Family pension received
(iv) Both (a) and (b) above
Section B [20 Marks]

You are required to answer all the questions. Each question carries 1 mark. [20x1=20]
Instructions: Each question is followed by a space where you are required to type your answer.
1. If total income of a person is Rs. 3,87,887.44, it shall be rounded off to ____________ as

per Sec. 288A of the Income-tax Act.
Type your answer here:
Rs.3,87,890
2. Section ____________ of the Income-tax Act, 1961 deals with deduction from Gross
Total Income in respect of income by way of Royalty on literary, artistic and scientific
books.
State the word(s) according to you which most appropriately fills the above blank.
80QQB
3. A company incorporated outside India is said to be resident in India, if place of effective management
is _____________in India.
situated
4. A person owns 4 goods vehicles other than heavy vehicles. What will be his estimated annual income
u/s 44AE?
Rs. 3,60,000
5. A machine worth Rs. 45,000 was purchased for scientific research relating to the
business carried on by the assessee. What will be the admissibility or otherwise of the
item in computation of income under the heading “Profits and Gains of Business or
Profession” for the assessment year 2021-22.
Capital expenditure incurred by the assessee for scientific research is fully allowed u/s 35
of the Income-tax Act.
6. Deduction u/s 54F of the Income-tax Act is available on transfer of any long- t e r m
capital asset other than a residential house property and acquisition of _____
residential house property.
one
7. Profit and gains arising from the transfer of a capital asset are taxable as .
Capital Gains
8. An individual purchased a painting for Rs. 5,00,000 though fair market value of the asset
is Rs. 5,25,000. What will be the income taxable u/s 56(2)(x) of the Income-tax Act?
Nil
9. Mr. X sold the shares of AB Co. Ltd. on February 12, 2021 for Rs. 18,700 (purchased on
March 21, 2020 for Rs. 15,300). What is the capital gain /loss for the A.Y. 2021-22?
Short Term Capital Gain of Rs. 3,400
10. When income of a minor is clubbed, the assessee will get deduction u/s 10(32)
subject to maximum of Rs._________ .
Fill in the blanks.
1,500
11. Loss from activity of owning and maintaining race horse can be carried forward for .
Fill in the blanks.
4 years
12. Indian income-tax law does not provide any exemption in case of amalgamation of
an Indian company with a foreign company wherein the resultant amalgamated
company is a ______ .
Fill in the blanks.
foreign company
13. Sum incurred by HUF on rehabilitation of a member of the joint family suffering from
a permanent physical disability being severe disability for the assessment year 2021-
22. What will be the taxability of this item?
Allowed as deduction of sum of Rs. 1,25,000
14. Deduction u/s 80GGB or 80GGC is available on donation to .

Fill in the blanks.
Type your answer here
Political Party or electoral trust
15. Urban Consumers’ Co-Operative Society means a society for the benefit of the
within the limits of a municipal corporation, municipality, municipal committee, notified
area committee, town area or cantonment.
Fill in the blanks.
consumers
16. Any person paying any sum, on which tax is collectible at source shall furnish his PAN to
the person responsible for collecting such tax, failing which tax shall be collected at higher
of twice of the specified TCS rate or ______%.
Fill in the blanks.
5
17. The amount of deduction towards health insurance premium paid by an individual, not being a senior
citizen) is limited to Rs. _____________.
Fill in the blanks.
Type your answer here
Rs. 25,000
18. What is the due date of filing the return of income in case of a person who is
required to furnish a report in Form No. 3CEB under section 92E of the Income-tax Act?
November 30 of the Assessment Year
19. Which form to be used for filing the return of income by a resident individual having
business income under presumptive scheme as per Income-tax Act?
ITR 4
20. Regular Assessment means assessment made under section of the Income-tax Act.
143 (3)
Section C [48 Marks]

You are required to answer any 4 out of 6 questions in this section [12 X 4 = 48]
Instructions: Candidates shall provide adequate reasons/workings in brief, in support of their
answers.
1(a)(i) During the financial year 2020-21, Mr. A had the following incomes:
Compute the income liable to be taxed in India of Mr. A in the following cases, if he is (i) Not
Ordinarily resident and (ii) Non-resident in India.
A. Income from profession in India but received in USA Rs. 80,000 [2]
Not Ordinarily resident - Rs. 80,000
Non-resident in India - Rs. 80,000
B Agricultural income accrued and received in Australia Rs. 1,20,000 [2]

Not Ordinarily resident - Nil
Non-resident in India - Nil
C. Income from business in Indonesia not brought into India Rs. 3,00,000. The business is
controlled from India.
[2]
Not Ordinarily resident – Rs. 3,00,000
Non-resident in India - Nil
1(a)(ii) Mr. R, an Indian Citizen, left India for the purpose of employment in the USA for the first time on
1st October, 2020. He came back to India on 15th March, 2021 for a visit and returned back to
the USA on the next day. During the previous year 2020-21, he earned the following Income:
(i) Salary earned in the USA Rs. 3,00,000 (computed) and credited in the USA.
(ii) Interest received in India out of Fixed Deposit in Bank Rs. 80,000.
Determine his residential status and Tax Incidence in India for the A.Y. 2021-22. [2]
Residential Status: Resident and ordinarily resident
Income liable to be taxed in India: Rs. 3,80,000
Workings:
During the previous year, Mr. Roy was in India as under:
Since, Mr. Roy resided in India for 186 days (30+31+30+31+31+30+1+2) in the previous year
2020-21, hence he satisfies condition of sec. 6(1)(a). He is, therefore, a resident in India for the
A.Y. 2021-22. Further, he is leaving India for the first time, hence he is also satisfying both the
conditions mentioned u/s 6(6). Thus, his residential status for the year is resident and ordinarily
resident.
Accordingly, tax incidence is as follows:
i) Salary earned in USA 3,00,000
ii) Interest received in India out of Fixed Deposit in Bank 80,000
Income liable to be taxed in India 3,80,000
1(b)(i) What conditions are to be satisfied to be entitled for deduction in respect of unrealised rent
while computing taxable income from house property? [2]

Unrealised Rent [Rule 4]:
When the assessee is unable to recover the rent from his tenant, the amount of rent so
unrealised during the year will be deducted in full from Actual Rent Receivable, provided the
following conditions (prescribed by rule 4) are satisfied: (i) The tenancy is bona fide; (ii) The
defaulting tenant has vacated the property or steps have been taken to compel him to vacate the
property; (iii) The defaulting tenant is not in occupation of any other property of the assessee; (iv)
The assessee has taken all reasonable steps to institute legal proceeding for the recovery of the
unpaid rent or has satisfied the Assessing Officer that legal proceedings would be worthless.
1(b)(ii) Distinguish between foregoing of salary and surrender of salary. [2]

Once salary has been earned by an employee, its subsequent waiver does not make it exempt
from tax liability. Such waiver shall be treated as application of the income. Hence, salary
foregone is taxable. However, where an employee opts to surrender his salary to the Central
Government u/s
2 of Voluntary Surrender of Salaries (Exemption from Taxation) Act, 1961, the salary so
surrendered shall not be taxable.
2. Mr. Sen is the owner of three houses. He furnished below the particulars of these houses for
the year 2020-21. (Amount in
Rs.)
H1 H2 H3
Let out for Self-occupied for residence 75% used for own business
residence for 8 months & let out for & 25% let out to tenant
residence for 4 months residence
Municipal value 24,000 18,000 19,200
Rent received 22,800 6,400 6,000
Repairs 2,500 1,200 2,400
Interest on loan 3,600 2,400 3,500
(i) Compute his total income of H1. [3]

Type your answer here: Rs. 12,360
Workings:
Particulars Rs. Rs. Rs.
House 1: Let out
Gross Annual Value (Working) 24,000
Less: Municipal Tax (50% of 10% of Municipal Value) (1200)
Net Annual Value (NAV) 22,800
Less: Deduction u/s
24(a) Standard Deduction @ 30% of NAV 6,840
24(b) Interest on loan 3,600 10,440 12,360
(ii) Compute his total income of H2. [3]
Workings:
House 2: Partly let out and partly self-occupied (Period wise)
Less: Municipal Tax (10% of Municipal Value) 1,800
Less: Deduction u/s
24(b) Interest on loan 2,400 7,620 9,780
Working Notes:
House 2 is partly self-occupied (for 8 months) and partly let out (for 4 months). w .e.f. A.Y. 2002-
03, if property is partly self-occupied and partly let out (period wise) assessee will not get any
benefit for self-occupied period and will be taxed as if the property is let out. Further, fair rent is
calculated as = (6,400 / 4) x 12 = 19,200.
No deduction is available for past year’s unrealized rent
(iii) Compute his total income of H3. [6]

Workings:
House 3: Partly let out and partly self-occupied [upto 25%]
Less: Municipal Tax (25% of 10% of Municipal Value) 480
Less: Deduction u/s
24(b) Interest on loan (upto 25%) 875 2,531 2,989
Income from House Property 25,129
Profit and gains of Business or Profession Business Income 57,500
Less: Expenditure incurred in respect of House 3
Municipal tax (75% of 10% of Municipal Value) 1,440
Repairs (75% of Rs. 2,400) 1,800
Interest on loan for House III [75% of Rs. 3,500] 2,625 (5,865) 51,635
Gross Total Income
76,764
Less: Deduction u/s 80 NIL
Total Income (rounded off u/s 288A)
76,760
3(a) Mr. A, a resident Indian, an employee of P Ltd., furnishes the following information:
• Basic pay Rs.10,000 p.m.
• D.A. 41% of basic pay
• Deputation allowance Rs. 300 p.m.
• Transport allowance Rs. 500 p.m.
• Computer allowance Rs. 200 p.m.
• He and his employer both contributed 15% of his basic and DA to RPF & interest credited
to RPF @ 12% p.a. was Rs. 6,000
• He is provided with a rent free furnished accommodation in Kolkata having municipal value
of Rs. 36,000 and furnished with furniture costing Rs. 25,000
• He is provided with a car of 1.6 liters both for official and private purpose. Entire
expenses are borne by the employer.
• He received leave travel assistance for a trip to Andaman Rs. 50,000 for his whole family.
• He has taken an interest free loan of Rs. 15,000 from his employer for purchase of a
colour television, market rate of interest is 10%.
(i) Compute his gross salary for the assessment year 2021-22. [6]
Type your answer here: Rs. 2,38,806
Workings:
Computation of Total Income Mr. A for Assessment Year 2021-22:
Rs. Rs.
Basic 1,20,000
Dearness allowance (41% of 1,20,000) 49,200
Deputation allowance 300 x 12 3,600
Transport allowance 500 x 12 6,000
Computer allowance 200 x 12 2,400
Rent free accommodation 15% of salary 27,180
Furniture 10% of cost 2,500 29,680
Car facility 1,800 x 12 21,600
Leave travel assistance Exempted
Nil Interest free loan Nil
Employer’s contribution to RPF 15% of salary 25,380
Less: Exempted 12% of salary 20,304 5,076
Interest @ 12% on RPF 6,000
Less: Exempted (6,000/12) x 9.5 4,750 1,250
Gross Salary 2,38,806
(ii) Compute his taxable salary for the assessment year 2021-22. [2]
Workings:
Gross Salary 2,38,806
Less: Standard Deduction u/s 16(ia) (50,000)
Taxable Salary Rounded off u/s 288A 1,88,810
3.(b) Compute total income of Sri Bhandari from following information:

Taxable salary (Net) Rs. 75,000
Income from other sources Rs. 20,000
Agricultural income Rs. 4,000
He deposited in LIC annuity plan Rs. 18,000
He paid medical insurance premium by cheque for his dependant blind mother (certified as severe
disable person), aged 68 years, Rs. 20,000. [4]
Type your answer here: Nil
Workings:
Computation of Total income of Sri Bhandari for the A.Y. 2021-22

Particulars Details (Rs.) Amount (Rs.)
Salaries 75,000
Income from Other Sources 20,000
Gross Total Income 95,000
Less: Deduction u/s
80CCC (Paid in LIC annuity plan) 18,000
80D (Medical insurance premium for mother being senior citizen) 20,000
80DD (Dependant severe disable relative) 1,25,000
(Subject to maximum of gross total income) 95,000
Total Income Nil
4. The following details of income of Mr. X and his wife, for the assessment year 2021-22 are
made available to you: (Amount in Rs.)
Mr.X Mrs.X
Income from own business/profession 1,20,000 90,000
Income from other sources 2,10,000 1,10,000
Interest received from Z & Co. 20,000 4,10,000
Salary received from Z & Co. 96,000 84,000
Mr. X and Mrs. X are partners in Z & Co., each having 10% share in profits.
( i ) Determine the gross total income of Mr. X. [4]

Workings:
Particulars Mr. X (Rs.)
Own business income 1,20,000
Interest received from Z & Co 20,000
Income from other sources 2,10,000
3,50,000
Salary received from Z & Co. —
Gross Total Income 3,50,000
(ii) Determine the gross total income of Mrs. X. [4]

Workings:
Particulars Mrs. X (Rs.)
Own business income 90,000
Interest received from Z & Co 4,10,000
Income from other sources 1,10,000
6,10,000
Salary received from Z & Co. 84,000
Add: Salary received from Z & Co. by Mr. X 96,000
Gross Total Income 7,90,000
(iii) Will your answer be different, if each one of them holds 8% of shares in profit of Z & Co.? [2]

Clubbing provisions are not applicable. Accordingly, income of Mr. X will be Rs. 4,46,000
(i.e. Rs. 3,50,000 + Rs. 96,000) and that of Mrs. X will be Rs. 6,94,000 (i.e. Rs. 7,90,000 – Rs.
96,000).
(iv) Will your answer be different from (ii), if Mr. X and Mrs. X both possess professional qualifications?
[2]

Clubbing provisions are not applicable. Accordingly, income of Mr. X will be Rs. 4,46,000
(i.e. Rs. 3,50,000 + Rs. 96,000) and that of Mrs. X will be Rs. 6,94,000 (i.e. Rs. 7,90,000 – Rs.
96,000).
5.(i) Mr. X deposited Rs. 10,000 into PPF account and purchased NSC for Rs. 5,000 to reduce his
tax liability. On the other hand, Mr. Y did not show his interest on a bank deposit amounting
to Rs. 8,000 and thereby reduced his tax liability. Comment on the nature of tax saving policies
adopted by Mr. X and Mr. Y.
[3]
Tax planning is a way to reduce tax liability by taking full advantages provided by the Act
through various exemptions, deductions & relief. 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. In respect of Mr. X it is tax planning and on the other
hand in case of Mr. Y it is tax evasion.
5.(ii) State the cases where Joint Commissioner has power to issue directions u/s 144A. [3]
Power of Joint Commissioner to issue directions in certain cases [Sec. 144A]:
Joint Commissioner may (on his own motion or on a reference being made to him by the
Assessing Officer or on the application of an assessee) - a) Call for and examine the record of any
proceeding in which an assessment is pending; and b) Having regard to the nature of the case or
the amount involved or for any other reason, - issue such directions as he thinks fit for the
guidance of the Assessing Officer to enable him to complete the assessment and such directions
shall be binding on the Assessing Officer. Note: Directions, which are prejudicial to the assessee,
shall not be issued without giving the assessee an opportunity of being heard. However, direction
of investigation shall not be deemed to be a direction prejudicial to the assessee.
5.(iii) State the provisions in relation to the Self-assessment [Sec. 140A] [6]
In self-assessment, assessee itself is responsible to determine its taxable income, tax liability and
to pay tax accordingly. Provision of sec. 140A is as follows –
(a) Where any tax is payable (after deducting relief, rebate, advance payment of tax or tax
deducted or collected at source or MAT or AMT credit, if any) on the basis of return furnished the
assessee is required to pay such tax before filing the return.
Note: A return furnished without paying self-assessment tax & interest, if any, shall be treated as
defective return.
(b) If any interest is payable for delayed filing of return (u/s 234A) or default in payment of
advance tax (u/s 234B) or for deferment of advance tax (u/s 234C) or fee (u/s 234F) is payable for
filing return after due date, then such interest or fee should be paid along with self-assessment
tax. Note: While calculating above interest for the purpose of self- assessment, tax on the total
income declared in the return shall be considered.
(c) Where the amount paid by the assessee falls short of the aggregate of tax, interest and fee,
the amount so paid shall first be adjusted towards fee and thereafter towards interest payable
and the balance, if any, shall be adjusted towards tax payable.
(d) After assessment, any amount paid under this section shall be deemed to have been paid
towards such assessment.
(e) If an assessee fails to pay whole or any part of such tax or interest or both in accordance with
the provisions of sec. 140A, he shall be deemed to be an assessee in default.
6. You are required write Short Notes on any 4 out of 5 questions. [4x3=12]
(a) ‘transfer’ for purposes of capital gains
Transfer in relation to a capital asset includes:
a) Sale, Exchange & Relinquishment of the asset;
b) Extinguishment of any right in an asset;
c) Compulsory acquisition of an asset under any law;
d) Conversion of asset into stock-in-trade by the owner;
e) Any transaction of immovable property u/s 53A of the Transfer of Property Act, 1882;
f) Any transaction which has the effect of transferring or enabling the enjoyment of any
immovable property.
g) Maturity or redemption of a zero coupon bond. It also includes
• disposing of or parting with an asset or any interest therein, or
• creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or
conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India
or outside India) or otherwise, notwithstanding that such transfer of rights has been
characterised as being effected or dependent upon or flowing from the transfer of a share or
shares of a company registered or incorporated outside India.
(b) Business [Sec. 2(13)]

Business includes –
• any trade, commerce or manufacture; or
• any adventure or concern in the nature of trade, commerce or manufacture.
Generally, business means recurring economic activity, but for income tax purpose an isolated
activity may be termed as business depending upon facts and circumstances. Following elements
shall be considered to judge a transaction as business transaction:
• Nature of commodity
• Intention of the party
• Efforts applied in transaction
• Periodicity of transaction
• Nature of transaction (whether incidental to a business or not)
(c) Conditions to be satisfied to claim deduction u/s 80GG

1. No House rent allowance: Assessee is not receiving House Rent Allowance (HRA).
2. No house at the place of employment: He or his spouse or minor child or HUF of which he is a
member, should
not own any residential house at a place where the assessee resides, perform the duties of his
office, or
employment or carries on his business or profession.
3. No claim for the benefit of self-occupied house property: Assessee should not treat any
residential house
situated at other places as self-occupied property u/s 23(2)(a) or 23(4)(a).
4. Proof for payment of rent: A declaration in Form 10BA should be filed for expenditure incurred
by him towards
payment of rent.
Note: Rent must be paid for a residential house property whether furnished or unfurnished.
(d) Carry forward of Loss

In case where the income of an assessment year is insufficient to set off the losses of the year
then such losses (which could not be set off) can be carried forward to subsequent assessment
year(s) for set off against income of such subsequent year(s). However, all losses cannot be
carried forward, e.g. losses under the head ‘Income from other sources’ (other than loss from
‘Activity of owning and maintaining race-horses’) cannot be carried forward.
Following losses can be carried forward:
1. Loss under the head ‘Income from house property’ [Sec. 71B]
2. Loss under head “Profits and gains of business or profession” other than speculation loss [Sec.
72]
3. Loss from speculation business [Sec. 73]
4. Loss from specified business covered u/s 35AD [Sec. 73A]
5. Loss under the head ‘Capital gains’. [Sec. 74]
6. Loss from ‘Activity of owning and maintaining race horses’. [Sec. 74A]
(e) Disclosure requirement in respect of ICDS III: Construction Contracts

Disclosure requirement as per ICDS III: Construction Contracts
A person shall disclose:
a. the amount of contract revenue recognised as revenue in the period; and
b. the methods used to determine the stage of completion of contracts in progress. A person shall
disclose the following for contracts in progress at the reporting date:
i. amount of costs incurred and recognised profits (less recognised losses) upto the reporting
date;
ii. the amount of advances received; and
iii. the amount of retentions.
Section D [12 Marks]

Case Study
You are required to answer all the questions in this section. [12 X 1 = 12]
Instructions: Candidates shall provide adequate reasons/workings in brief, in support of their
answers.
The parents of Mr. D, Mr. & Mrs. A started to live in Kolkata, after the partition took place. Mr. A is
a very good scholar so in the year 1970, he got a high-profile Government job at that time.
Employment facilities like accommodation, car, domestic servants etc. have been provided to
him. After a few years D was born in Kolkata in the year 1975. He started studying in Hindu school,
later in Presidency College. As the time passes, the Mr. A retired from the Government job in 2000
as a result, they left their accommodation which had been provided to them. In the year, 2001 Mr.
D got a job in Cochin and due to that they all shifted to Cochin.
In the year 2005, he bought a residential house for their accommodation. Thereafter he made
some renovation to the house in 2008 before his marriage.
In 2019, Mr. D got to know that he might get transferred to Ranchi. So, he started planning to
get shifted over there.
In December 2020 Mr. D sold a residential building at Cochin for Rs. 65 lakhs. The stamp
valuation authority determined the value at Rs. 80 lakhs which was not contested by Mr. D. The
property was acquired in April, 2005 for Rs. 6 lakhs. He acquired a residential flat at Ranchi for
Rs. 55 lakhs and another residential house at Cuttack for Rs. 25 lakhs before March, 2021.
Based on the above, you are required to answer the following questions:
(a)(i) What is Indexed Cost of Acqisition? [1+2=3]
“Indexed cost of acquisition” means the ‘cost of acquisition’ adjusted according to the price level of
the year of sale.
(a)(ii) Calculate the indexed cost of acquisition in the above case.

Workings:
Indexed cost of acquisition = Rs. 6,00,000 x 301 / 117 = Rs. 15,43,590
(b) What will be the capital gain in the above case.? [3]
Type your answer here: Long–term Capital Gain of Rs. 64,56,410
Workings:
Computation of Capital Gain of Mr. D for the A.Y. 2021-22
Particulars Rs. Rs.
Full value of consideration (being higher of actual 80,00,000
consideration and value determined by stamp valuation
authority)
Less: Expenditure on transfer NIL
Net sale consideration 80,00,000
Less: Indexed cost of acquisition 6,00,000 x 301 / 117 (15,43,590)
Less: Indexed cost of improvement NIL
Long–term Capital Gain 64,56,410
(c) What will be his taxable capital gain? [3]

Type your answer here: Nil
Workings:
Computation of Taxable Capital Gain of Mr. D for the A.Y. 2021-22
Particulars Rs. Rs.
Long–term Capital Gain 64,56,410
Less: Exemption u/s 54 (64,56,410)
Taxable Long–term Capital Gain Nil
(d) State the circumstances under which the Assessing Officer may refer the valuation of capital assets to
the valuation officer. [3]
Reference to Valuation Officer [Sec. 55A]
With a view to ascertaining the fair market value of a capital asset for the purposes of this chapter
[e.g. sec. 45(1A), 45(2), 45(4), 46(2), 55 and 2(47)] the Assessing Officer may refer the valuation of
capital asset to a Valuation Officer.
Cases where reference to Valuation Officer can be made
i) Where the value of the asset as claimed by the assessee is in accordance with the estimate
made by a registered valuer. If the Assessing Officer is of opinion that the value so claimed is at
variance with its fair market value
ii) In any other case
If the Assessing Officer is of the opinion—
1. That the fair market value of the asset exceeds the value of the asset as claimed by the assessee
by more than
• 15% of the value of the asset as so claimed; or • by more than Rs. 25,000 whichever is less.
2. That having regard to the nature of the asset and other relevant circumstances, it is necessary to
do so.
END

Direct Taxation Paper: Key Highlights

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Paper 7: Direct Taxation [December_2021_Term]

Paper 7: DIRECT TAXATION (DTX)

Section A [20 Marks]

2. Which of the following is not a head of income?

3. Which of the following income is an agricultural income?

5. Which of the following statement is incorrect?

7. W h i c h o f t h e f ol low i n g i s t he rate of depreciation applicable for the purpose of

10. What is the taxability of income from sub-letting of a house property?

11. Which of the following is correct in relation to deduction of e xpenditure incurred by a

(iv) Foreign Company

19. Which one of the following is specified goods u/s 206C?

20. Which of the following is taxable under the head ‘salaries’?

Section B [20 Marks]

1. If total income of a person is Rs. 3,87,887.44, it shall be rounded off to ____________ as

14. Deduction u/s 80GGB or 80GGC is available on donation to .

Section C [48 Marks]

B Agricultural income accrued and received in Australia Rs. 1,20,000 [2]

while computing taxable income from house property? [2]

Type your answer here:

1(b)(ii) Distinguish between foregoing of salary and surrender of salary. [2]

Municipal value 24,000 18,000 19,200

Rent received 22,800 6,400 6,000

Repairs 2,500 1,200 2,400

Interest on loan 3,600 2,400 3,500

(i) Compute his total income of H1. [3]

(ii) Compute his total income of H2. [3]

Type your answer here: Rs. 9,780

(iii) Compute his total income of H3. [6]

3.(b) Compute total income of Sri Bhandari from following information:

Computation of Total income of Sri Bhandari for the A.Y. 2021-22

( i ) Determine the gross total income of Mr. X. [4]

(ii) Determine the gross total income of Mrs. X. [4]

Type your answer here:

Type your answer here:

(b) Business [Sec. 2(13)]

(c) Conditions to be satisfied to claim deduction u/s 80GG

(d) Carry forward of Loss

(e) Disclosure requirement in respect of ICDS III: Construction Contracts

Section D [12 Marks]

(a)(ii) Calculate the indexed cost of acquisition in the above case.

(c) What will be his taxable capital gain? [3]

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