Test Bank

QUESTION BANK
BBA
SEMESTER V
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FOR PRIVATE CIRCULATION
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QUESTION BANK
INCOME TAX LAW & PRACTICES
BBA - 301
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UNIT - I
I MULTIPLE CHOICE QUESTIONS:
1. Income tax is collected on all types of income except .

A. Agricultural Income
B. Industrial Income
C. Capital Gain
D. Household Property
ANSWER: A
2. The Income Tax Act came into force from .

A. 1st March 1971
B. 1st April 1971
C. 1st March 1961
D. 1st April 1961
ANSWER: D
3. The Income Tax Act came into force all over India except .
A. Andaman & Nicobar
B. Maldives
C. Jammu & Kashmir
D. None of the above
ANSWER: D
4. As per Income Tax Act, 1961, income tax is charged on the income of an individual at a rate
which are prescribed by the Finance Act of relevant assessment year.
A. Current year
B. One year before previous year
C. Previous year
E. ANSWER: C
5. The tax payer liability is determined with reference to his or her .

A. Financial Status
B. Residential Status
C. All of the above
ANSWER: B
6. As per the definition of Income, the income includes the following .

A. Profits and gains
B. Dividend declared
C. Voluntary contribution received by a trust created
D. All of the above
ANSWER: D
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7. The period of 12 months commencing on the first day of April every year and ending on 31st
March is called as .
A. Previous Year
B. Assessment year
C. Accounting Year
D. Financial Year
ANSWER: B
8. Previous year means the financial year immediately preceding the .

A. Accounting Year
B. Assessment Year
C. All of the above
ANSWER: B
9. Agricultural income is completely exempted for assessment year .

A. 1974-75
B. 1985-86
C. 1975-76
D. 1978-79
ANSWER: A
10. The income from foreign companies by providing the services in project connected with
security of India is _________ from tax liability.
A. 50% exempted
B. 20% exempted
C. 100% exempted
D. 55% exempted
ANSWER: C
11. An individual is said to be resident in India if .

A. It is in India in the previous year for a period of 182 days or more
B. It is in India for period of 60 days or more during the previous and 365 days or more
during the four years immediately proceeding previous year
C. All of the above
ANSWER: C
12. The HUF is said to be resident in India if .

A. The control and management of its affairs is wholly or partly situated in India
B. The control and management of its affairs is partially situated out of India
C. The control and management of its affairs is wholly or partly in out of India
ANSWER: A
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13. The awards and rewards are exempted from Income Tax if .
A. Payment is in cash
B. Payment is in kind
C. Payment is in cash or in kind
ANSWER: C
14. Income received in India whether occurred in India or outside India, the tax incidence in case
of resident is .
A. Taxable as per slabs
B. Exempted from tax
C. Partly exempted
ANSWER: A
of resident but not ordinarily resident is .
B. Exempted from tax
C. Partly exempted
ANSWER: A
of non-resident is .
B. Exempted from slab
C. Partly exempted
ANSWER: A
17. Income deemed to be received in India whether occurred in India or outside India, the tax
incidence in case of resident is .
B. Exempted from slab
C. Partly exempted
ANSWER: A
18. The income received and accrued outside India from a business controlled or profession set
up in India, the tax incidence in case of resident is .
A. Taxable
B. Non-taxable
C. Partly taxable
ANSWER: A
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19. The income received and accrued outside India from a business controlled or profession set
up in India, the tax incidence in case of non-resident is .
A. Taxable
B. Non-taxable
C. Partly taxable
ANSWER: B
20. The tax incidence for company or firm in which income received in India and company is
resident is .
A. Taxable
B. Non-taxable
C. Partly taxable
ANSWER: A
21. The tax incidence for company or firm in which income received in India and company for
non-resident is .
A. Taxable
B. Non-taxable
C. Partly taxable
ANSWER: A
22. The tax incidence for company or firm in which income received outside India from a source
controlled from India for resident is .
A. Taxable
B. Non-taxable
C. Partly taxable
ANSWER: A
23. The tax incidence for company or firm in which income received outside India from a source
controlled from India for non-resident is .
A. Non-taxable
B. Taxable
C. Partly taxable
ANSWER: A
24. __________ is exempted from income tax.

A. Interest from Indian company
B. Dividend from foreign company
C. Cooperative dividend
D. Dividend from Indian company
ANSWER: D
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25. The capital gain is chargeable under of Income Tax Act.
A. Section 45
B. Section 55
C. Section 56
D. Section 40
ANSWER: C
II SHORT ANSWER TYPE QUESTIONS:
1. Who is an Assessee?
2. What is previous year and assessment year?
3. Who is Person?
4. What is Agricultural Income?
5. Write a short note on Income Tax Act 1961.
6. What is Tax?
7. Why are taxes levied?
8. Under what circumstances an assessee will be considered "non-resident" for income-tax
purposes and on what income he will be liabIe to be assessed?
9. In what way does the liability of tax of a "not ordinarily resident" person differ from that of a
"resident" person under the Income-tax Act?
10. How will you decide the question of residence of an individual and a Hindu undivided family?
Explain fully.
11. Can one claim deduction for personal and household expenditure while calculating taxable
income or profit?
12. Can A Non-resident Claim Rebate Under Section 87a?
13. How can I know whether a company is resident or non-resident?
14. How is resident/ non-resident status relevant for levy of income tax?
15. I am an Indian scientist, who had gone abroad on a government project. Should my return of income
include income earned/received abroad?
16. What is foreign income?
17. What is national income?
18. What is partly agricultural income?
19. Explain gross income.
20. What type of deductions are allowed from gross total income?
21. Give the tax slabs as per the current finance bill for individual and HUF.
22. What are the workings of CBDT?
23. Give the treatment of coffee and tea in agricultural income.
24. How can we decide an individual is NRI?
25. Narrate the basic features of Income tax Act 1961.
III LONG ANSWER TYPE QUESTIONS:
1. Mr. X has a business income of Rs 3, 00,000 and agricultural income of Rs 4, 00,000.

These figures relate to the Assessment year 2019-20. How will his tax liability be
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computed?
2. If any industrial organization grows crops and sells half of the produce as raw material in
the market and remaining (further processed) as finished goods, what will be the tax
treatment?
3. Mr. Arnav had sold an agricultural land in a rural area, which is outside jurisdiction of the
Municipal Authority. Whether the sales proceeds are exempt or taxable?
4. What is partly agricultural income? Give examples of it with taxable rules.
5. How will you decide the question of residence of an individual and a Hindu undivided
family? Explain fully
6. Give ten instances of income completely exempt from tax giving a brief account of the
conditions, if any, to be fulfilled, in respect of each to be eligible for the exemption
7. Enumerate with reference to section10 of the Income-tax Act,1961, & Explain types of
income which is totally exempt from tax?
8. Enumerate with reference to section10 of the Income-tax Act,1961, & Explain types of
income which is totally exempt from tax?
9. What Is Marginal Relief and How It Is Computed?
10. How to Compute the Total Tax Liability?
11. Under How Many Heads the Income of a Taxpayer Is Classified?
12. What Is Surcharge and How It Is Computed?
13. As an agriculturist, am I required to maintain any proof of earning and expenditure
incurred?
14. I win a lottery or prize money in a competition. Am I required to pay taxes on it?
15. Give the exemptions under section 10.
16. What is tax incidence? How it can be determined?
17. How the tax Liability of different categories of assesse be determined?
18. The dividend is declared and paid outside India. Discuss the tax liability on the transaction
according to lndian income-tax on these dividends?
19. "The Income-tax Act gives absolute exemptions in respect of certain income, while some
income is included in the total income for determining the rate only". Discuss.
20. Mr. A comes to India for the first time on January 11, 2018 for a period of 40 days.
Determine his residential status for the assessment year 2019-20.
21. Mrs. A, an Indian citizen, leaves India, for the first time, on September 10, 2010, for the
purpose of employment outside India. Determine her residential status for the assessment
year 2019-20.
22. X left India for the first time on November 21, 2017. During the financial year 2017-18, he
came to India once on May 20 for a period of 46 days. Determine his residential status for
the assessment year 2019-20.
23. Z, an American tourist, comes to India for the first time on June 17, 2017. He leaves India
on September 29, 2017. Determine his residential status for the assessment year 2019-20.
Does it make any difference if he comes to India on a business trip or if he is an Indian
citizen?
24. Mr. A had sold an agricultural land in a rural area, which is outside jurisdiction of the Municipal
Authority. Whether the sales proceeds are exempt or taxable?
25. What are the different categories of assessees according to their residential status?
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UNIT - II
1. Which section of the Income Tax Act exempted incomes have been mentioned?
A. Section 80C
B. Section 80DD
C. Section 10
D. Section 2
ANSWER: A
2. _________ of Income Tax Act is related to residential status.

A. Section 2
B. Section
C. Section 5
D. Section 4
ANSWER: A
3. Resident of India includes .

A. Ordinarily resident
B. Not ordinarily resident
C. NRI
D. Both (a) and (b)
ANSWER: D
4. The Company may have the residential status as .

A. Resident or Non-resident
B. Not ordinarily resident
C. Non-resident
D. Resident
ANSWER: A
5. The meaning of exempted income is .

A. Not included in total income
B. Agricultural income
C. Not taxable under income tax
D. All of the above
ANSWER: A
6. The number of income source for a person are .

A. One head
B. Two heads
C. Various heads
D. Any of the above
ANSWER: D
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7. The sum of various heads is called as .
A. Taxable income
B. Total income
C. Gross total income
D. Adjusted income
ANSWER: C
8. The agricultural income includes .

A. Income from sale of crop
B. Income from preparation of crop
C. Income from nursery
D. All of the above
ANSWER: D
9. ____________ comes under agricultural income.

A. Tea garden
B. Commodity farming
C. All of the above
ANSWER: A
10. The Income Tax Act, 1961 broadly covers .

A. Basic charging income
B. Rebates and reliefs
C. Incomes exempted from income tax
D. All of the above
ANSWER: D
11. The capital gain is chargeable under of Income Tax Act.

E. Section 45
F. Section 55
G. Section 56
H. Section 40
ANSWER: C
12. The definition of the person includes .

A. An individual
B. A company
C. A Hindu undivided family
D. All of the above
ANSWER: D
13. Any rent or revenue derived from land which is situated in India and is used for agricultural
purpose is .
A. Partially taxable
B. Fully taxable
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C. (c) Exempted from tax
D. (d)None of the above
ANSWER: C
14. Residential Status of an assesses can be .

A. Different for different previous year in the same assessment year
B. Different for different assessment year
C. None of the above
D. All of the above
ANSWER: B
15. The income of previous year is chargeable to tax in the .

A. Immediately succeeding assessment year
B. Same previous year
C. Immediately preceding academic year
ANSWER: A
16. The interest on loan paid by the Government of India to a non-resident outside India is
_______________in India.
A. Not taxable
B. Partially taxable
C. (c) Taxable
D. (d)Can’t say
ANSWER: A
17. An individual is resident and ordinarily resident of India if .

A. Person had been resident in India at least 2 out of 10 previous years immediately
preceding the relevant previous year
B. Person been in India for a period of 730 days or more during 7 years immediately
C. All of the above
ANSWER: C
18. The Resident HUF is ordinarily resident in India, if

A. He has been resident in India at least 2 years out of 10 previous years immediately
B. He has been resident in India at least 3 years out of 10 previous years immediately
C. He has been resident in India at least 2 years out of 5 previous years immediately
ANSWER: A
19. Basic condition will be for a person who leaves India for employment
A. At least 182 days in India
B. At least 60 days in previous year and 365 days in preceding 4 years
C. At least 730 days in preceding 7 years
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D. All of the above
ANSWER: A
20. Which of the following is not included in the term Income under the Income Tax Act, 1961?
A. Reimbursement of travelling expenses
B. Profits and gains of business or profession
C. Dividend
D. Profit in lieu of salary
ANSWER: D
21. R, a chartered accountant is employed with R Ltd., as an internal auditor and

requests the
employer to call the remuneration as internal audit fee. R shall be chargeable to tax for
such fee under the head.
A. Income from salaries
B. Profit and gains from Business and Profession
C. Income from other sources.
ANSWER: A
22. A is entitled to children education allowance @ Rs. 80 p.m. per child for 3 children
amounting Rs. 240 p.m. It will be exempt to the extent of :
A. Rs.200 p.m.
B. Rs.160 p.m.
C. Rs. 240 p.m.
ANSWER: A
23. A has two house properties. Both are self-occupied. The annual value of
A. Both house shall be nil
B. One house shall be nil
C. No house shall be nil
ANSWER: B
24. Gain arising from the disposal of _________ is taxable under the head capital gains.
A. Depreciable asset
B. Eligible depreciable asset
C. Securities
D. All of the above
ANSWER: C
25. ____________are capital assets.

A. Stock in trade
B. Sculpture
C. Immovable property
D. Both b and c
ANSWER: D
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III SHORT ANSWER TYPE QUESTIONS:
1. Assessees have been divided into three categories on the basis of their residential status.
Explain how these categories?
2. Write short notes on the Income received in India?
3. What do you mean by Income deemed to accrue or arise in India?
4. Explain Control and management of a business and their taxability?
5. Write a short note on Resident but a not ordinarily resident individual.
6. Can A Partnership Firm Or HUF Claim Rebate Under Section 87A?
7. How to Round Off the Tax Liability?
8. Can one claim deduction for personal and household expenditure while calculating taxable
income or profit?
9. How do you compute Income from house property?
10. Are all receipts considered as income?
11. What are revenue and capital receipts?
12. Is income tax levied on gifts received by a person?
13. I own shares of various Indian companies and receive dividends. Is it taxable?
14. I am a religious preacher and earn money from preaching. Do I have to pay tax and file
return?
15. What is circle rate?
16. What is fair rate?
17. What are fringe benefits?
18. What are perquisites?
19. Give fully taxable allowances.
20. What are the partly taxable allowances?
21. What are family pensions?
22. Give the deductions under section 16.
23. Give the deductions in house property.
24. Explain long term gains.
25. What is short term gains?
2. "The Income-tax Act gives absolute exemptions in respect of certain income, while some
income is included in the total income for determining the rate only". Discuss.
3. Under what circumstances an assessee will be considered "non-resident" for income-tax
purposes and on what income he will be liabIe to be assessed?
4. The incidence of income-tax depends upon the residential status of an assessee". Discuss
fully.
6. Discusss the criteria to decide the assesses Residential Status in Case of Company and
HUF?
7. In what way does the liability of tax of a "not ordinarily resident" person differ from that
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of a "resident" person under the Income-tax Act?
8. X and Y are brothers and they earn the following incomes during the previous year. X
settled in America in the year 1985 and Y settled in Mumbai. X visits India for 20 days
every year, Y also visits America every year for a month, Compute their total income for
the assessment year 2019-20 from the following information -
X Y
Interest on American development bonds, 50 per cent of Rs. Rs.

interest
received in India 46,000 18,000
Dividend for a Japanese company received in America 10,000 15,000
Profit on sale of shares of on Indian company received in India 45,000 75,000
Profit from a business in Mumbai, but managed directly from 10,000 -

America
Income from a business in Mumbai 32,000 28,000
Fees for technical services rendered in America and received in
America. The services were, however, utilized in India 1,50,000 -
Interest on savings bank deposit in State Bank of India, Mumbai 4,500 12,000
Rent received in respect of house property at Mumbai 96,000 55,000
Life insurance premium paid - 25,000
9. A government decides to raise personal income tax rates. Using diagrams, explain one
possible demand-side consequence and one possible supply side consequence of this
decision.
10. Can I claim deduction for my personal and household expenditure in calculating my
income or profit?
11. Most of my income is given away in charity and I am left with just enough to meet my
personal requirement. What will be considered as my income?
12. My daughter stays in USA. She owns a house in India and has let it out. She has asked
tenants to pay rent to me so that I can a lead decent life. She has not received any rent. Is
she still liable to tax? What if she transfers the house to me?
13. Children living abroad send me Rs.20000/- per month for my maintenance. Would this be
considered as my income?
14. Narrate the rules for leave encashment.
15. Explain the steps for calculating gratuity.
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16. Explain the rules for House rent allowance.
17. Explain the rules for taxable rent-free house.
18. How one can determine the exemption under provident fund.
19. Narrate the rules for recognized provident fund.
20. Explain the rules for VRS.
21. How one can calculate the taxable income from house property.
22. Explain the rules for calculation of income from salaries.
23. What are the items to be included in capital gains?
24. What is income from business and profession?
25. What are the incomes allowed in business and professions?
UNIT III
1. An assessee has borrowed money for purchase of a house & Interest is payable outside
India. Such interest shall:
A. Be allowed as deduction
B. Not to be allowed on deduction
C. Be allowed as deduction if the tax is deducted at source
ANSWER: C
2. Salary, bonus, commission or remuneration due to or received by a working partner from

the firm is taxable under the head.
A. Income from salaries
B. Other sources
C. PGBP
ANSWER: C
3. Perquisite received by the assessee during the course of carrying on his business or
profession is taxable under the head.
A. Salary
B. Other sources
C. PGBP
ANSWER: C
4. Interest on capital or loan received by a partner from a firm is:

A. Exempt U/S 10(2A)
B. Taxable U/H business and profession
C. Taxable U/H income from other sources
ANSWER: B
5. Under the head Business or Profession, the method of accounting which an assessee can
follow shall be:
A. Mercantile system only
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B. Cash system only
C. Merantile or cash system only
D. Hybrid system
ANSWER: C
6. Expenditure incurred on family planning amongst the employees is allowed to

A. Any assesse
B. A company assesse
C. An assessee which is a company or cooperative society
ANSWER: B
7. Gain arising from the disposal of _________ is taxable under the head capital gains.
E. Depreciable asset
F. Eligible depreciable asset
G. Securities
H. All of the above
ANSWER: C
8. ____________are capital assets.

E. Stock in trade
F. Sculpture
G. Immovable property
H. Both b and c
ANSWER: D
9. A person who derives his income by dealing in shares of private, unlisted and public limited
companies are covered under the head.
A. Income from business
B. Income from other sources
C. Capital gains or
D. All of the above
ANSWER: C
10. Bonus shares are issued by a company to its ______ without receiving any amount from
them.
A. Employees
B. Customer
C. Shareholders
D. All of the above
ANSWER: C
11. Income from shares of a public company set up in any special Industrial zone is exempt up
to-------- years from the date of commencement of commercial production.
A. Three
B. Four
C. Five
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ANSWER: D
12. Gain from sale of shares of Private Limited companies is taxable under section_________.
A. 37
B. 37A
C. Not taxable
D. None of (a) to (c)
ANSWER: A
13. Bonus shares are the shares issued by a company_____________.

A. Free of cost
B. Issued at concessional rate
C. On credit
ANSWER: A
14. A company in which at least 50% of the shares are held by a foreign government is
___________.
A. Private company
B. Public company
C. Foreign company
D. All of the above
ANSWER: B
15. Any incidental expenditure on disposal of capital assets shall form part of _____________.
A. Cost of assets
B. Disposal consideration
C. Selling cost
D. None of a to c
ANSWER: A
16. Capital loss u/s 37 is allowed as deduction for those assets the gain of which
is___________.
A. Chargeable to tax
B. Exempt from tax
C. Both of these
D. None of (a) to (c)
ANSWER: A
17. At the time of devolution ___________ would be the cost of the asset.
A. FMV
B. Historical cost
C. higher of a and b
ANSWER: A
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18. Capital gain tax shall not be chargeable on disposal of securities which are held for a period
of __________.
A. one year
B. two years
C. three years
D. six months
E. forty-eight months
ANSWER: A
19. ‘Derivatives’ is a general term for financial assets that are “derived” from other_______.
A. fixed assets
B. current assets
C. financial assets
D. income
ANSWER: C
20. Gain on disposal of immovable property is chargeable to at _____%, where holding period
is up to one year.
A. 10
B. 2
C. 6
D. 12
ANSWER: A
21. A loss on the sale of jewellery is _______ under the head capital gain.
A. recognized
B. not recognized
C. taxable
D. none of above
ANSWER: B
22. In Income Tax Act, 1961, deduction under sections 80C to 80U cannot exceed .
A. Gross total income
B. Total income
C. Income from business or profession
D. Income from house property
ANSWER: A
23. Deduction in respect of contribution to political party will .

A. Be allowed in respect of sum paid by way of cash
B. Not be allowed if payment made in cash
C. This type of deduction is not allowed whether payment is in cash or not
D. Be allowed if payment made in cash, subject to certain conditions
ANSWER: B
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24. Maximum amount of deduction in case of a person with severe disability under section
80U will be .
A. 50,000
B. 75,000
C. 80,000
D. 1,00,000
ANSWER: A
25. A loss on the sale of jewellery is _______ under the head capital gain.
A. recognized
B. not recognized
C. taxable
D. none of above
ANS: B
1 How do you compute Income from house property?

2 Define Capital Assets?
3 How will you calculate House Rent Allowance (HRA)?
4 What is not considered as transfer of Capital Asset?
5 What are the deductions available under section 24 of Income Tax act?
6 Explain the differences between ling term capital gain and short-term capital gain.
7 Write any five items under section 80 C of Income Tax Act, 1961.
8 Explain the terms “Direct and Indirect taxes”
9 What is surcharge?
10 What are the types of Provident funds?
11 What is Total income?
12 What is Return of income?
13 How many heads are there under total income? Name them.
14 At what rate firms are required to pay tax on their income?
15 What is the Securities Transaction Tax?
16 What is the Securities Transaction Tax?
17 Define Amortization & Impairment?
18 What do you understand by transfer income?
19 What is standard rent?
20 Explain gross annual value.
21 What is net annual value?
22 Explain the different rules for annual value calculation.
23 Give the deductions for house property.
24 What are the different deductions as per IT Act for capital gains?
25 What is casual income?
1 Write a note on computation of income in case of a house property which is in business
20
or profession of the assessee?
2 What is capital gain? Explain long term capital gains and how is it different from short
term capital gains?
3 What are the deductions under Salary Head? Name the items.?
4 Write a note on computation of annual value, in case of
(i) A house which is partly let out and partly vacant or
(ii) A house vacant throughout the year
5 Ownership is the criterion for assessment of income from property u/s 22. However, there
are instances in which the income from property is assessable in the hands of an assessee,
who is not the legal owner thereof. Enumerate these cases?
6 How is advance salary taxed in the hands of an employee? Is the tax treatment same for
loan or advance against salary?
7 Mr. X, a citizen of India, received salary from the Government of India for the service
rendered outside India. Is the salary income chargeable to tax?
8 Define Capital Assets? What is not considered as transfer of Capital Asset?
9 What is the difference between profit and gain, give examples also?
10 What items fall under the category of ‘securities’?
11 What do you mean by fair rent, standard Rent?
12 What is Entertainment Tax? Is there any Exemption related to Entertainment Tax?
13 What are the types of Provident funds? What are the tax implications of different types of
Provident Fund?
14 What are allowable and dis-allowable expenditure?
15 Mr. Mugal joined Star Ltd. on 1/4/2011. Details regarding his salary are as follows:
Particulars Amount
Basic 5,000 p.m.
Dearness Allowance 2,000 p.m. (50% considered for retirement benefit)
Education Allowance 1,000 p.m. (he has I son and 3 daughters)
Hostel Allowance 2,000 p.m. (none of the children is sent to hostel)
Medical Allowance 1,000 p.m. (total medical expenditure incurred Rs.
3000)
Transport Allowance 1,000 p.m. (amount being used for office to residence
& vice versa)
Servant Allowance 1,000 p.m.
City compensatory Allowance 2,000 p.m.
Entertainment Allowance 1,000 p.m.
Assistants Allowance (i.e. Helper 3,000 p.m. (paid to assistant Rs. 2000 p.m.)
Allowance)
Profession Development 2,000 p.m. (actual expenses for the purpose Rs. 8000
Allowance p.m.)
(i.e. Academic Allowance)
Bonus 24,000 p.a.
Commission 9,000 p.a.
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Fees 5,000 p.a.
Compute his gross taxable salary for the assessment year 2019-20.
16 Miss Sonal, being a citizen of India and Government employee has following salary
details:
Dearness Allowance 3,000 p.m. (forming pan of salary)

Dearness Pay I, OOO p.m. (forming part of salary)
Fees 50,000 p.a.
House Rent Allowance 5,000 p.m. (Rent paid for Kolkata house Rs.
4,000 p.m.)
Children Education allowance 3,000 p.m. (She is having one adopted child)
Children allowance I ,000 p.m.
Hostel allowance 2,000 p.m.
Dress Allowance 5,000 p.m. (Actual expenditure Rs. 10,000 p.m.)
Uniform Allowance 2,000 p.m. (Actual expenditure Rs. I ,000 p.m.)
Tiffin Allowance I, OOO p.m.
Education Allowance for her own education1,500 p.m. (Actual expenditure Rs. I ,500 p.m.)
Compute her gross salary for the assessment year 2019-20.
R is employed on part time basis with two companies i.e. X Company Ltd. and Y Company Ltd.
The particulars of his income for the previous year 2018-19 are as under:
Particulars Company X Company Y
Basic Salary 32,000 13.000

Education allowance for one child 1 ,800
Reimbursement of electricity bills 2,000
Medical allowance 2,400
Employer's contribution to Recognised Provident Fund 1 ,800 1,500
Value of rent-free accommodation taken by the employer on rent 3000
17 R is neither a Director nor a substantial Shareholder of Either X ltd. or Y ltd. Is he Specified

employee?
(a) Mr. Laloo Singh, received education allowance of Rs. 80 p.m. for his 1st child, Rs. 90 p.m.
for his 2rid child and Rs. 120 p.m. for his 3rd child. He also received hostel allowance of
Rs. 1,000 p.m. None of his children are studying. Find taxable Children Education
Allowance and Hostel allowance.
(b) Preet is employed as a driver in a transport company. During the previous year 2018-19,
he has been paid Rs. 24,000 being allowance to meet his personal expenses in course of
22
running trucks from one place to another. He is not in receipt of daily allowance. The
expenditure incurred is however, Rs. 30,000. Find out the amount chargeable to tax.
20. Is rental income from sub-letting chargeable to tax under the head “Income from house
property”?
21. What is the tax treatment of composite rent when the composite rent pertains to letting
out of building along with charges for provision of services?
22. Whether rental income could be charged to tax in the hands of a person who is not a
registered owner of the property?
23. How to compute income from a property which is let out throughout the year?
24. How to compute actual rent while computing gross annual value of a property which is
let-out throughout the year?
25. How to compute gross annual value of a property which is let-out throughout the year?
explain standard rent and fair rent with suitable examples.
UNIT IV
1. Maximum limit for the deduction of Life insurance premia from the gross total income
is .
A. Rs. 2,00,000
B. Rs 1,50,000
C. R s 1,00,000
D. Rs 1,25,000
ANSWER: B
2. The deduction of life insurance premia, contribution to provident fund, etc. will is done
under of Income Tax Act, 1961.
A. Section 80C
B. Section 80U
C. Section 80D
D. Section 80E
ANSWER: A
3. Gross Total Income is arrived after .

A. Only adding Income under five heads of Income
B. Adding Income under five heads of Income excluding losses
C. Adding Income under five heads of Income, after applying clubbing provisions and
making adjustment of set off and carry forward of losses
D. Adding Income under five heads of Income, after applying clubbing provisions and
making adjustment of set off and carry forward of losses and after allowing
deduction under sections 80C to 80U
ANSWER: C
23
4. In Income Tax Act, 1961, deduction under sections 80C to 80U cannot exceed .
A. Gross total income
B. Total income
C. Income from business or profession
D. Income from house property
ANSWER: A
5. The maximum aggregate amount of deduction under sections 80C, 80CCC and 80CCD
cannot exceed .
A. Rs 1,10,000
B. Rs 2,00,000
C. Rs 1,50,000
D. Nil
ANSWER: C
6. Deduction in respect of contribution to political party will .

A. Be allowed in respect of sum paid by way of cash
B. Not be allowed if payment made in cash
C. This type of deduction is not allowed whether payment is in cash or not
D. Be allowed if payment made in cash, subject to certain conditions
ANSWER: B
7. Maximum amount of deduction in case of a person with severe disability under section
80U will be .
A. 50,000
B. 75,000
C. 80,000
D. 1,00,000
ANSWER: A
8. Government’s contribution to the new pension scheme referred to in Section 80CCD is

A. An exempt income
B. Income chargeable to tax as salaries in full
C. 50% thereof is income chargeable to tax as Salaries
D. Income chargeable to tax as income from other sources in full
ANSWER: B
9. In case of a hospital built in specified area after 31.3.2008 fulfilling the required conditions
laid down in Section 80IB-(11C), the profits and gains derived from running the hospital
are
A. Deductible in full
B. Deduction up to 50%
C. Taxable in full
D. Deductible up to 75%
ANSWER: D
24
10. Deduction in respect of contribution to pension scheme of central government comes under
_____________of Income Tax Act, 1961.
A. Section 80CCD
B. Section 80U
C. Section 80EE
D. Section 80G
ANSWER: A
11. In case of assessees other than companies, the following is advance tax rate to be payable
on or before of 15th September:
A. 45%
B. 30%
C. 15%
D. 10%
ANSWER: B
12. For the purposes of computing minimum alternate tax under Section 115B(a) of the Income
Tax Act, 1961, the book profit need not to be increased by inter alia, the amount of deferred
tax debited to the profit and loss account.
A. True
B. False
C. Can’t say
ANSWER: B
13. Deduction under Section 80C can be claimed for fixed deposit made in any scheduled bank,
if the minimum period of deposit is .
A. 10 Years
B. 5 Years
C. 12 Years
D. 8 Years
ANSWER: C
14. Which of the following is covered under section 80D of the Income Tax Act, 1961?
A. Medical treatment of handicapped dependent
B. Medical insurance premium
C. Reimbursement of medical expenses
D. Repayment of loan taken for higher education
ANSWER: B
15. The deduction available under section 80QQB in respect of royalty income of authors shall
not exceed _____________in previous year.
A. 1,50,000
B. 2,50,000
C. 3,00,000
D. 1,00,000
ANSWER: B
25
16. For the purpose of deduction under section 80DD, which of the following statements is/are
true?
A. Assessee is either and individual or a HUF
B. Assessee is resident of India
C. Assessee has a dependent disable relative
D. All of the above
ANSWER: C
17. The maximum deduction one can clam under section 80D is .
A. 30,000
B. 50,000
C. 40,000
D. 60,000
ANSWER: D
18. Amount of deduction in case of a person with severe disability under section 80U will
be______________ .
A. 75,000
B. 85,000
C. 1,50,000
D. 1,25,000
ANSWER: D
19. Aggregate amount of deduction under 80C, 80CCC and 80CCD cannot exceed_________..
A. 1,10,000
B. 1,20,000
C. 1,30,000
D. 1,50,000
ANSWER: D
20. In the case of every senior citizen resident in India, tax rebate under section 87A is ______.
A. 5,000
B. 2,000
C. 1,000
D. Nil
ANSWER: D
21. The provisions regarding TDS on Salaries are contained in .

A. Section 190
B. Section 191
C. Section 192
D. Section 193
ANSWER: C
26
22. If the payee does not furnish PAN and TDS under section 194, dividends shall be made
@__________ .
A. (a) 20%
B. (b) 15%
C. (c) 10%
D. (d) Nil
ANSWER: A
23. Deduction of tax at source for insurance commission is @ ___________________.

A. 10%
B. 15%
C. 20%
D. 12%
ANSWER: A
24 Amount of deduction section 80U will be______________ .
A. (a) 75,000
B. (b) 85,000
C. (c) 1,50,000
D. (d) 1,25,000
ANS: D
25. Aggregate amount of deduction under 80C, 80CCC cannot exceed_________..
A. 1,10,000
B. 1,20,000
C. 1,30,000
D. 1,50,000
ANS: D
1 Discuss the provision of Income Tax Act, 1961 regarding set off of various losses?
2 What are the provision regarding set-off of the Long-term capital losses?
3 What are the provision regarding set-off of the Speculation losses?
4 Explain the provision of Income Tax Act regarding set-off and carry forward of Loss from
house property?
5 Explain the provision of Income Tax Act regarding set-off and carry forward of the
Business losses?
6 What are the rules regarding set-off and carry-forward of Short-Term capital losses?
7 What is TDS Certificate?
8 What is TDS?
9 When TDS should be deducted?
10 How much tax should be deducted from salary?
11 What is the minimum salary one should have for TDS to be deducted by the employer?
12 What are rates of TDS?
13 How to calculate TDS?
14 What are the due dates for TDS?
27
15 Which are the different forms prescribed for TDS Return?
16 How to apply for TDS refund?
17 What are TDS rules?
18 What is Advance Tax?
19 How to Calculate & Pay Advance Tax?
20 Who should pay Advance Tax?
21. What are the deductions allowed under section 80G?
22. What is the maximum limit allowed for section 80 c?
23. What Is TAN and How to apply for TAN?
24. What is TDS Certificate?
25. How much tax should be deducted from salary?
1. Explain the provision of Income Tax, 1961 regarding set off and carry forward and set off
a capital loss.
2. Explain the provision of Income Tax for the set off and carry forward of “speculative
business losses”?
3. What are penalty provisions for non-deduction of TDS?
4. Which are the different forms prescribed for TDS Return?
5. What is Advance Tax? How to Calculate & Pay Advance Tax?
6. Who should pay Advance Tax? Due Dates for payment of Advance Tax?
7. Discuss the previsions regarding set-off and carry forward and set-off of business losses.
8. What are the rules regarding set-off and carry-forward of capital losses?
9. What is TDS? What is TDS Certificate? When TDS should be deducted?
10. Explain the provisions of TDS for salary and interest on securities.
11. Can a return submitted by the assessee be revised? If so, what are the circumstances under
which it can be revised?
12. Explain the provision of Income Tax Act regarding set-off and carry forward of the
following losses: Business losses, Short-term and long-term capital losses
13 Explain the provision of Income Tax Act regarding set-off and carry forward of the: Loss
from house property?
14. Explain the provision of Income Tax Act regarding set-off and carry forward of the: Loss
from Gambling losses (Speculation Losses). ?
15. Can the payee request the payer not to deduct tax at source and to pay the amount without
deduction of tax at source?
16. Explain the provisions of TDS for salary and interest on securities.
17. Can a return submitted by the assessee be revised? If so, what are the circumstances under
which it can be revised.
18. Compute gross total income of Mr. X in following cases for the AY 2019-20: -
Income from house property (A) 30,000

Income from house property (B) (10,000)
Speculation income 80,000
Business income (30,000)
•Income from activity of owning and maintaining race-horses business (A) (50,000)
28
Income from activity of owning and maintaining race-horses business (B) 20,000
Income from agricultural business (25,000)
Short term capital gain (transaction A) 30,000
Short term capital gain (transaction B) (10,000)
Long term capital gain (transaction A) (30,000)
Long term capital gain (transaction B) 10,000
Income from lottery 40,000
Income from horse races 10,000
Income on card games (5,000)
Interest on securities 20,000
19. Which are the different forms prescribed for TDS Return?
20. What are penalty provisions for non-deduction of TDS?
21. How do I know how much TDS has been deducted and whether it has been credited to
me?
22. How to apply for TDS refund?
23. What is applicability of TDS on transactions of immovable property?
24 what is the procedure of filling form 15 CA?
25. What is the procedure of filling form 15 CB?
29
QUESTION BANK
PRODUCTION & OPERATIONS

MANAGEMENT
BBA-303
30
QUESTION BANK
PRODUCTION & OPERATIONS MANAGEMENT BBA 305
BBA - V
UNIT – I
INTRODUCTION TO OPERATIONS MANAGEMENT
1. The components of set up time to produce or build an item are-

A. Process preparation time
B. Process tear down time
C. Learning time
D. All above
ANSWER: C
2. Which of these would an operations manager not be responsible for?

A. Safety and maintenance
B. Sales and marketing
C. Selecting suppliers
D. Recruiting employees
ANSWER: B
3. Which of these Managers would be least likely to be considered in an operations

management role within an organization?
A. Production Manager
B. Reservations Manager
C. Financial Risk Manager
D. Quality Manager
ANSWER: C
4. Which of the following statement correctly explains the role of operations management?
A. Sustain the company’s operation
B. Protect the company’s operation
C. Project the company’s operation
D. All of the above
ANSWER: D
5. An operations strategy is created directly from the _________ strategy

A. Corporate strategy
B. Marketing strategy
C. Business strategy
D. Human resource strategy
ANSWER: C
31
6. Which of these would an operations manager not be responsible for?
A. Safety and maintenance
B. Sales and marketing
C. Selecting suppliers
D. Recruiting employees
ANSWER: B
7. What is advantage of holding inventory?

A. Improved quality
B. Reduced Obsolescence
C. Reduced material handling
D. Greater availability
ANSWER: D
8. The role of a -------------- manager is to sustain, protect, and project the company’s
operations side.
A. Project Manager
B. Operations Manager
C. Finance Manager
D. Marketing Manager
ANSWER: B
9. The extent to which a product or service may be customized is called _____________?

A. variability
B. validity
C. variety
D. variation
ANSWER: A
10. Most operations produce a mixture of both products and services. Which of the following
businesses is closest to producing “pure” services?
A. A Restaurant
B. Counsellor/therapist
C. Steel company
D. IT company
ANSWER: B
11. Operations can be diagnosed by volume, variety, variation and ________________?

A. validity
B. variability
C. value
D. variance
ANSWER: B
32
12. What are the input resources to any transformation process?
A. Information, materials and customers.
B. Staff, facilities, materials, information and customers.
C. Processes, people and parts.
D. People and machines.
ANSWER: B
13. Operations can be classified according to their volume and variety of production as well as
the degree of variation and visibility. Which of the following operations would be classified
as high volume, low variety?
A. A fast food restaurant
B. A family doctor
C. A carpenter
D. A front office bank
ANSWER: A
14. Which of the following activities is NOT a direct responsibility of operations management?
A. Determining the exact mix of products and services that customers will want.
B. Designing the operation’s products, services and processes.
C. Developing an operations strategy for the operation.
D. Planning and controlling the operation.
ANSWER: A
15. Which of the following functions is not a core function of an organization?

A. The marketing (including sales) function
B. The accounting and finance function
C. The product/service development function
D. The operations function
ANSWER: B
16. Which of the following is the least likely decision to be made by Operations Managers?
A. Deciding which market areas to manufacture products for
B. How to use quality techniques to reduce waste
C. Selecting the location and layout of a facility
D. How much capacity is required to balance demand
ANSWER: A
17. Operations can be classified according to their volume and variety of production as well as
the degree of variation and visibility. Which of the following operations would be classified
as high volume, low variety?
A. A carpenter
B. A front office bank
C. A fast food restaurant
33
D. A family doctor
ANSWER: C
18. Which of the following activities is not a direct responsibility of operations management?
A. Planning and controlling the operation
B. Developing an operations strategy for the operation
C. Designing the operation’s products, services and processes
D. Determining the exact mix of products and services that customers will want.
ANSWER: D
19. Operations can be classified according to the degree of variation in demand and visibility
of the operation as well as their volume and variety of production. Which of the following
operations would be classified as high variation and high visibility?
A. A front office bank
B. A family doctor
C. A carpenter
D. A fast food restaurant
ANSWER: B
20. Which of the following would not normally be considered a general characteristic of a
service?
A. Production and consumption are simultaneous
B. Low contact services can often be made more efficient than high contact services
C. Many services involve both tangible and intangible outputs
D. Production and sales cannot easily be separated functionally
ANSWER: E
21. Which of the following statement correctly explains the role of operations management?
A. Sustain the company’s operation
B. Protect the company’s operation
C. Project the company’s operation
D. All of the above
ANSWER: D
22. Organizational strategy is different from operations strategy because it is;

A. Prepared by middle managers
B. Narrower in scope
C. Longer in time horizon
D. All of the above
ANSWER: C
23. Which one of the following strategies specifies how the firm will employ its production
capabilities to support its corporate strategy?
A. Tactical
B. Operations
C. Manufacturing
34
D. Production
ANSWER: D
24. Which of the following functions of an organization consists of all activities directly related
to production of a good or service?
A. Operations
B. Marketing
C. Accounting
D. Finance
ANSWER: A
25. The role of a -----manager is to sustain, protect, and project the company’s operations side.
A. Project Manager
B. Operations Manager
C. Finance Manager
D. Marketing Manager
ANSWER: B
26. Inputs include ------------, energy and information.

A. Human Resources
B. Capital and Material
C. Land
D. All Above
ANSWER: D
27. Transformations are the operations that -----------inputs into outputs

A. Convert
B. Divert
C. Revert
D. All the Above
ANSWER: A
28. Deciding the right method to design the product establishes good -------and efficient way
for operations.
A. Productivity
B. Image
C. Reflection
D. Demand
ANSWER: A
29. Product Design combines ----------with product and business knowledge to generate ideas
and concepts and convert them into physical and usable objects or services
A. Productivity
B. Ergonomics
C. Reflection
35
D. Operationality
ANSWER: B
30. Companies choose various ways to design their products, which include-
A. Standardization
B. Mass Customization
C. Robust Design
D. All Above
ANSWER: D
31. In Operations Management DFA stands for:

A. Design for Assurance
B. Design for Accuracy
C. Design for Authenticity
D. Design for Assembly
ANSWER: D
32. All of the following are the primary reasons for design process except:
A. Economic
B. Social and demographic
C. Political, liability, or legal
D. Personal
ANSWER: D
33. The industrial revolution came into;

A. 1770
B. 1920
C. 1911
D. 1815
ANSWER: A
34. Operations Management is a ___________________ process.

A. Translation
B. Transformation
C. Transaction
D. Transition
ANSWER: B
35. Services differ from manufactured products in four ways. Intangibility, Inseparability,
Perishability and _______________?
A. Homogeneity
B. Heterogeneity
C. Intractability
D. Invisibility
ANSWER: B
36
1. What is Production?
2. What is Operations Management?
3. Explain the scope of Operations Management.
4. Explain the nature of OM in brief.
5. Why is there a need to study Operations Management?
6. Explain the importance of Operations Management in brief.
7. Short note on transformation.
8. What are the various types of transformation?
9. Identify the three major functional areas of organizations and describe how they interrelate.
Explain in brief.
10. Explain the five P’s types of Transformation.
11. Name two organizations that have no production functions. Defend your answer.
12. To what extent are operations research techniques used in today’s business organizations?
13. Discuss and compare organization strategy and operations strategy and explain why it is
important to link the two.
14. Explain changes in the physical characteristics of materials or customers as a step-in
transformation process.
15. Explain changes in the location of materials, information or customers as a step-in
transformation step.
16. Describe the key aspects of operations management decision making.
17. Suggest suitable method of production for below categories:
a) Automobile
b) Computers.
18. Identify current trends in business that impact operations management.
19. Explain what is meant by the term lean operations system.
20. Differentiate between production and operations management in brief.
21. Explain transformation process in brief.
22. Explain transformation process in a bank.
23. Explain various functions of operations.
24. Discuss systems view of operations management and discuss factors of production.
25. Explain different types of production systems with suitable examples.
26. Identify the main objectives of product and service design.
27. Discuss the importance of standardization.
28. List some key reasons for design or redesign.
29. Describe some of the main sources of design ideas.
30. Name several key issues in manufacturing design.
1. Identify the three major functional areas of organizations and describe how they interrelate.
Explain in detail quoting few examples.
2. Describe the operations function and the nature of the operations manager’s job.
37
3. Define the term productivity and explain why it is important to organizations and to
countries.
4. List some of the reasons for poor productivity and some ways of improving it.
5. Discuss the characteristics of lean system.
6. Discuss the type of production system.
7. Define Operations Management. Discuss various activities involved in Production and
operations management.
8. What is the relationship of operations management with other functional areas?
9. What do you understand by production management? What are the major activities which
constitute its scope?
10. Define the term production function. Discuss its importance in modern business.
11. Define production management and explain its scope. Also mention the responsibilities or
duties of production manager
12. What is the function of production manager? Is this function different from the function of
Marketing Manager? Explain in detail.
13. Differentiate between production and operations management in explain.
14. Explain transformation process in detail.
15. Explain transformation process in a bank and an automobile assembly plant in detail.
16. Operations Management is becoming a very important subject in business education in the
last few decades. Explain the statement.
17. Explain the importance of Production and Operation Management and why it is an integral
part of business education. State with example.
18. Operations Management discipline is enriched during each era of its evolution by the
innovations and contributions of different individuals from diverse fields. Elucidate.
19. “Revenue management is one of the trends of operations management.” Explain the
statement.
20. Explain the role of Operations Manager in detail.
21. Describe the key aspects of operations management decision making.
22. Differentiate between design and operation of production systems.
23. Explain why operations management is important in all types of organization and illustrate
your answer using the input transformation output process?
24. What are the important trends which have affected the role of an operations manager in an
organization?
25. What factors account for resurgence of interest in Operations Management today?
Elaborate.
26. What do you understand by the terms, “specialization” “standardization” and
“simplification” in relation to production management?
27. What is meant by design? Explain in brief the factor determining the design of a product?
28. Explain the concepts of Modular design and Robust design with suitable examples.
29. Discuss the importance of legal, ethical, and environmental issues in product and service
design.
30. What is Quality Function Deployment? Explain the basic steps involved in building the
house of quality.
38
UNIT – II
FACILITY LOCATION & LAYOUT
PURCHASING AND MATERIAL MANAGEMENT
1. The major business functions consisting of research and development, product design,
manufacturing, marketing, distribution, and customer service refer to:
A. The transformation process
B. Value chain
C. Life cycle
D. Quality control
ANSWER: B
2. Which one of the following is the correct order of layout types from low volume/high
variety to high volume/low variety?
A. Fixed position, process, cell, product
B. Fixed position, cell, process, product
C. Fixed position, process, product, cell
D. Process, fixed position, cell, product
ANSWER: D
3. Which one of the following is a disadvantage of a process layout?

A. A variety of processing requirements
B. Use of individual incentive system
C. Minimizing material handling costs
D. Equipment utilization rate is high
ANSWER: C
4. Which one of the following types of manufacturing layout is considered a hybrid?

A. Process layout
B. Product layout
C. Fixed-position layout
D. Allof the given options
ANSWER: D
5. Which one of the following operating levels is best with respect to capacity?
A. The maximum point of the cost curve
B. The level of capacity for which average unit cost is minimized
C. The level of capacity for which average unit cost is maximized
D. The level of capacity for which total cost is minimized
ANSWER: B
39
6. Which one the following is focused to reduce the incidence of failures in the plant or
equipment to avoid the associated costs?
A. Preventive maintenance
B. Predictive maintenance
C. Reactive maintenance
D. Total productive maintenance
ANSWER: A
7. ________ represents the process of determining short-range capacity

requirements.
A. Capacity requirements planning
B. Aggregate planning
C. Capacity planning
D. Schedule planning
ANSWER: A
8. Process layout is used for:

A. Repetitive processing
B. Intermittent processing
C. Both (a) and (b)
D. Neither (a) nor (b)
ANSWER: C
9. The most significant advantage of U-shaped layout is:

A. Cost minimization
B. Easy handling of process
C. Increased flexibility in work
D. All of the given options
ANSWER: C
10. Product layout is preferably used for:

A. Repetitive processing
B. Intermittent processing
C. Both (a) and (b)
D. Neither (a) nor (b)
ANSWER: A
11. The type of operation being carried out by an organization depends upon:
A. Degree of standardization
B. Volume of output
C. Demand
D. Both(a) and (b)
ANSWER: D
40
12. Repetitive processing results in output that is:
A. Highly standardized
B. Highly customized
C. Partially customized
D. None of the given options
ANSWER: A
13. Job shop and batch processing are differentiated on the basis of:
A. Job requirements
B. Degree of standardization
C. Volume of output
D. Both (b) and (c)
ANSWER: D
14. Automation is preferred because it:

A. Offers lesser dependence on workers
B. Results in reduction in variable cost
C. Offers easy handling of repetitive work
ANSWER: D
15. Advantages of Process Layout Include

A. Equipment used is less costly
B. Low unit cost.
C. Labor specialization.
D. Low material handling cost
ANSWER: A
16. Which kind of production system is undertaken by JIT (Just In Time) production?
A. Intermittent processing
B. Job shop processing
C. Repetitive processing
D. Batch processing
ANSWER: C
17. In which of the following approaches location decision is based on personal opinions and
quantitative information?
A. Factor rating
B. Market area plant strategy
C. Currency fluctuations
D. Product plant strategy
ANSWER: A
18. Which of the following statement defines process re-design?

A. It is collecting information, identifying each step and finding inputs and outputs
of process
41
B. It is collecting information about cost reduction and improving the defects
C. It relates to asking questions about process flow and identifying missing or
duplicating activities
D. It relates with taking a fresh approach to solve an issue on hand
ANSWER: D
19. Which of the following statement defines process analysis?

A. It is collecting information, identifying each step and finding inputs and outputs
of process
B. It is collecting information about cost reduction and improving the defects.
C. It relates to asking questions about process flow and identifying missing or
duplicating activities
D. It relates with taking a fresh approach to solve an issue on hand
ANSWER: C
20. Which of the following refers to the inherent variability in a process?

A. Control limits
B. Process capability
C. Chance causes of variation
D. Assignable causes of variation
ANSWER: C
21. Which of the following represents a specified range of values in which individual
units of output must fall in order to be acceptable?
A. Tolerance
B. Run test
C. Process capability
D. Process variability
ANSWER: A
22. Which one of the following is an example of site related factors that affect location
decision?
A. Transportation
B. Quality of life
C. Location of new markets
D. Location of raw materials
ANSWER: A
23. Process selection is primarily considered during:

A. Planning
B. Organizing
C. Leading
D. Controlling
ANSWER: A
42
24. The type of operation being carried out by an organization depends upon:
A. Degree of standardization
B. Volume of output
C. Demand
D. Both(a) and (b)
ANSWER: D
25. Which one of the following refers to the length of time needed to complete a job?
A. Work sampling methods
B. Work measurement
C. Job design
D. Methods analysis
ANSWER: B
26. Fixed position layout is the layout in which the product or project remains----------, and
workers, materials and equipments are moved as needed.
A. Stationery
B. Flexible
C. Movable
D. All of the above
ANSWER: A
27. Regional factors for location planning include all of the following except:
A. Raw materials
B. Markets
C. Labor considerations
D. Attitudes
ANSWER: D
28. Transportation method is a __________ approach.

A. Quantitative
B. Qualitative
C. Scientific
ANSWER: A
29. Material handling in an automobile industry is done by

A. Trolley
B. Belt Conveyer
C. Overhead crane
D. All of the above
ANSWER: D
43
30. ____________is a standardized layout arranged according to a fixed sequence of assembly
tasks
A. Assembly line
B. Quantitative technique
C. Focus group
D. Fixed Position
ANSWER: A
31. A ----------- slows down the entire process when the workload is increased..
A. Bottleneck
B. Focus group
C. Judgmental forecast
D. Fast Track
ANSWER: A
32. Life Cycle includes

A. incubation
B. growth
C. maturity
D. All above
ANSWER: D
33. ________is the examination o the function of parts and materials in an effort to reduce cost
and/or improve product performance
A. Value analysis
B. Associative model
C. Focus group
D. Judgmental forecast
ANSWER: A
34. Which of following statement is true about effective capacity?

A. It is the actual output achieved
B. It is always less then actual output
C. It is the maximum output that a firm can produce
D. It is always less than designed capacity
ANSWER: A
35. Which one of the following is concerned in short term capacity needs?
A. Cycle
B. Trends
C. Seasonality
D. Average
ANSWER: C
44
1. Define Facility Location.

2. What is the importance of Facility Location?
3. Explain the issues in choosing Plant Location.
4. Define Plant Location.
5. What is the importance of Plant Location?
6. What are the various methods of choosing Plant Location?
7. Define Factor Rating.
8. Explain the importance of Factor Rating in brief.
9. Define Centre of Gravity.
10. Explain the Centre of Gravity formula.
11. Difference between Centre of Gravity and Centre of Mass.
12. Explain various methods of Centre of Gravity.
13. What is Analytic Delphi Method?
14. Explain the importance of Analytic Delphi Method in brief.
15. Explain Analytic Delphi Method as a model.
16. Does Analytic Delphi Method help in facilitating Facility Location.
17. Explain how Analytic Delphi Method helps in facilitating Plant Location.
18. Explain the factors affecting the plant location.
19. Triveni Corp. is planning to start a new factory for manufacturing utensils It is considering
three locations:
Fixed Cost (Rs. Millions) Variable Cost (Rs./Unit)
a. Noida8.15 25 500 35
b. Pune7.377 17 580 30
c. Chennai
7.903 23 700 10
Factory will have production capacity of 10,000 utensils per annum 7 in the initial years;
it will operate at 75% efficiency. Find the best location.
20. How do you determine the idle time percentage from a given assembly line balance?
21. Short note on Splitting task.
22. What are the various issues in choosing Facility Location.
23. What are the various issues in choosing Plant Location.
24. Short note on Four Basic Layout Formats.
25. Short note on service facility layout.
26. What do we mean when we say that Material requirements planning (MRP) is based on
dependent demand?
27. Explain the need for time fences (locking time-when no change can take place) in the
master production schedule.
28. Why is the MRP process referred to as an “explosion?”
29. Many practitioners currently update MRP weekly or biweekly. Would it be more valuable
if it were updated daily? Discuss.
30. Planning orders on a lot-for-lot is commonly done because it is simple and intuitive. It also
helps to minimize holding costs as you are only ordering what is needed when it is needed.
So far it sounds like a good idea. Are there any disadvantages to this approach?
45
1. How do you determine the idle time percentage from a given assembly line balance?
2. Explain the factors affecting the plant location in detail.
3. Discuss the factors which we consider while taking the location decision in detail.
4. Identify the important factors that a location planner may consider with respect to each of
the following:
a. A super specialty intensive care unit
b. A multi cuisine restaurant
5. Identify the important factors that a location planner may consider with respect to an Agro
based handicraft manufacturing unit.
6. Explain various factors relevant for deciding the location of Pharmaceutical Plant.
7. Discuss various Plant location methods with merits and demerits of each.
8. Explain the purpose and concept of line of balance.
9. List the various types of costs in inventory systems.
10. What are some useful suggestions for managing queries that go beyond the quantitative
waiting line models?
11. Identify appropriate layout in manufacturing unit for garments of Raymond’s and an eye
hospital. Explain in detail the merits and demerits of the selected layout.
12. Discuss in detail which layout you will choose for a manufacturer of large turbine for power
sector application. Also, briefly explain the merits and demerits of the same.
13. Compare the four basic layout formats on common parameters
14. Explain advantages of Process Layout.
15. Explain Poka-Yokes in detail.
16. Explain splitting tasks in detail.
17. Explain the various centre of gravity methods in detail.
18. What are the various issues in choosing Facility Location. Explain in detail.
19. What are the various issues in choosing Plant Location. Explain in detail.
20. Explain the importance of Analytic Delphi Method in detail.
21. Difference between Centre of Gravity and Centre of Mass. Explain in detail.
22. Explain the importance of Factor Rating in detail.
23. Note on Four Basic Layout Formats.
24. Note on service facility layout.
25. Explain Assembly Line Balance in detail.
26. Discuss the importance of the master production schedule in an MRP system.
27. What are the sources of demand in an MRP system? Are these dependent or independent,
and how are they used as inputs to the system?
28. Discuss the meaning of MRP terms such as planned order release and scheduled order
receipts.
29. State the types of data that would be carried in the bill of materials file and the inventory
record file.
30. Many practitioners currently update MRP weekly or biweekly. Would it be more valuable
if it were updated daily? Discuss.
46
UNIT – III
INVENTORY MANAGEMENT &JUST IN TIME
QUALITY MANAGEMENT SYSTEMS AND TQM
1. The major business functions consisting of research and development, product design,
manufacturing, marketing, distribution, and customer service refer to:
A. The transformation processes
B. Value chain
C. Life cycle
D. Quality control
ANSWER: B
2. Which one of the following designs resists modifications?

A. Frozen design
B. Product design
C. Service design
D. Robust design
ANSWER: A
3. Which one of the following operating levels is best with respect to capacity?
A. The maximum point of the cost curve
B. The level of capacity for which average unit cost is minimized
C. The level of capacity for which average unit cost is maximized
D. The level of capacity for which total cost is minimized
ANSWER: B
4. Aggregate planning usually covers time span of how many months?

A. 2 – 12 months
B. 2– 15 months
C. 2 – 16 months
D. 2 – 17 months
ANSWER: A
5. Which of the following time fences in a Master Production Schedule (MPS) allows many
variations in products with multiple changes?
A. Fixed time fence
B. Moderately firm time fence
C. Frozen time fence
D. Flexible time fence
ANSWER: D
47
6. Which of the following is known as a visual representation of the requirements in a bill of
materials having all the components listed in levels?
A. Master production schedule
B. Material requirements planning
C. Product structure tree
D. Inventory status record
ANSWER: C
7. Which of the following refers to the quantity expected to be received by the beginning of
the period in which it is shown?
A. Gross requirements
B. Net requirements
C. Planned-order receipts
D. Planned-order releases
ANSWER: C
8. Identify the set of factors that affect the choice of a strategy for aggregate planning.
A. Cost and corporate policy
B. Cost and location analysis
C. Cost and capacity constraints
D. Cost and training of employees
ANSWER: C
9. MPS stands for which of the following?

A. Material Production Schedule
B. Master Planning Schedule
C. Material Planning Schedule
D. Master Production Schedule
ANSWER: D
10. Master schedule interfaces with all of the following Except:

A. Capacity planning
B. Resource planning
C. Production planning
D. Distribution planning
ANSWER: D
11. This of the following statements defines the purpose of MRP (Material Requirements
Planning) system?
A. It is appropriate for all end items in the product line
B. It can be used for independent demand items
C. It reduces inventory requirements, lead times, and delivery times
D. It determines an appropriate master production schedule
ANSWER: C
48
12. Which of the following is widely accepted as an effective planning method of all
resources of a manufacturing firm?
A. Enterprise Resource Planning
B. Material Requirements Planning
C. Material Requirements Planning II[Manufacturing Resource Planning (MRP II )]
D. Master Production Schedule
ANSWER: C
13. Efficiency, in capacity terms, is the ratio of:

A. Actual output of effective capacity
B. Actual output to design capacity
C. Effective capacity to actual output
D. Design capacity to effective capacity
ANSWER: B
14 A difficulty with break even analysis is that :

A. It can only work with a group of variable products
B. It is best to use for products that have random variations
C. Plant capacity needs to be flexible
D. Fixed and variable costs must be separated
ANSWER: A
15. Which of the following statements is TRUE about Just-in-Time?

A. It is essential for a project organization
B. It pushes inventory through the operations process
C. It is only useful in a high product variety environment
D. It seeks to reduce inventory in an effort to reduce waste
ANSWER: D
16. Big JIT includes all of the following EXCEPT:

A. Vendor relations
B. Scheduling materials
C. Human relations
D. Technology management
ANSWER: C
17. Which of the following reasons accounts for the importance of supply chain Management?
A. Increasing competitive pressures
B. Decreasing globalization
C. Decreasing levels of outsourcing
D. Increasing transportation costs
ANSWER: D
18. Which of the following is NOT a benefit of supply chain management?

A. Less variety
B. Greater agility
49
C. Lower inventory
D. Higher productivity
ANSWER: D
19. What would be the total cost of inventory, if a firm holds 200 units of a product ‘A’, where
the carrying cost is Rs. 2 per unit?
A. Rs. 202
B. Rs. 100
C. Rs. 198
D. Rs. 400
ANSWER: D
20. Which of the following mathematical expressions can be employed to compute inventory
cost?
A. Carrying cost per unit + average inventory cost
B. Carrying cost per unit × average inventory cost
C. Carrying cost per unit ÷ average inventory cost
D. Carrying cost per unit – average inventory cost
ANSWER: A
21. Which of the following is the cost of carrying an item in inventory for a specificperiod
of time?
A. Ordering cost
B. Holding cost
C. Shortage cost
D. Stock out cost
ANSWER: B
22. Which one of the following mathematical expressions can be employed to compute
annual carrying cost?
A. (Q-2) H
B. (Q+2) H
C. (Q÷2) H
D. (Q×2)/H
ANSWER: C
23. In which of the following systems an item’s inventory is stored at two different
locations?
A. Optional replenishment system
B. Base stock system
C. Two bin system
D. Universal bar code system method
ANSWER: C
50
24. Which one of the following is a condition for a successful supply chain?
A. A large number of suppliers
B. Many short-term contracts
C. Trust among trading partners
D. Continuous competitive bidding
ANSWER: C
25. JIT stands for which of the following?

A. Just In Time
B. Just In Test
C. Job In Time
D. Job Inventory Time
ANSWER: A
26. The philosophical leaders of the quality movement, Philip Crosby, W. Edwards Deming,
and Joseph M. Juran, had the same general message about what it took to achieve
outstanding quality. Which of the following was not part of that message?
A. Quality is free
B. Leadership from senior management
C. Customer focus
D. Total involvement of the workforce
ANSWER: A
27. The philosophical leaders of the quality movement, Philip Crosby, W. Edwards Deming,
and Joseph M. Juran, had the same general message about what it took to achieve
outstanding quality. Which of the following was part of that message?
A. Fourteen steps for quality management
B. Quality is free
C. Customer focus
D. Zero defects
ANSWER: C
28. An analytical tool used in Six-Sigma quality improvement program is which of following?
A. Continuous improvement
B. Quick response
C. Partnership diagrams
D. Check sheets
ANSWER: D
29. A flowchart as part of a Six-Sigma quality improvement process might be found in which
DMAIC category?
A. Define
B. Measure
C. Analyze
D. Improve
ANSWER: A
51
30. A fishbone diagram as part of a Six-Sigma quality improvement process might be found in
which DMAIC category?
A. Define
B. Measure
C. Analyze
D. Improve
ANSWER: C
31. An opportunity flow diagram as part of a Six-Sigma quality improvement process might
be found in which DMAIC category?
A. Define
B. Measure
C. Analyze
D. Improve
ANSWER: D
32. A Pareto chart as part of a Six-Sigma quality improvement process might be found in which
DMAIC category?
A. Define
B. Measure
C. Analyze
D. Improve
ANSWER: C
33. Which of the following is an analytical tool used in Six-Sigma quality improvement
programs?
A. Leadership
B. Pareto charts
C. Management by fact
D. Continuous improvement
ANSWER: B
34. Which of the following are related to lean production?

A. Philosophy of waste elimination
B. Lean consumption
C. Never running out of inventory
D. The Wahei-Subaru method
ANSWER: A
35. In the textbook, Toyota's Fujio Cho identified which of the following types of waste to be
eliminated?
A. Excess quality
B. Overproduction
C. Underproduction
D. Environmental
ANSWER: B
52
1. What is Inventory.
2. How is Inventory different from Stock.
3. What is Inventory Management?
4. Short note on importance of Inventory Management.
5. What is forecasting?
6. Importance of forecasting.
7. Explain quantitative techniques of forecasting.
8. Explain qualitative techniques of forecasting.
9. Which method of forecasting is the most widely used?
10. Explain the various Inventory Management Models in brief.
11. Describe Sensitivity analysis.
12. Describe Price-break Model.
13. Describe Single-period inventory model.
14. Describe Fixed order quantity model.
15. Explain Fixed time period model
16. Explain Executive Opinion.
17. Explain Time-Series Models.
18. Explain Associative Models.
19. Explain Market Survey.
20. Define the term quality.
21. Explain why quality is important and the consequences of poor quality.
22. Identify the determinants of quality.
23. Describe the costs associated with quality.
24. Describe the quality awards.
25. Discuss the philosophies of quality gurus.
26. List each of the goals of JIT and explain its importance.
27. List and briefly describe the building blocks of JIT.
28. List the benefits of the JIT system.
29. Outline the considerations important in converting a traditional mode of operations to a JIT
system.
30. List some of the obstacles that might be encountered when converting to a JIT system.
1. Explain the various Inventory Management Models in detail.

2. Explain how having more work- in- process inventory can improve the efficiency of a
process. How can this be bad?
3. Give a comparison of following inventory models (i) EOQ Model (ii) Production Order
Quantity Model and (iii) Quantity Discount Model.
4. Define these terms: warehousing, raw materials inventory, stock requisition, in process
inventory, stock record and stock keeping unit.
5. Define the term inventory and list the major reasons for holding inventories.
6. List the main requirements for effective inventory management.
53
7. Discuss periodic and perpetual review systems.
8. Discuss the objectives of inventory management.
9. Describe the A-B-C approach and explain how it is useful.
10. Describe the basic EOQ model and its assumptions and solve typical problems.
11. Explain Waiting Line Models in detail.
12. Explain the various Inventory Models in detail.
13. Explain the following:
a) Sales Force Composite
b) Delphi Method
14. Explain the following:
a) Time-Series Models
b) Associative Models
15. Explain Inventory management as an important seed for operations management.
16. Explain Optimal Waiting Line.
17. What are the various Performance Measures.
18. Annual demand for an item is 5400 units. Ordering cost is Rs.600 per order. Inventory
carrying cost is 30% of purchase price per unit per year. The price breaks are as shown:
Quantity Price Rs.
0< Q1 <2400 12
2400<Q<3000 10
3000<Q 8
Find the optimal order size.
19. Materials requirement planning is an independent of demand inventory management

system. Explain this statement.
20. What is advantage of holding inventory? Explain in detail.
21. Explain how having more work- in- process inventory can improve the efficiency of a
process. How can this be bad?
22. “Vendor managed inventory vendors monitor goods and replenish retail inventories when
supplies are low.” Refute or defend this statement.
23. Explain any one waiting line management techniques with examples.
24. Derive formula for Economic Order Quantity (EOQ) and state the assumptions of the
model.
25. What is ‘Line Structure’ in waiting lines? Explain single channel-single phase, multi-
channel-single phase and multi-channel-multiple phase line structures?
26. “You don’t inspect quality into a product; you have to build it in.” “Before you build
quality in, you must think it in.” Discuss the implications of this statement.
27. Develop a cause and effect (fishbone) diagram to address everything that impacts your
grade in this course. How much is under your control?
28. Is certification under the ISO standards necessary for competing in the modern market?
What should companies consider when deciding whether or not to become certified?
29. Do you see any relationship between ISO standards mentioned in this chapter and the
competitive strategy concepts mentioned earlier in the text?
30. “If line employees are required to work on quality improvement activities, their
productivity will suffer.” Discuss.
54
UNIT – IV
PLANT MAINTENANCE AND EMERGING TRENDS::
1. Which of the following refers to the average of accepted lots and rejected lots?
A. Acceptable Quality Level (AQL)
B. Lot Tolerance Percent Defective (LTPD)
C. average Outgoing Quality (AOQ)
D. Average Outgoing Quality Limit (AOQL)
ANSWER: C
2. Which of the following refers to the upper limit on the percentage of defects that a
Customer is willing to accept?
A. Acceptable Quality Level (AQL)
B. Lot Tolerance Percent Defective (LTPD)
C. Average Outgoing Quality (AOQ)
D. Average Outgoing Quality Limit (AOQL)
ANSWER: A
3. Which of the following is a definition of quality?

A. Fitness for Purpose
B. Zero Defects
C. Right First Time
D. All of these (and more!)
ANSWER: A
4. Manufacturability is the ease of fabrication and/or assembly which is important for:

A. Cost and Productivity
B. Productivity and Quality
C. Cost and Quality
D. Cost, productivity and Quality
ANSWER: D
5. Which of the following is NOT true about TQM?

A. Focused on worker’s activity rather than management
B. Meeting the needs and expectations of customers
C. Inclusion of every person in the organization
D. Covering all the functional areas of the organization
ANSWER: D
6. The so-called 'Quality Gurus' of total quality management (TQM) do NOT include
one of the following:
A. W Edwards Deming
55
B. Joseph M Juran
C. Kaoru Ishikawa
D. Bill Cosby
ANSWER: D
7. TQM is being criticized on the basis of factors which show:

A. Weak implementation of TQM practices or strong management perspective
B. Strong implementation of TQM practices or weak management perspective
C. Weak implementation of TQM practices or weak management perspective
D. Strong implementation of TQM practices or strong management perspective
ANSWER: C
8. Which of these is not one of the ten guiding principles of continuous improvement
proposed by Robert Lowson (2002)?
A. Operations orientation
B. Total employee involvement
C. Effective leadership
D. Adaptability to change
ANSWER: A
9. Before improvements can be made to a process there need to be clear procedures and agreed
working practices established. These are normally in a written form, called
__________________?
A. Continuous Improvement Procedures
B. Process Control Procedures
C. Standard Operating Procedures
D. Quality Improvement Procedures
ANSWER: C
10. The improvement tool whereby a list of the most common faults in the process is analyzed
and then arranged in order of highest occurrence first is called ______________________?
A. Brainstorming
B. Pareto analysis
C. Balanced Scorecard
D. Quality circle
ANSWER: B
11. The improvement technique where a number of ideas are put forward before deciding on a
final idea is called ___________________?
A. Brainstorming
B. Pareto analysis
D. Quality circle
ANSWER: A
56
12. Which of the following is not a reason which may prevent the successful adoption of a
continuous improvement programme?
A. Lack of trust by employees in management motive
B. No clear purpose for the programme
C. Incentives scheme linked to the programme
D. Resistance to change
ANSWER: C
13. Comparing a firm's performance measurement against major competitors is known as

____________________?
A. Brainstorming
B. Benchmarking
D. Quality circle
ANSWER: B
14. A technique devised by Kaplan and Norton (1992) to measure performance across four
different operating areas is known as ____________?
A. Brainstorming
B. Benchmarking
D. Quality circle
ANSWER: C
15. A technique for getting ideas for innovation and improvement from other sources outside
of an organization, is called _______________?
A. Balanced Scorecard
B. Brainstorming
C. Benchmarking
D. Open Innovation
ANSWER: D
16. The concept of Agile organization refers to:

A. Flexibility
B. Quality
C. Quick Response
D. Profitability
ANSWER: C
17. Kaizen means __________________?

A. Radical innovation
B. Step change innovation
C. Open innovation
D. Continuous improvement
ANSWER: D
57
18. The technical aspect of Six Sigma includes all of the following Except:
A. Improving process performance
B. Use of statistical methods
C. Top management commitment
D. Reduction in variations
ANSWER: C
19. A double sampling plan specifies all of the following Except

A. Size of the initial sample
B. Size of second sample
C. Lot size
D. Double acceptance number
ANSWER: D
20. ___________ is a philosophy of continually seeking ways to improve operations

A. Poke – yoke
B. Kaizen
C. Robustness
D. Quality deployment
ANSWER: B
21. Using Statistical Process Charts (SPC) on a process in control, what is the number
of parts that will fall outside +/- 3 standard deviations of the mean?
A. 63 per million
B. 3 per thousand
C. 45 per thousand
D. 0
ANSWER: B
22. The various definitions of quality do NOT include:

A. The manufacturing-based approach
B. The value-based approach
C. The transcendent approach
D. The minimum specification approach
ANSWER: D
23. Quality control charts does not need to be investigated when:

A. Two consecutive points are near the control limits
B. Suspiciously 'average' behaviour occurs
C. An apparent trend occurs in one direction
D. Four consecutive points appear one side of the centre line
ANSWER: D
24. If a sample of parts is measured and the average of the sample measurements is in the
middle of the tolerance limit, but some parts measure too low and other parts measure too
high:
58
A. The process is in control, and no further action need be taken
B. The process is neither capable, nor in control
C. The process is in control but not capable of producing within the established
limits
D. The process is in control, with only natural causes of variation
ANSWER: C
25. The many types of benchmarking do not include:

A. Internal benchmarking
B. Competitive benchmarking
C. Purchaser-pays benchmarking
D. Performance benchmarking
ANSWER: C
26. Which one the following is focused to reduce the incidence of failures in the plant or
equipment to avoid the associated costs?
A. Preventive maintenance
B. Predictive maintenance
C. Reactive maintenance
D. Total productive maintenance
ANSWER: A
27. In Hau Lee's uncertainty framework to classify supply chains, a supply chain for functional
products with a stable supply process is called which of the following?
A. Efficient
B. Forward looking
C. Agile
D. Risk hedging
ANSWER: A
28. In Hau Lee's uncertainty framework to classify supply chains, a supply chain for innovative
products with an evolving supply process is called which of the following?
A. Efficient
B. Forward looking
C. Agile
D. Risk hedging
ANSWER: C
29. In Hau Lee's uncertainty framework to classify supply chains, a supply chain for
innovative products with a stable supply process is called which of the following?
A. Efficient
B. Forward looking
C. Agile
D. Responsive
ANSWER: D
59
30. The effect of the lack of synchronization among supply chain members is referred to as
which of the following?
A. Forward buying
B. Continuous replenishment
C. Bullwhip effect
D. Metcalf's law
E. Being out of step
ANSWER: C
31. In outsourcing as part of SCM, which of the following internal activities and decision
responsibilities cannot be transferred to outside contractors?
A. Activities involving people
B. Activities involving facilities
C. Activities involving equipment
D. Activities involving shareholders
ANSWER: D
32. Which of the following is an organizationally driven reason for outsourcing in SCM:
A. Improve effectiveness by focusing on what the firm does best.
B. Turn fixed costs into variable costs.
C. Reduce costs through lowered cost structure and increased flexibility.
D. Improve risk management.
ANSWER: A
33. Which of the following is not an organizationally driven reason for outsourcing in SCM?
A. Improve effectiveness by focusing on what the firm does best.
B. Improve flexibility to meet changing demand for products and services.
C. Increase product and service value by improving response to customer needs.
D. Improve credibility and image by associating with superior providers.
ANSWER: D
34. Which of the following is an improvement-driven reason for outsourcing in SCM ?

A. Shorten cycle time.
B. Improve effectiveness by focusing on what the firm does best.
C. Increase product and service value by improving response to customer needs.
D. Turn fixed costs into variable costs.
E. Reduce costs through a lower cost structure.
ANSWER: A
35. Which is the most challenging kind of supply chain to manage according to Hau Lee?
A. Agile supply chain.
B. Efficient supply chain
C. Risk-hedging supply chain
D. Erratic supply chain
60
ANSWER: A
1. Define the term quality.

2. Explain why quality is important and the consequences of poor quality.
3. Identify the determinants of quality.
4. Describe the costs associated with quality.
5. Describe the quality awards.
6. Discuss the philosophies of quality gurus.
7. Describe TQM.
8. Give an overview of problem solving.
9. Give an overview of process improvement.
10. Describe and use various quality tools.
11. List and briefly explain the elements of the control process.
12. Explain how control charts are used to monitor a process, and the concepts that underlie
their use.
13. Use and interpret control charts.
14. Use run tests to check for no randomness in process output.
15. Assess process capability.
16. Explain the relationship between total quality management(TQM) and quality control.
17. Explain why X and R charts are used together
18. Define these terms; n, c, AQL, AOQ, AOQL and LTPD
19. Define ISO 9000 standard. Why it is required in industry?
20. Discuss the concept of ISO 14000. Is it related to Global Environment Management
standards?
21. State the objectives of maintenance.
22. What do you mean by optimal overhaul?
23. What is spare parts management?.
24. What is opportunity maintenance?
25. Why is it necessary to replace a machine?
26. Describe the differences between functional and innovative products in Supply Chain
Management.
27. As a supplier, which factors would you consider about a buyer (your potential customer)
to be important in setting up a long-term relationship as per concepts of Supply Chain
Mangement.
28. Why does the “proper” operations and supply chain strategy keep changing for companies
that are world-class competitors?
29. Why might managers resist buying a more expensive piece of equipment that is known
to have a lower Total Cost of Operation (TCO) than a less expensive item?
30. Why is lean in Supply Cahin Mangement is so hard to implement in practice?
1. Discuss the quality awards?

2. Briefly explain each of these terms
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a) AOQ
b) AOQL
c) LTPD
3. Discuss cost of quality.
4. Explain P-Charts, X-charts and R-charts in detail.
5. Explain Zero Defects in detail.
6. Explain Poka-Yokes in detail.
7. Write a long note on Statistical Quality Control.
8. Difference between AQL and LTPD.
9. Explain how a company can achieve lower production costs and increase productivity by
improving the quality of its products and services.
10. Define Total Quality Management and briefly discuss its elements.
11. What is the purpose of control charts? Explain how this purpose is achieved.
12. Explain the relationship between total quality management(TQM) and quality control.
13. What are different dimensions of design Quality
14. What do you mean by Bull ship effect
15. What do you mean by Drop Shipping
16. What do you mean by Keiretsu
17. What do you mean by Operating Characteristics Curve
18. What do you mean by Clustering.
19. Discuss various types of costs of quality
20. How can we continuously improve quality? Explain in detail.
21. Explain the functions of maintenance.
22. Discuss different types of maintenance strategies.
23. What is maintainability prediction? Explain the design for maintainability
24. “Preventive maintenance is often viewed as a long-term approach to reliability” –Discuss.
25. Present the case for planned maintenance and outline the basic element of a planned
maintenance scheme..
26. What are characteristics of efficient, responsive, risk-hedging and agile supply chains? Can
a supply chain be both efficient and responsive? Risk-hedging and agile? Why, or why
not?
27. Describe how outsourcing works. Why would a firm want to outsource? The context is
Supply Chain Management.
28. What factors account for the resurgence of interest in SCM today?
29. Stopping waste is a vital part of maintenance improvement. Identify some sources of waste
in your home or dorm and discuss how they may be eliminated.
30. What are the roles of suppliers and customers in a lean supply chain management system.
62
QUESTION BANK
SERVICES MARKETING
BBA -305
63
QUESTION BANK
SERVICES MARKETING – BBA -305
BBA V
UNIT – I
1 Which of the following sets of terms best describes a service?

A. Objects, devices, and performances
B. Effort, objects, and deeds
C. Things, devices, and performances
D. Objects, devices, and things
E. Deeds, effort, and performances
ANSWER: E
2 Businesses such as fast food restaurants would fall where along the Scale of Market
Entities?
A. On the extreme end of the intangible-dominant side
B. On the extreme end of the intangible-dominant side
C. In the middle of the continuum
D. Left of the middle towards the tangible-dominant side
E. Right of the middle towards the intangible-dominant side
ANSWER: C
3 Which of the following fields would be least likely to be described as intangible-dominant?

A. Manufacturing
B. Education
C. Insurance
D. Banking
E. Engineering
ANSWER: A
4 Which of the following statements is not true?

A. Service knowledge is obtained differently than goods knowledge.
B. Firms that define their businesses too narrowly have developed marketing myopia.
C. Goods are tangible-dominant.
D. Service knowledge is obtained through the experience of receiving the actual
service.
E. All of the above are true.
ANSWER: E
5 The demand for services marketing knowledge has increased for all of the following
reasons except:
A. The tremendous growth in service-sector employment
B. Increasing service-sector contributions to the world economy
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C. The deregulation of many service industries
D. The needed shift from industrial models of management to market-focused
management approaches
E. The decline in service sector jobs
ANSWER: E
6 Which linkage within The Service Triangle reflects the ease with which a customer uses a
bank's ATM?
A. The systems--the customer
B. The service strategy--the customer
C. The systems--the people
D. The customer--the people
E. The service strategy--the systems
ANSWER: E
7 The market-focused management model, supported by the service triangle, is based on

the belief that:
A. Front-line personnel tend to be more knowledgeable
B. Employees want to do good work
C. Customer satisfaction is related to employee turnover
D. A new accounting measures should be used
E. None of the above
ANSWER: A
8 Services are characterized by all of the following characteristics except for:

A. Intangibility
B. Homogeneity
C. Perishability
D. Inseparability
E. Heterogeneity
ANSWER: E
9 Which of the following statements is false?

A. Services cannot be touched or seen in the same manner as goods.
B. Consumer judgments about services tend to be more subjective than
C. objective.
D. Services are first produced, then sold, then consumed.
E. Services tend to vary from one transaction to the next.
F. Services cannot be inventoried.
ANSWER: D
10 Of the four unique service characteristics that distinguish goods from services, the one that
is the primary source of the other three characteristics is:
A. Intangibility
B. Inseparability
C. Homogeneity
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D. Perishability
E. Heterogeneity
ANSWER: B
11 Which of the following is a marketing problem caused by intangibility?

A. Services have no costs of goods sold.
B. The consumer is involved in the production process.
C. Other consumers are involved in the production process.
D. Service standardization and quality control are difficult to achieve.
E. Centralized mass production of services is difficult.
ANSWER: B
12 Possible solutions that minimize the problems caused by intangibility include all of the
following except:
A. The use of tangible clues.
B. The effective management of consumers.
C. The creation of a strong organizational image.
D. The use of personal sources of information.
E. Prudential's "Piece of the Rock" promotional strategy.
ANSWER: C
13 Marketing problems caused by inseparability include all of the following except for:
A. The service provides physical connection to the service.
B. The involvement of the customer in the production process.
C. Service standardization and quality control are difficult to achieve.
D. The involvement of other customers in the production process.
E. All of the above are marketing problems caused by inseparability.
ANSWER: A
14 Which of the following scenarios is likely to lead to the highest levels of customer
dissatisfaction?
A. Higher demand than maximum available supply
B. Higher demand than optimal supply levels
C. Lower demand than optimal supply levels
D. Demand and supply at optimal levels
E. All of the above scenarios result in customer dissatisfaction
ANSWER: E
15 Which of the following strategies increases the supply of service available to consumers?
A. The use of creative pricing strategies
B. The use of reservation systems
C. Capacity sharing
D. Developing complementary services
E. Developing non-peak demand
ANSWER: A
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16 Which of the following strategies increases the supply of service available to consumers?
A. Increasing consumer participation
B. The use of creative pricing strategies
C. The use of reservation systems
D. Developing complementary services
E. Developing nonpeak demand
ANSWER: D
17 The perishability-related strategy that may sometimes be associated with consumer feelings
that the service firm may be attempting to distance itself from consumers is:
A. The use of reservation systems
B. Training public contact personnel
C. The use of third-parties to conduct service transactions
D. Increasing the amount of consumer participation
E. Both a and d
ANSWER: B
18 Which one of the following strategies is used to alter consumer demand?

A. Increasing consumer participation
B. Utilizing third parties
C. Utilizing creative pricing strategies
D. Sharing capacity
E. Preparing in advance for expansion
ANSWER: C
19 Which of the following would not be considered a tangible clue?

A. The quality of instruction in an educational setting
B. The appearance of employees
C. The appearance of the firm's physical facilities
D. The smile on an employee's face
E. The quality of paper stock use to produce a firm's brochures
ANSWER: E
20 The service sector that is the fastest growing sector in terms of employment is:
A. Wholesale and retail trade
B. Transportation and warehousing
C. Financial activities
D. Professional and business services
E. Education and health services
ANSWER: C
21 Which of the following features separate services from products?

i. Perishability
ii Intangibility
iii Reliability
iv Inseparability
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A. Only ii
B. i, ii and iii
C. i, ii and iv
D. ii, iii, and iv
ANSWER: B
22 Which of the following attributes of services make it difficult for a service provider to
evaluate them when compared to goods?
A. High search and experience quality
B. High experience and credence quality
C. High credence and search quality
D. Both b and c
ANSWER: B
23 Classification of products into goods, services, and ideas is determined by the:

A. Degree of labour intensiveness.
B. Type of markets.
C. Dominant component.
D. Skill of the service provider.
E. Degree of consumer contact.
ANSWER: C
24 Services can be meaningfully analysed by using a five-category classification scheme

including type of market, degree of labour-intensiveness, degree of customer contact, skill
of service provider, and
A. Degree of competition within the service industry.
B. Goal of the service provider.
C. Market share of the service provider.
D. Employee structure of the service provider.
E. Production environments.
ANSWER: A
25 The appearance of the production facilities and the interpersonal skills of actual service
providers are critical in __________ services.
A. Low-contact
B. Equipment-based
C. Industrial
D. High-contact
E. Nonprofessional
ANSWER: E
(1)(E), (2)(C), (3)(A), (4)(E), (5)(E), (6)(E), (7)(A), (8)(E), (9)(D), (10)(B), (11)(B), (12)(C),
(13)(A), (14)(E), (15)(A), (16)(D), (17)(B), (18)(C), (19)(E), (20)(C), (21)(B), (22)(B), (23)(C),
(24)(A), (25)(E)
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1 What is a service?
2 Explain the concept of Derived Service with the help of examples.
3 How has technology changed the nature of services?
4 Enumerate the key marketing issues before a service organization.
5 Define service as a product and cite two relevant examples of the service product.
6 What is the difference between a high contact service and a low contact service?
7 Why has the demand for services marketing knowledge increased in recent years?
8 Discuss the six key linkages of the Service Triangle.
9 Define the characteristics of intangibility, inseparability, heterogeneity, and perishability.
10 Describe the tangibility spectrum.
11 Explain the growing significance of service marketing.
12 Characteristics of goods are different from those of services. Discuss the difference and
explain by citing relevant examples.
13 Describe the service marketing process.
14 What are the various challenges that the service marketers have to face today?
15 Define the Services Marketing Mix. How is it different from the Traditional Marketing
mix?
16 What are the implications of services characteristics for an interstate bus service?
17 Explain in brief the difference between goods and services?
18 Write short note on service marketing process.
19 What are the different customer roles in service delivery?
20 Briefly give the positioning strategy of any airline company?
21 Give the brief of the positioning strategy of any Restaurant?
22 Explain the service triangle?
23 Give the difference between goods and services?
24 Discuss the reasons for growth of services?
25 Discuss Lovelocks classification scheme of services?
1 Define Services. Discuss the various categories of services and support your answer by
citing relevant examples of these from the Indian Service Industry.
2 Differentiate between goods and services and explain how these differences make
marketing of services different and more challenging than that of goods.
3 Compare and contrast the traditional marketing mix and the service marketing mix.
4 Discuss the various characteristics of services. What are the various implications of these?
5 “Marketing of services is different from that of goods.” Comment and discuss the process
of Services Marketing.
6 Describe the characteristics of the Indian Services Sector and explain how it has impacted
the Indian Economy.
7 Explain the concept of Service Triangle with respect to the Indian Hotel and Banking
Industry.
8 How does the environment impact services and their marketing?
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9 Explain the concept of services marketing. How has it evolved during the years? What is
its significance in today’s market?
10 What are the basic characteristics of services vs. goods? What are the implications of these
characteristics for the Indian Aviation Industry?
11 How can quality service be used in a manufacturing context for competitive advantage?
Think in the context of automobiles or electronics for answering the question.
12 The 100 year old Nedungadi Bank has engaged the management consultancy firm Price
water house Coopers (PwC) to evolve a bank wise strategy and to consolidate its business
planning program in order to bring about strategic changes in its style, form and content
while retaining its basic philosophy of value added banking. What marketing objectives
should PwC consider while formulating a marketing strategy that us aligned with the
corporate objectives?
13 The recent Union Budget saw an increase in postal rates for the ordinary envelope being
increased by 20 percent to Rs. 5 for 20 gm. With bulk courier rates starting from around
Rs. 5, local companies have started switching to courier services. In this kind of situation,
there could be increased opportunities for individuals to start courier firms. Based on
customer involvement, under which category do courier and postal services come? What
type of services can a courier company offer based on the type of end user?
14 Half of India’s GDP growth in the 90’s came from the growth in the services sector.
Amongst the big names to have entered services in India are Reliance and HUL. The
industrial conglomerate, Reliance ventured into the services sector through its telecom and
retailing operations, while HLL, a leading FMCG company, launched its Lakme Beauty
Salons. What are the major factors that are driving the growth of the services sector in
India?
15 Marketing analysts point out that the 4P’s of marketing mix that are used for marketing of
products may not be enough for service providers to consider in developing effective
marketing strategies. They say three additional elements people, physical evidence and
process along with the 4Ps can help address the needs of services marketing completely.
Explain in detail about these three elements that are unique to services marketing?
16 Kaizen Watches is a leading watch maker in the country, to increase sales and visibility in
its planning to open its own chain of watch showrooms under the brand Time & Style. To
chalk out the marketing strategy Mr. R. P. Sinha, CEO of the company convened a meeting
with the top marketing managers. During the meeting the managers devised a marketing
strategy based on the four Ps of marketing i.e., product, price, promotion and place.
However, Mr. K. V. Ram (Vice President, Marketing) questioned their strategy saying,
“Services marketing is different from product marketing. The traditional marketing mix
elements are inadequate for the services marketing environment.” What inadequacies do
the traditional marketing mix elements possess when it comes to services marketing?
17 SBI that lost to new age private banks during the 1990s, has renewed its effort to regain its
lost pride in the past two years. It has introduced various measures, such as expending its
ATM network, opening personal banking divisions, venturing into credit cards and
insurance services, providing value added services like online banking, and reducing the
workforce through VRS. What do you think are the motives behind such moves?
18 “Usually services are high on experience qualities and credence qualities while products
are high on search qualities. This makes judging the quality of services difficult, for the
customers.” Explain this statement in detail.
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19 The Marriott Group is planning to open a new hotel in Banagalore. It has already
established itself in the market as a premium class hotel chain. How should Marriott plan
the marketing mix for the new location?
20 “Fresh Beans”, a producer of coffee beans, plans to enter retailing by starting its retail
coffee outlets- “Fresh B’s” in commercial areas of metros like Bangalore and Delhi,
simultaneously. What are the major specifications it should consider in its marketing mix
elements?
21 Speaking about the continuing poor financial performance of an airline for the past seven
quarters, a marketing research analyst said “The failure can be attributed to the airline’s
lack of focus on one of the key characteristic of a service industry - “perishability”, which
led to a lower occupancy rate i.e., the airline realized less sales volumes per flight.” What
are the key characteristics which make services marketing different from product
marketing? Which among them will affect the airline industry most?
22 Recent newspaper reports have stated that the UB Group is delaying its plans to enter the
airlines industry through the launch of the Kingfisher Airlines. This has been attributed to
the delay by the company’s top management to develop a services marketing strategy for
this venture. Mr S. K Sinha, marketing head of this venture (who was recently appointed
from a top rival airline company), is said to be concerned about developing an effective
service marketing triangle for Kingfisher Airlines. What aspects should the UB Group
consider in the services marketing triangle? Briefly describe the different components of
the triangle.
23 Certain companies in the service sector need to provide supplementary services, in the
absence of which, customers will find it difficult to make use of the core service. Cisco
Travels, a tourist operator, intends to increase its customer base by introducing additional
services. Discuss some supplementary services that Cisco Travels could introduce to
enhance the value of its core services?
24 Briefly explain the services triangle giving suitable examples. Why are service employees
critical to the success of any service organization?
25 What the basic characteristics are of services vis-a vis goods? What are the implications of
these characteristics for an interstate bus service?
26 The integrated marketing communication process starts by determining the strengths and
weaknesses of the marketer.
27 The IMC approach uses the “inside-out” approach in identifying communication vehicles.
28 The use of integrated marketing communications is restricted to the mass media.
29 The terms touch point and contact are used interchangeably to mean any message medium
capable reaching target customers and presenting the brand in a favorable light.
30 Coordination of messages and media is absolutely critical to achieving a strong and unified
Brand image and moving consumers to action.
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UNIT – II
1 Who has developed the GASs Model?

A. Zeithmal and Bitner
B. Zeithmal and Berry
C. Zeithmal, Parsuraman and Bitner
D. Zeithmal, Parsuraman and Berry
ANSWER: C
2 Who extended the GAPs Model and by how many GAPs.

A. ArashShahin; 2
B. Dwayne D Gremler; 2
C. ArashShahin; 3
D. Dwayne D Gremler; 3
ANSWER: C
3 Name the attributes that can be discerned only after purchase or during consumption
A. Search Qualities
B. Experience Qualities
C. Credence Qualities
ANSWER: A
4 Specify the attributes that a customer might find difficult to evaluate even after production
or consumption.
A. Search Qualities
B. Experience Qualities
C. Credence Qualities
ANSWER: C
5 The highest level of Customer Expectation is

A. Ideal Expectation
B. Normative Expectation
C. Acceptable Expectation
ANSWER: C
6 Which of the following factors does not influence adequate service?

A. Lasting service intensifiers
B. Temporary service intensifiers
C. Self-perceived service role
ANSWER: A
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7 Which of the following does not contribute to Predicted Service?
A. Word of mouth
B. Past experience
C. Personal needs
D. Implicit service promises
ANSWER: A
8 Which dimension of service quality refers to the employees’ knowledge and courtesy and
their ability to inspire trust and confidence.
A. Reliability
B. Assurance
C. Responsiveness
ANSWER: B
9 Who formulated the SERVQUAL Scale?

A. Zeithmal and Bitner
B. Zeithmal and Berry
C. Zeithmal, Parsuraman and Bitner
D. Zeithmal, Parsuraman and Berry
ANSWER: C
10 Name the customers who have an above average propensity to complain.

A. Irates
B. Voicers
C. Activists
ANSWER: B
11 The gap between a customer’s desired service expectation and the adequate service
expectation is
A. Zone of tolerance
B. Predicted service expectation
C. Derived service expectation
D. Implicit service promise
ANSWER: C
12 The ability of the service provider and his employees to use their knowledge and courteous
behavior to instill trust and confidence in customers regarding the service is referred to as:
A. Assurance
B. Responsiveness
C. Empathy
D. Reliability
ANSWER: C
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13 When a firm’s service quality specification does not match with customer expectations the
gap between the two is known as
A. Standard gap
B. Service performance gap
C. Communication gap
D. Market information gap
ANSWER: A
14 A consumer has taken a club membership for his entire family. What kind of needs does
he hope to fulfill by availing the club’s services?
A. Self actualization needs
B. Security needs
C. Social needs
D. Physiological needs
ANSWER: C
15 Which of the following is not a factor that will influence customer satisfaction or
dissatisfaction during the service encounter?
A. Spontaneity
B. Image
C. Empathy
D. Recovery
ANSWER: C
16 A consumer took a decision to undergo painting classes. Which need is he intending to satisfy
by doing so?
A. Ego
B. Psychological
C. Self-actualization
ANSWER: B
17 Personal services like tooth whitening and plastic surgery satisfy which needs of of person.
A. Ego
B. Psychological
C. Self-actualization
D. Safety
ANSWER: D
18 Which of the following is not a evidence of service as experienced by the customer?

A. People
B. Process
C. Procedure
D. Physical Evidence
ANSWER: B
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19 A service guarantee must not be
A. Conditional
B. Meaningful
C. Easy to invoke
D. Easy to communicate
ANSWER: C
20 Out of the following circumstances, a service guarantee should be used when: -

A. Service quality is truly uncontrollable
B. Customers perceive high risk in the service
C. Guarantee does not fit the company’s image
D. Existing service quality in the company is poor
ANSWER: B
21 Which amongst the following is a dimension of credence qualities?

A. Competence
B. Communications
C. Tangibility
D. Responsiveness
ANSWER: A
22 Which of the following is true as per Pareto’s rule?

A. 15% of customers generate 75% of the revenues of an organization.
B. 20% of customers generate 80% of the revenues of an organization.
C. 30% of customers generate 85% of the revenues of an organization.
D. 15% of customers generate 90% of the revenues of an organization.
ANSWER: A
23 Identify the risk that arises from a bad product/service choice, that harms one’sself image.
A. Psychological risk
B. Physical risk
C. Social risk
D. Time risk
ANSWER: B
24 The ability of the service provider to accurately perform the promised service is referred
to as:
A. Assurance
B. Responsiveness
C. Reliability
D. Tangibles
ANSWER: A
25 Which of the following is not an external factor that influences consumer behavior?
A. Social class
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B. Culture
C. Service personnel behavior
D. Reference groups
ANSWER: C
1 How is Customer Gap different from Producer Gap provided in the GAPs model service
quality?
2 What risk(s) does a consumer perceive in purchase of a particular service?
3 Write a short note on Service Roles and Scripts.
4 What are the various national and personal variables that cause differences in decision
making of different consumers?
5 How are Customer Expectations different from Customer Perceptions?
6 Explain the concept of Zone of Tolerance.
7 ‘Zones of Tolerance vary for service dimensions’. Comment.
8 Do Customer Satisfaction and Service Quality convey the same meaning? Why or why
not?
9 What do you understand by Service E-quality?
10 Why is a service encounter important?
11 What do you understand by Technology based Service encounters? Site examples from the
Indian Industry.
12 In what ways do emotions and moods influence consumer behavior?
13 Explain the gaps model of service quality. Illustrate your answer with suitable examples
14 Discuss the customers’ role as a productive resource for the firm?
15 Write short note on service recovery.
16 Briefly explain the Gaps model of service quality mix. Illustrate your answer with suitable
examples.
17 Critically assess the usefulness of the SERVQUAL technique for measuring quality in an
industry of your choice?
18 Write a brief on the relationship between consumer behavior and service marketing?
19 How is the Gap model evaluated ? State the different angles of evaluation?
20 In what ways services fluctuates the moods and emotions of consumer?
21 Which one of the gap is harder to close? Why?
22 Give different dimensions of service quality in case of health services?
23 How a service provider should define customer satisfaction for his firm?
24 Describe remote encounter, phone encounter and face to face encounter?
25 What can be the reasons for lower customer satisfaction? What impact can it have on the
business of service organizations? Discuss
1 Explain the GAPs model of service quality in detail with the help of an example an Indian
Service Firm.
2 What strategies can a service firm adopt to minimize service gaps? Explain with help of
examples from the hospitality sector.
76
3 How does a consumer make decisions about the purchase of a service? Elaborate the
complete process and enlist the various factors that influence the consumer’s decision
making process.
4 How is post-experience evaluation by customers important in services marketing?
5 What are the various possible levels of customer satisfaction? What shapes customers’
expectations?
6 What issues do the service marketers face about customer expectations?
7 A variety of factors affect influence customer expectations. How can service marketers
influence these factors?
8 Define Customer Satisfaction. What are the determinants of Customer Satisfaction?
9 Define Service Quality? What are its various dimensions? Give examples of Indian Service
Firms that excel in providing Service Quality across its various dimensions.
10 Define a Service guarantee. What are the benefits of providing service guarantees?
11 What are the various types of service guarantees that a firm can provide to its customers?
Under what circumstances is providing a service guarantee infeasible?
12 Air Deccan has captured a significant market share in the airline market within a short
period after its launch. Sensing the market potential, many companies are entering into this
segment (low-cost airlines). What strategies can the company adopt in order to manage
customer service expectations in such a competitive environment?
13 A new BPO company is deciding upon the service quality standards it wants to enforce.
The top management had earlier fixed quality standards based on industry benchmarks.
But this initiative did not yield the desired result. Now the management has appointed Mr.
K. P. Singh a leading service industry expert, to look into the matter. Singh has suggested
that the service quality standards need to be based on customer service expectations rather
than on industry benchmarks. What do you think can customer expectations be in this case?
14 What perceived risks might a customer face when purchasing tourism products?
15 BK Fast Foods is the oldest restaurant chain operating in Southern India. However, in
recent past its sales have been dipping and the customer traffic to its outlets dwindling. It
hired Markfist, a market research agency to analyze reasons for its poor performance. The
study conducted by Markfist revealed that customer perceived it as “tired brand” which
and lost its relevance in the present day environment. What are the various ways in which
BK Fast Foods can change the perceptions of the consumers?
16 A marketing analyst commented, “Usually services are high on experience qualities and
credence qualities while products are high on search qualities. This makes judging the
quality of services difficult, for the customers.” Explain this statement in detail.
17 Mediciti Hospitals, a multi-specialty hospital chain, has branches in all the four metro
cities. As part of the exercise to improve the customer service at the hospital, it wants to
analyze the adequate service expectations and the factors that affect the adequate service
expectations of the customers. What are the possible factors that affect the adequate service
expectations in the context of healthcare service?
18 SQL services, a renowned call center in Delhi, conducted a customer satisfaction survey
for its clients in India and abroad. The results of the survey were interesting. Clients abroad
rated the services rendered by the company on a lower scale compared to domestic clients.
How can an awareness of the criteria that affect customers' service experience help SQL
satisfy foreign clients with their service?
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19 According to analysts, one of the key reasons for the poor showing of Public sector airline
major, Indian Airlines, is the growing ‘customer dissatisfaction’ with its services. What
strategies should Indian Airlines implement to enhance customer satisfaction?
20 OSS couriers, an established player in the corporate overnight courier delivery service,
witnessed continuous growth rate since its inception. It has many firsts to its name – having
its own fleet, use of IT and providing varied services. However, in the past three years,
OSS’s customer base and sales volumes moved south. A survey conducted by the
company’s management revealed that customers were dissatisfied with the poor customer
service and frequent service failures. What service recovery steps can OSS take to regain
its customers?
21 Shop n Style, a popular South Indian departmental store chain, has roped in Retail Prowess,
a leading retail consulting firm, to fine tune its service delivery process. Retail Prowess has
developed a service quality program that specified processes and service quality standards
to be adopted at each of its departmental stores. How can Shop Style maintain service
quality in all its stores spread across South India?
22 What kind of actions customers can take in response to service failure? Why is it important
for a service firm to have a strong service recovery strategy? Illustrate your answer with
suitable examples.
23 Explain the differences between ‘search, experience and credence’ qualities. Discuss their
implications for services marketers. Give suitable examples
24 What is the difference between desired service and adequate service? What should a service
marketer need to understand both types of service expectations?
25 What mind of actions customers can take in response to service failure? Why is it important
for a service firm to have a strong service recovery strategy? Illustrate your answer with
suitable examples.
UNIT – III
1 KFC which has its only outlet at Bangalore in the country is all set to open its retail outlets
in Delhi and Hyderabad. Which stage of the PLC is it in?
A. Introduction
B. Growth
C. Maturity
D. Decline
ANSWER: A
2 Segmenting the market according to the customer use of the service is an example of which
bases of segmentation
A. Demographic
B. Geographic
C. Behavioral
D. Psychographic
ANSWER: C
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3 The intangible aspect of a service spring forth for which of the following service product
levels?
A. Actual product level
B. Core product level
C. Augmented product level
D. Potential product level
ANSWER: B
4 Which of the following is not a type of positioning strategy used in service marketing?
A. Attribute positioning
B. Celebrity positioning
C. Competitor positioning
D. Category positioning
ANSWER: B
5 Which of the following is not a market penetration strategy?

A. Maintaining or increasing the market share of existing services
B. Entering new markets with the existing services
C. Driving away competitors by restructuring a market
D. Inducing existing customers to use the services frequently
ANSWER: B
6 Which of the following is not an approach to pricing in services?

A. Risk based approach
B. Cost based approach
C. Competition based approach
D. Demand based approach
ANSWER: D
7 Which of the following is not an issue in the pricing of services?

A. Availability of raw materials
B. Competitor pricing
C. Positioning
D. Demand levels
ANSWER: D
8 Identify the factor that does not play a major role in setting the pricing objectives of a
service organization.
A. How would a company like to position its services?
B. Are the prices chosen compatible with the corporate objectives?
C. How do the shareholders react to the price changes made by the company?
D. What is the duration of the life cycle of the services?
ANSWER: A
9 Which of the following is not a type of broadcast media used for advertising?
A. TV
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B. Radio
C. Newspapers
D. Internet
ANSWER: B
10 The pricing strategy in which prices are set lower to actual price to trigger short term sales
is classified as
A. promotional pricing
B. short term pricing
C. quick pricing
D. cyclical pricing
ANSWER: A
11 Which of the following is not a necessary strategy in the effective promotion of services?
A. Effective planning
B. Perfect timing
C. Adherence to legal regulations
D. Employee motivation
ANSWER: A
12 Which amongst the following is not true regarding the promotional strategies of services?
A. Intermediaries have a key role in the promotion of services
B. Service personnel play a larger role in promoting services
C. Physical evidence tangibilizes the services
D. Services cannot ne inventoried
ANSWER: C
13 Which of the following is not a consideration in deciding the marketing channel for
services?
A. Channels should ensure easy accessibility
B. Channels should cover all target markets
C. Channels should ensure expansion at any cost to the service provider
D. Channels should ensure value addition to the customers
ANSWER: C
14 Location decision is not important for which of the following:

A. Insurance company
B. Bank
C. Retail outlet
D. Health club
ANSWER: C
15 Which of the following is not a benefit of direct distribution of services?

A. Control over operations
B. Healthy customer relationships
C. Flexibility
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D. Reduced risk
ANSWER: A
16 In planning a service process, a service provider takes all the following important decisions
except
A. Conversion process
B. Legal restrictions
C. Flow of process
D. Layout design
ANSWER: B
17 Which of the following is not an element of blueprinting in a service process?

A. Onstage employee actions
B. Line of visibility
C. Customer role
D. Support processes
ANSWER: B
18 Which of the following is not an influencing factor in process efficiency?

A. Technology
B. External environment
C. Planning
D. Location and décor
ANSWER: C
19 Which of the following is not a major element of physical evidence?

A. Conduct of support staff
B. Price of service
C. Physical environment
D. Conduct of service personnel
ANSWER: A
20 The importance of physical environment as an element of physical evidence springs forth

through all of the following except
A. Layout
B. Communications
C. Atmosphere
D. Aesthetics
ANSWER: C
21 Which of the following may not be an objective of focusing on physical evidence by a

service firm?
A. Differentiation from competitors
B. Increased productivity
C. Creating a good impression
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D. Creating awareness about its services
ANSWER: A
22 Which of the following is not a type of demand-based pricing strategy?

A. Market skimming
B. Penetration pricing
C. Destroyer pricing
D. Discounts and sales
ANSWER: C
23 Which of the following is not an essential step in building a service blueprint?

A. Identifying process
B. Identifying customer segment
C. Mapping customer’s view
D. Mapping complexities
ANSWER: C
24 Which of the following factors does not influence service delivery?

A. The service provider
B. The level of customer interaction
C. The complexity of the service
D. The legal aspects connected to it
ANSWER: C
25 Which of the following groups is called boundary spanners?

A. Top management
B. Front line employees
C. Market research analysts
D. All the above
ANSWER: D
1 What is the significance of development of new services in a service organization?

2 What do you understand by Quality Function Deployment?
3 Write a short note on high performance service innovations.
4 Draw out the components of physical evidence.
5 What are the different types of services capes?
6 Enlist the guidelines for creating an effective physical evidence strategy
7 Write a short note on emotional labor
8 How can a firm conduct an internal customer audit?
9 Write a brief note on integrated services marketing communications.
10 How is pricing of services different than that of goods?
11 Explain the elements of services marketing mix. Illustrate your answer with suitable
examples
12 Explain the services production continuum giving a suitable example.
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13 Why are service employees critical to the success of any service organization?
14 Discuss customer’s role as productive resource and contributor of the firm.
15 What is the risk of attempting to describe services in words alone?
16 Why is it challenging to design and develop services?
17 Explain the house of service quality?
18 Explain how the price of a service is related to its quality?
19 Why is it challenging to develop and design a service?
20 What are the risks of defining the services in the world alone?
21 Think of a new service you want to develop being an entrepreneur and discuss?
22 Why is everyone not affected in exactly the same way by the servicescape?
23 Discuss the basic concepts behind satisfaction based, relationship, and efficiency pricing.
24 Define price bundling and provide three reasons why it makes sense for service firms to
engage in price bundling practices.
25 Why is developing an effective process strategy particularly important for service firms?
1 What are the various types of new services that an organization may develop? What risks
does the organization face while describing a new service to be developed?
2 Elaborate the new service development process.
3 Elaborate the components of a service blueprint. Describe the service blueprint for a hotel
service.
4 Explain how service blueprints are created. Explain with help of examples.
5 How does Physical Evidence affect customers’ expectations? Explain in the context of the
Hospitality and Tourism Industry.
6 Describe the strategic role of servicesacpe and develop a framework for understanding
servicescape effects on customer behavior.
7 Why are service employees important? How do they effect service quality?
8 Elaborate the various human resource strategies for delivering service quality through
employees of an organization.
9 Explain the importance of customers in service delivery with reference to their level of
involvement in the services. What different roles do customers perform in service delivery?
10 Devise the strategies for enhancing customer participation in service delivery with
reference to the fast-food, healthcare and beauty & salon services.
11 In what different ways can services be delivered to customers? Specify with examples of
different countries.
12 What are the common issues involved in hiring intermediaries for service delivery? How
can these be handled effectively?
13 What are the various approaches for managing service promises? Explain.
14 What are the various approaches to pricing services?
15 Describe the four customer definitions of value. What different pricing strategies are
available for these value definitions?
16 What factors does a service marketer take into consideration while planning a service
process? How can a service marketer alter his service positioning by altering his present
service process structure?
17 What are the various factors influencing service process efficiency?
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18 In India, the average attrition rate in the BPO sector is approximately 30-35 percent.
Maintaining low attrition levels in this industry has become a major challenge to employers
as the demand exceeds the supply of qualified professionals. Many BPO majors are now
concentrating on designing various internal marketing programs to motivate their
employees. How will an emphasis on motivation, an essential component of internal
marketing programs, reduce attrition rates and influence the quality of services delivered
by the company?
19 It is highly essential for any company to develop a two-way communication with their
customers. Organizations should not be under the mistaken impression that advertisements
in different media, direct marketing letters, exhibition stalls, and brochures are a means of
interacting with customers. The interaction process starts only after the customer responds
to this communication. In what way can an understanding of this aspect enable cellular
operators to improve communications and relationships with customers?
20 Wipro gives significant importance to employee empowerment as part of its internal
marketing program. It has developed an intranet channel called ‘Channel W’, which
features on the desktop of every employee. The channel features various business related
programs as well as personal entertainment programs with the objective of binding
employees together. Besides, the channel helps generate and sustain interest among
employees by enabling the company to share its success and views through this two-way
communication channel. What do you understand by employee empowerment and how
does it add to better customer service?
21 Avishkar Advertising is a small ad agency that had established itself by providing
advertising services to companies in the healthcare industry. However, things changed with
the entry of advertising agencies like Euro-RSCG, MAA-Bozell, FCB-Ulka and TBWA
that began working with Pharmaceutical companies like Knoll, Torrent, and Novartis on
the strength of their international alliances. Bigger agencies like O&M, Lowe and McCann
also set up separate divisions for healthcare communications. What kind of pricing
objective and pricing strategy should Avishkar adopt to tide over this situation?
22 The world's largest independent IT training company, the US-based New Horizons, has
entered India at a time when the domestic computer education market is struggling in the
wake of the global technology meltdown. What factors should New Horizons consider
when making channel decisions? Other than franchising, which delivery channel can the
company opt for if it wants to reach a large number of customers at their convenience and
yet keep down costs?
23 In the IT services sector, a constant upgrade in the skills of mid-level managers is essential
to retain the competitive edge and keep the customer happy. In what way will a continuous
employee training program help an IT services organization like Ramco Systems to provide
value-added services to its clients as well as to motivate and retain employees?
24 Marketing analysts point out that the 4P’s of marketing mix (product, price, place,
promotion) that are used for marketing of products may not be enough for service providers
to consider in developing effective marketing strategies. They say three additional elements
people, physical evidence and process along with the 4 P’s, can help address the needs of
services marketing completely. Explain in detail about these three elements that are unique
to services marketing?
25 “People, one of the services marketing mix elements not just refers to front-line employees,
but also the customers.” Explain this statement by taking any service as an example.
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UNIT – IV
1 Service Guarantees are not appropriate when

A. It is easy to invoke
B. Buyer resistance is high
C. It involves restitution
D. Price of the service is low
E. It is not easy to invoke
ANSWER: B
2 Low cost airlines have changed the face of airline travel in India. In this scenario,
which of the followings strategies cannot be considered as a good marketing strategy for
an airline like Air Sahara?
A. Remove non-value added cost
B. Provide better service quality
C. Stop special offers and discount schemes
D. Develop trade alliances with travel agents
ANSWER: C
3 Yield Management assumes importance in the context of

A. Waiting line strategies
B. Supply and demand management
C. Retention strategies
D. Repositioning
E. New acquisition strategies
ANSWER: B
4 In the event of a mistake in service delivery, the organization’s priority should

A. Justify its actions
B. Protect its employees
C. Revise the procedures
D. Service recovery
E. Apologize to its customers
ANSWER: D
5 Benchmarking is a process of comparison between the performance characteristics of

separate, often competing organization, intended to enable each participant to
improve its own performance in the marketplace. The process of benchmarking
involves five steps. Which one of the following is the fourth step in the process of
benchmarking?
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A. The organization has to identify the critical business processes or areas that
need to be benchmarked for improvement
B. The organization has to determine the methods to be used for data collection
from the company used for benchmarking
C. The management should introduce the necessary changes in the organization
to remove the performance gap and improve the service quality
D. The organization has to choose companies, that have excelled in those areas
processes for benchmarking
E. The management should analyze the differences between the processes in the
two companies to identify its area for improvement
ANSWER: E
6 Which level of investment in customer relationship building typified by the company

like dell.com working continuously with their customers to discover ways to perform
better?
A. Reactive Marketing
B. Accountable Marketing
C. Proactive Marketing
D. Partnership Marketing
E. Alliance Marketing
ANSWER: D
7 The tourism industry is dependent on various factors like the location of the country,
its culture and tradition, the social and political status etc. This dependency has
resulted in some unique characteristics or features of the industry. Which of the
following are the characteristics of tourism industry?
I. Stable location.
II. Intangibility.
III. Huge financial investments.
IV. Stable demand.
A. Both (I) and (III) above
B. Both (II) and (IV) above
C. (I), (II) and (III) above
D. (I), (III) and (IV) above
E. All (I), (II), (III) and (IV) above
ANSWER: A
8 A service organization can deliver quality service to its customers if it follows a systematic
method in identifying the customers ‘needs. Christopher Lovelock suggested that the
various supplementary services offered across various industries can be grouped into eight
categories. Which of the following is not one of these categories?
A. Order-giving
B. Hospitality
C. Consultation
D. Safekeeping
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E. Billing
ANSWER: A
9 Airlines can try to influence demand for their products and control the perishability
characteristic of service by:
A. Creating a slogan that focuses on service reliability
B. Doing away with the poor image of airplane food
C. Offering roomier seats
D. Cultivating non-peak demand
E. Standardizing the service process and providing more training to flight personnel
ANSWER: D
10 A customer comes to a restaurant and demands a table facing the street which is already
occupied for the evening. The Floor Manager’s ability to deal with the customer is an
example of the restaurant’s ability in:
A. Recovery
B. Adaptability
C. Level of trust
D. Coping
E. Strategy
ANSWER: D
11 The relationship between a company and its customers needs to be mutually rewarding and
fulfilling. Which of the following is not the four R‘s of rewarding relationships?
A. Realization
B. Reimbursement
C. Relevance and respect
D. Response
E. Relationship
ANSWER: B
12 To produce a better match between the number of people who want to eat at a restaurant
on weekends and the availability of food and personnel to provide service to those people,
a restaurant can:
A. Use a price equilibrium strategy
B. Eliminate the reservation system
C. Eliminate complementary services
D. Hire part-time employees
E. Do all of the above
ANSWER: D
13 Service organizations often tend to ignore the feeling of customers when they are kept
waiting. —The psychology of waiting lines“ is an article written by David Maister
with various principles to provide more insights into ‘waiting‘ for both customers as
well as service providers. Which of the following is not true about the principlesof
waiting?
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A. Pre-process waits seem longer than in-process waits
B. Anxiety makes the waiting period seem longer
C. Unexplained waits are shorter than explained waits
D. Physical discomfort makes waiting feel longer
E. Unfair waits are longer than equitable waits
ANSWER: C
14 Eating out in a restaurant with white linen napkins, candlelight, and a wine list is an
example of which of the following categories?
A. A pure tangible good
B. A tangible good with accompanying services
C. A hybrid
D. A major service with accompanying minor goods and services
E. A pure service
ANSWER: C
15 All of the following statements about customer waiting time are true except:
A. Unoccupied waiting time appears to be longer than occupied waiting time.
B. Waiting before the service seems longer than waiting during the service encounter.
C. Customer anxiety makes waiting seem longer.
D. Waits that are explained seem shorter than waits that are not explained.
E. The more expensive and the more important a service is to the customer, the less
they are willing to wait for service.
ANSWER: E
16 If the marketing department for a tutoring service hires a class of graduate students to
conduct and tabulate research on consumer rankings of its educational offerings, the
tutoring service is increasing its productivity through:
A. Adopting a manufacturing approach
B. Requiring service providers to work more quickly
C. Increasing the quality of service provided by surrendering some quantity
D. Doing away with obsolete methodology
E. Finding a more effective way to perform a necessary task
ANSWER: E
17 Which of the following statements can be associated with the phenomenon of

Marketing Myopia?
A. The firm produces large quantities of products to decrease the cost per unit, ignoring
market requirements
B. The firm believes that there are no major competitors
C. The firm increases the product price, in the belief that general public is growing
richer by the day
D. All of the above
ANSWER: D
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18 Companies are now offering services like selling and delivering products over the
internet. What is this kind of business service known as?
A. Outsourcing
B. E-commerce
C. Reengineering
D. BPO
ANSWER: B
19 What is benchmarking?
A. A PA system
B. A measure of productivity
C. A standard against which performance is measured
D. A process where a firm sets a target for itself
ANSWER: D
20 The mutual fund market can be segmented based on the investment objective of the
investors. Since customer needs are different, the market can be segmented into the
various funds based on the differences. Which of the following funds provides capital
appreciation over the medium to long term?
A. Income funds
B. Growth funds
C. Tax saving schemes
D. Money market funds
E. Balanced funds.
ANSWER: B
21 The world's largest industry in the private sector and highest projected generator of jobs is:
A. Business services
B. The hospitality industry
C. Health services
D. Professional services
E. Retail
ANSWER: C
22 The service sector that is the fastest growing sector in terms of employment is:
A. Wholesale and retail trade
B. Transportation and warehousing
C. Financial activities
D. Professional and business services
E. Education and health services
ANSWER: E
23 The leisure and hospitality industry comprises a variety of services. Which of the following
is not one of them?
A. Food service
B. Lodging
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C. Travel and tourism
D. Meeting and convention planning
E. All the above are part of the hospitality industry
ANSWER: E
24 The professional and business sector includes all of the following except:
A. Computer services
B. Legal advice
C. Hospitals
D. Accounting
E. Architectural
ANSWER: C
25 Which one of the following can be considered a high-contact service?

A. Postal service
B. Health care
C. Banking
D. Dry cleaning
ANSWER: C
1 Highlight the major characteristics of the Hotel Industry.

2 What have been the recent trends in the hotel industry?
3 Highlight the major characteristics of the Banking Industry.
4 Highlight the major characteristics of the Insurance Industry.
5 Highlight the major characteristics of the Tourism Industry.
6 Highlight the major characteristics of the Healthcare Industry.
7 Define a bank. What factors influence the location decision for a bank?
8 How is market segmentation different for banking and insurance industries?
9 Define Insurance. What are various types of insurance?
10 What have been the recent trends in insurance marketing?
11 Write a note on technology in Services
12 What do you understand by delivering services through the web?
13 Explain the customer’s role in SERVICES?
14 What are Hospitality Services?
15 Explain in brief the role of technology in services.
16 Explain the process of delivering services through the web.
17 Explain the role of customers in services.
18 How can service marketing being done in health care?
19 Explain the role of services marketing in health sector?
20 Give the note on service failure in hospitality sector?
21 Services marketing can be a major contributor in tourism industry? How?
22 How the effectiveness of the services can be evaluated in case of Hospitality Services?
23 How the effectiveness of the services can be evaluated in case of Banking Industry?
24 How the effectiveness of the services can be evaluated in case of Health care Services?
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25 How the effectiveness of the services can be evaluated in case of Tourism services?
1 How does environment impact the Indian hospitality industry?

2 On what basis is market segmentation done for the hotel industry?
3 Elaborate the hotel industry marketing mix.
4 What approaches to market segmentation are followed while segmenting markets of the
tourism industry?
5 Write a detailed note on the tourism industry of India. What recent trends has the industry
witnessed? How has recession impacted the tourism industry?
6 Elaborate the Banking sector marketing mix. What recent trends have affected the product
and promotion mix of the banking industry?
7 Develop the services marketing mix for an insurance company with a relevant Indian firm
example.
8 Discuss the recent trends in the Indian Healthcare Industry and also develop its service
marketing mix.
9 Write a detailed note on the Indian Banking sector. How demographic factors, personalized
loans and credit quality programs drive the market? What are the various opportunities and
challenges of this industry?
10 ABN-Amro Bank has surprised the banking industry by announcing the lowest interest rate
of 6.5% for its housing loans, which is 1% less than what other banks are offering. What
kind of pricing strategy has ABN-Amro Bank adopted in this case? Describe the pricing
strategy.
11 Insurance companies sell their services mainly through agents and brokers, instead of
selling them through their own personnel. What are the major reasons for their adopting
such a distribution strategy?
12 Many banks are now targeting high net-worth individuals (HNI’s) for expanding their
business. In view of the competitive banking environment, what should a bank do to
establish long-term relationships with customers in the target segment?
13 Analysts are of the view that after telecom and banking, it is the insurance sector that is
focusing on relationship marketing since insurance companies are putting in extensive
efforts to retain existing customers and attract new customers. Comment on the efficacy of
relationship marketing for insurance companies in India. What benefits can these
companies accrue?
14 ICICI Ltd has launched e-portals as part of its relationship marketing strategy, targeted to
fulfill the local needs of people in major cities. For instance, Cafemumbai.com is a portal
that ICICI has set up to cater to the local needs of the people of Mumbai. The portal has a
search facility and also provides information on weather, train and bus routes, travel
schedules, and other essential services ranging from the legal to the environmental. What
steps would ICICI have followed in order to come up with this relationship marketing
strategy?
15 The Indian subcontinent has great potential for tourism. The government has recently
decided to attract foreign tourists by highlighting the natural and cultural beauty of India.
To promote tourism, it is leasing out some railway routes toprivate tour operators. The idea
is to promote more projects like “Palace on Wheels”. An interested private company has
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won a contract to operate a rail route for a period of 10 years. Evaluate the service product
that the company would like to pursue in the project.
16 The Marriott Group is planning to open a new hotel in Bangalore. It has already established
itself in the market as a premium class hotel chain. How should Marriott plan the marketing
mix for the new location?
17 Corporate Healthcare is seen as one of the fastest growing segments in the Indian economy
with foreigners accounting for about 12 per cent of all patients in top hospitals like Lilavati,
Jaslok, Breach Candy, Apollo, and Wockhardt. This is because medical care costs only
one-fifth as much as it costs in the West. In what way can the physical environment help
corporate hospitals in India to woo foreign patients, considering the fact that hospital
ambience is a prerequisite to attract them?
18 By 2020, India is expected to be the leading tourist destination in South Asia with more
than eight million tourist arrivals. Foreign hotel chains like Marriott, Intercontinental, Four
Seasons, and Shangri-La have already started refurbishing their hotels and services in the
light of these forecasts. How can existing Indian luxury hotels such as Indian Hotels, ITC,
and Hotel Leela Ventures use supplementary services to differentiate themselves and face
competition from foreign chains?
19 What is customer satisfaction and why is it so important? Discuss the factors that influence
the customer satisfaction.
20 Critically analyze the marketing efforts made by (a) A company in healthcare sector, (b) A
company in banking sector. How well have they succeeded in differentiating its services
from that of their competitors? Explain analytically?
21 Using a service company of your choice, analyze how price discriminations are practiced
between different groups of customers?
22 Give marketing implications in all the sectors: Hospitality, Health care, Airlines and
Banking and insurance?
23 Develop a blueprint for Hotel Industry? Also explain the point of contact with specific
examples?
24 Develop services triangle for an airlines company describing all three sides in detail.
How service industry can help in the overall development of the economy. Explain
considering different service sectors and their importance for development?
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QUESTION BANK
ENTREPRENEURSHIP
DEVELOPMENT
BBA 307
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QUESTION BANK
ENTREPRENEURSHIP DEVELOPMENT-BBA 307
BBA-V
UNIT – I
1. Which of these statements best describes the context for entrepreneurship?

A. Entrepreneurship takes place in small businesses.
B. Entrepreneurship takes place in large businesses.
C. Entrepreneurship takes place in a wide variety of contexts.
D. Entrepreneurship does not take place in social enterprises.
ANSWER: C
2. Which statement is not true of entrepreneurs?

A. They change the way businesses convert inputs into outputs
B. They generally stick to the processes already in use.
C. They take risks
D. They apply innovative ideas
ANSWER: B
3. Why is the notion of 'vision' important in entrepreneurship?

A. Without it there is no driving force or sense of direction.
B. People need a sense of fantasy in order to create ambitious ventures.
C. Investors prefer to invest in visionaries.
D. Having a vision helps to create a paradigm shift.
ANSWER: A
4. Innovative entrepreneur ensures:

A. Static equilibrium
B. Dynamic equilibrium
C. Static disequilibrium
D. Dynamic disequilibrium
ANSWER: B
5. The book “Innovation and Entrepreneurship” is written by:

A. J.B. Say
B. J.A. Schumpeter
C. Peter F. Drucker
D. Cantillon
ANSWER: B
6. Which one of the following theory has the attribute of moderate risk taking as a function
of skill, not chance?
A. Need for independence
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B. Need for achievement
C. Need for affiliation
D. Need for authority
ANSWER: B
7. An entrepreneur considering if what they are doing makes sense is an example of:
A. A strategic question
B. A connection task
C. A reflection task
D. A comprehension question
ANSWER: C
8. Entrepreneurial Opportunities are defined as:

A. situations in which new goods, services, raw materials and organizing methods can
be sold at greater than their production cost.
B. new market entry through entrepreneur action.
C. the entrepreneur's mental processes in deciding whether or not to act on a potential
opportunity.
D. a feasibility assessment.
ANSWER: D
9. All but which of the following is considered to be a myth associated with entrepreneurship?
A. Successful entrepreneurs are born not made
B. First ventures are always successful
C. All entrepreneurs must willingly invest significant sums of money
D. Successful entrepreneurs must have a break-through invention
ANSWER: B
10. Entrepreneurial culture and growth orientation consists of all of the following except:
A. Encouraging employees to generate ideas
B. Focusing on opportunities.
C. The desire to grow at a slow and controlled pace.
D. Being creative.
ANSWER: C
11. All these are characteristics of an entrepreneurial environment except:

A. There is short term horizon.
B. New ideas are encouraged.
C. The organization operates on frontiers of technology.
D. It uses a multidiscipline teamwork approach.
ANSWER: A
12. Which of the following is true about corporate entrepreneurship (Inrapreneurship)?

A. Equity in a new venture should not be used as a reward due to its uncertain value
B. Company must be willing to invest money without a guarantee of a return in the
short term
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C. Teams should be segmented by department
D. Top management should not be involved in the process.
ANSWER: B
13. Intrapreneurship often takes the form of

A. A semi-autonomous group (e.g. an internal venture team), operating within the
overarching structure of the parent organization.
B. A spinout venture from a university to commercial a new invention.
C. A subsidiary of a large corporation developing a new product.
D. A semi-autonomous group operating outside the overarching structure of the parent
organization.
ANSWER: A
14. Intrapreneurship is best described as:

A. The hiring of former Entrepreneurs.
B. Entrepreneurial action within an organization.
C. The process of buying acquiring entrepreneurial firms.
D. The process of hiring consultants to teach a firm how to be more creative.
ANSWER: B.
15. In regards to the differences between the entrepreneurial and administrative focuses which
of the following is correct?
A. Entrepreneurs focus on slow steady growth and managers’ focus on rapid growth
B. Entrepreneurs rent or sporadically use resources; managers like to own resources
C. Entrepreneurs are driven by controlled resources; managers by opportunity
D. Entrepreneurs tend to use a hierarchical management structure; managers use a
more fluid, flat approach
ANSWER: B
16. Entrepreneurial culture and growth orientation consists of all of the following except:
A. Encouraging employees to generate ideas.
B. Focusing on opportunities.
C. The desire to grow at a slow and controlled pace.
D. Being creative.
ANSWER: C
17. All these are characteristics of an entrepreneurial environment except:

A. there is short term horizons.
B. new ideas are encouraged.
C. the organization operates on frontiers of technology.
D. it uses a multidiscipline teamwork approach.
ANSWER: A
18. Which of the following is true about corporate entrepreneurship (Inrapreneurship)?

A. Equity in a new venture should not be used as a reward due to its uncertain value
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B. A company must be willing to invest money without a guarantee of a return in the
short term
C. Teams should be segmented by department
D Top management should not be involved in the process.
ANSWER: C
19. Which of the following is alternatively called corporate venturing?

A. Entrepreneurship
B. Intrapreneurship
C. Act of stating a new venture
D. Offering new products by an existing company
ANSWER: B
20. Individuals influencing an entrepreneur’s career choice and style are known as which of
the following?
A. Moral-support network
B. Role model
C. Professional support network
D. Support system
ANSWER: B
21. The activity which occurs when the new venture is started is called:
A. Motivation
B. Business skills
C. Departure point
D. Goal orientation
ANSWER: B
22. Of the following, which is best identified when a business with an established name and
product is sold to additional owners along with the rights to distribute product?
A. Intrapreneurship
B. Trade-off
C. Entrepreneurship
D. Franchise
ANSWER: D
23. Management tactics purported to maximize innovation for an entrepreneurship include all
but which of the following items?
A. Cutting of losses
B. Culture
C. Benchmarking
D. Customer orientation
ANSWER: C
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24. In franchising, the entrepreneur assumes fewer risks because the franchise provides all but
which one of the following?
A. Established market for the product
B. Management assistance in operating the business
C. Economies of scale for purchasing
D. Over-sale of rights
ANSWER: D
25. Establishing a shared vision amongst team members refers to:

A. Members of the team starting out with an essentially similar set of ideas about
what they want to create.
B. Members of the team sharing moral principles and standards of behaviour.
C. Members of the team sharing the factors driving them to take part in the venture.
D. Members of the team sharing profits in an equitable manner.
ANSWER: D
26. An entrepreneur is a person who is a:

A. Risk taker
B. Initiator
C. Actor
ANSWER: D
27. Which one of the following is NOT an intrapreneurial leadership characteristic?

A. Understands environment
B. Encourage the team work
C. Not flexible
D. Persistent
ANSWER: B
A. Successful entrepreneurs are born not made
B. First ventures are always successful
C. All entrepreneurs must willingly invest significant sums of money
D. Successful entrepreneurs must have a break-through invention
E. An entrepreneur faces extraordinary business risks
ANSWER: D
29. A/An ______ is best described by stating it is any business that is independently owned
and operated and is not dominate in its market.
A. strategic alliance
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B. corporation
C. entrepreneurship
D. proprietorship
E. small business
ANSWER: C
30. Which of the following risks is borne by the entrepreneur?

A. Financial risks.
B. Personal risks.
C. Psychological risks.
D. All of these
ANSWER: D
1. Define entrepreneurship and explain its main characteristics.

2. Define an Entrepreneur? Are all business owners’ entrepreneurs?
3. What are barriers to Entrepreneurship?
4. Define Intrapreneur.
5. Differentiate an entrepreneur from an intrapreneur.
6. Distinguish between entrepreneur and a manager.
7. Discuss the qualities or traits of success full entrepreneurs.
8. Discuss the type of entrepreneurs with suitable examples.
9. Give a brief account of the origin and growth of entrepreneurs in India.
10. Discuss the environmental factors which influence entrepreneurship.
11. Discuss unique characteristics of Entrepreneur.
12. What should be competencies of Entrepreneur?
13. Differentiate Entrepreneur, Entrepreneurship and Enterprise.
14. Give a brief profile of women entrepreneurs and discuss the main problems faced by them.
15. Explain the factors that determine the growth of entrepreneurship.
16. Analyze the factors that contribute to the success of small business.
17. What do you understand by entrepreneurial motivation? Discuss in detail.
18. Explain the factors which motivate the development of entrepreneurs.
19. Explain Schumpeter’s theory of Entrepreneurship.
20. How understanding “McClelland’s theory of Motivation” helps us in helping
entrepreneurship.
21. What is Peter F. Drucker’s Theory of Entrepreneurship?
22. Explain Economic Theory of Entrepreneurship by Mark Casson.
23. What do you understand about “Economic- Risk bearing theory of Knight”
24. Explain Hagen’s Theory of Entrepreneurship.
25. What concept is explained in X-Efficiency Theory by Leibenstein?
26. Explain the various problems faced by new ventures.
27. Discuss the slow growth of new entrepreneurship in India.
28. What is feasibility study and how is it conducted?
29. While deciding on the viability of your proposed project? What factors will you take into
consideration?
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30. What do you mean by Fabian Entrepreneurs?
1. Define business and its main characteristics. How Entrepreneurial attitude helps in growth
of a business?
2. Discuss internal & external factors of entrepreneurial motivation. What is an achievement
motivation force that causes entrepreneurial growth in a country?
3. Explain “Non-economic factors are equally important as economic factors in deciding
entrepreneurial growth”. Give examples.
4. Explain the Economic factors affecting entrepreneurial growth. Also explain the various
Environmental factors affecting Entrepreneurial Growth. Give suitable examples.
5. Can a person’s chances of success as an entrepreneur be predicted with a high degree of
accuracy? Explain.
6. Explain the motivation process for entrepreneurship development. Identify various
characteristics of an entrepreneurial environment.
7. “Entrepreneurs are born not made”. Comment on the statement. In light of this is their
justification of various initiatives taken by various bodies and individuals to promote
Entrepreneurship. In either of cases do these initiatives help? Explain.
8. “Entrepreneurial performance is a function of socio-cultural background of entrepreneur,
his motivation, ability and environment” discuss.
9. What economic and non-economic factors have led to entrepreneurial growth in India and
the world? Explain through Examples.
10. Explain how intrapreneurship develops in organizations with different cultural
backgrounds.
11. What are characteristics of an Entrepreneur? How Entrepreneur can keep himself
motivated all the time?
12. Looking the present scenario that India is 3rd largest hub of Start-ups activities, how do you
see that this the optimum time for Entrepreneurship in India. Evaluate the favorable and
unfavorable factors for Entrepreneurship in India in context of your answer.
13. What are the various theories of Entrepreneurship, explain. Among the theories pick one
of the theory which you think is the best and explain why you think so.
14. Has socio cultural political environment has changed in favor of Entrepreneurship, pick up
5 of the factors and explain answer.
15. In India certain communities have more Entrepreneurs, analyze why they give more
Entrepreneurs?
16. Account for the major problems faced by women entrepreneurs in India. How these
problems can be solved.
17. “Entrepreneurial performance is a function of socio-cultural background of entrepreneur,
his motivation, ability and environment” discuss.
18. In view of the Entrepreneurial Competencies required of an entrepreneur, discuss the
various types of entrepreneurs with examples and reference to live case studies.
19. An entrepreneur has to carry out a combination of functions. In this light, discuss various
functions to be performed by an entrepreneur.
20. What are the various myths of entrepreneurship? What is the truth behind each myth,
explain?
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21. How entrepreneur is different from manager? Give a classification scheme of types of
entrepreneur available.
22. Differentiate Entrepreneur, Entrepreneurship and Enterprise. What are the economic and
non-economic factors that have lead to Entrepreneurial growth in India? Discuss these
factors in brief.
23. Discuss the conflicting viewpoints on corporate entrepreneurship.
24. “Small scale industries have become quite big over a period of time in India.” Comment
on the statement.
25. “For the process of industrialization in India, small and large industries have to be viewed
as mutually supportive and complementary”. Discuss.
26. Discuss the various type of entrepreneurs with characteristics of each of these with suitable
examples.
27. Give a detailed account of the origin and growth of entrepreneurship in India. Also, explain
the factors that determine the growth of entrepreneurship
28. Discuss the various environmental factors which influence entrepreneurship.
29. Differentiate between Entrepreneur and manage highlighting the key features of each of
these.
30. Explain the role and importance of Entrepreneurship in economic development with
examples.
UNIT – 2
1. The goals motivating entrepreneurial activity can include which of the following options:
A. To improve the social welfare of people, e.g. in terms of their health.
B. To improve the wealth of the entrepreneurs.
C. To maintain influence amongst powerful local figures.
D. All of the above.
ANSWER: A
2. What are the two key issues that arise when you create an effective entrepreneurial team
from scratch?
A. Team mentality and team synergy
B. Team numbers and team quality
C. Team composition and team roles
D. Team experience and team education
ANSWER: C
3. Establishing a shared vision amongst team members refers to:

A. Members of the team starting out with an essentially similar set of ideas about what
they want to create.
B. Members of the team sharing moral principles and standards of behaviour.
C. Members of the team sharing the factors driving them to take part in the venture.
D. Members of the team sharing profits in an equitable manner.
ANSWER: D
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4. Which of the following is presented as evidence of social factors influencing whether
someone becomes an owner-manager?
A. Although people believe self-employment runs in families, there is little evidence
to support this view.
B. There seems to be little relationship between self-employment and age.
C. Self-employment is more common among some ethnic groups.
D. Self-employment is more common among single people than among the married.
ANSWER: B
5. Which of the following is not one of the environmental factors that may influence the
potential of a small business?
A. Close contacts with customers related to problem solving activities
B. Clusters of technically advanced small firms
C. An industry with economies of scale
D. Banks recognizing the needs of small firms
ANSWER: C
6. What factors have contributed to the blurring of boundaries between different industries?
A. Technological innovation; political change;
B. Technological innovation; legal and socio-economic changes
C. Changes amongst customers, competitors and suppliers
D. Technological innovation
ANSWER: D
7. The ideas for new businesses that are obtained by entrepreneurs are derived from many
sources. These various sources include all but _______.39
A. replication of an existing business
B. trade journals
C. trade shows
D. children
ANSWER: D
8. In Stage One of the McMullen-Shepherd Model: H

A. the entrepreneur decides whether or not there is an opportunity.
B. the entrepreneur consults experts in the market area of interest.
C. the entrepreneur decides whether the opportunity that exists is a match with their
own knowledge and motivation.
D. the entrepreneur engages in bricolage.
ANSWER: C
9. In Stage Two of the McMullen-Shepherd Model : H

A. the entrepreneur deals with the business failure through counseling.
B. the entrepreneur decides whether or not there is an opportunity.
C. the entrepreneur goes through the causal process of thinking structurally.
D. the entrepreneur consults colleagues from previous jobs.
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ANSWER: B
10. A/An ______ is best described by stating it is any business that is independently owned
and operated and is not dominate in its market.47
A. small business
B. corporation
C. entrepreneurship
D. proprietorship
ANSWER: A
11. Which of the following is a disadvantage of the 'drafting a traditional business plan'
approach?
A. They do not reflect the way in which people shape their entrepreneurial visions.
B. It can be difficult to explain your vision to other people.
C. This approach lacks rigour.
D. The process involved can help an entrepreneur to improve their own understanding
of the business concept.
ANSWER: A
12. Which of the following are 'drivers' underlying the opportunity business model?
A. Societal, commercial, legal, technological, people
B. Societal, commercial, legal, technological
C. Societal, ethical, commercial, legal, technological
D. Societal, commercial, legal, technological, environmental.
ANSWER: B
13. What are the main sources of entrepreneurial opportunity?

A. Personal - entrepreneurs experience or perceive something that others do not.
B. Secondary research - from industry analyses.
C. Primary research - from speaking to potential customers to determine their needs.
D. Observation - of other peoples' experiences with products and services.
ANSWER: A
14. Social innovation refers to:

A. The introduction of new social practices, activities or ways of organizing.
B. The introduction of novelties; the alteration of what is established by the
introduction of new elements or forms.
C. New designs, processes, marketing approaches, or a new way of conducting
training.
D. The means by which entrepreneurs exploit change as an opportunity for a different
business or service.
ANSWER: A
15. Business opportunity relates with

A. Business possibilities
B. Commercially feasible projects
C. Risky projects
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D. Favourable market demand
ANSWER: B
16. Early growth stage fails to consider following symptoms. Unit 214
A. Very slow
B. Perceived comfort zone
C. Very rapid
D. All of Above
ANSWER: D
17. Very rapid situation indicates

A. Increase in production
B. Rapid increase in production
C. Increase in Research and Development
D. Increase in sales
ANSWER: D
18. Enterprise positioning is meant for

A. Short-term arrangement
B. Continuous process
C. Long-term process
ANSWER: C
19. Input analysis relates with

A. Funding requirement
B. Material requirement
C. Labour requirement
D. Resource requirement
ANSWER: D
20. General objective of selecting a location is not the following

A. Maximize the cost of production
B. Maximize the distribution cost
C. Minimize the cost of capital
D. All of the above
ANSWER: C
21. Which of the following is NOT one of the definitions of 'business models':
A. The system of components, linkages and associated dynamics, which that make
commercial advantage of the Internet.
B. A business model describes the rationale of how an organization creates, delivers
and captures value.
C. Business models identify where the resources necessary to establish a venture will
come from.
D. Business models describe, as a system, how the pieces fit together.
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ANSWER: C
22. Which of the following statements is true?

A. The entrepreneurial process starts with creativity and the task of generating new
ideas.
B. The creativity process starts with innovation and the task of generating new ideas.
C. The idea generation process starts with creativity and the task of innovation.
D. The innovation process starts with creativity and the task of generating new ideas.
ANSWER: D
23. Incubation stage deals with

A. Sample development
B. Idea development
C. Prototype Development
ANSWER: C
24. Feasibility study is defined as

A. Formal investigation of profitable opportunity
B. Informal investigation of profitable opportunities
C. Intensive investigation of profitable opportunities
ANSWER: C
25. Business opportunity relates with

A. Business possibilities
B. Commercially feasible projects
C. Risky projects
D. Favourable market demand
ANSWER: B
26. Which of the following is alternatively called corporate venturing?

A. Entrepreneurship
B. Intrapreneurship
C. Act of stating a new venture
D. Offering new products by an existing company
ANSWER: B
27. A bonus or financial aid which is given by a Government to an industry to help it compete
with other units in home market or in a foreign market is known as _________ .
A. Subsidy.
B. Concession
C. Bounties.
D. None of these
ANSWER 27: A
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28. Venture capital is concerned with:
A. New project having potential for higher profit
B. New project of high technology
C. New project having high risk
D. All the above
ANSWER: A
29. 29. Family business always interested to handover the change of his business to:
A. Indian Administration Officers
B. Professional Managers
C. Next generation
ANSWER: C
30. 30. A corporate manager who starts a new initiative for their company which entails setting
up a new distinct business unit and board of directors can be regarded as?
A. Ecopreneur
B. Technopreneur
C. Intrapreneur
D. Social Entrepreneur
ANSWER 30: A
1. Discuss the sources of ideas for new products.

2. What is product selection? Illustrate how a product is selected.
3. How creativity and innovation can lead to ideas about new product development and
entrepreneurial opportunities?
4. How will you do evaluation of opportunity?
5. What is break even analysis? Illustrate and explain the process of breakeven analysis for
a new product.
6. Explain the process of preparing a feasibility report.
7. Describe the need and significance of preparing a project report.
8. What are good sources of business ideas?
9. What are Venture Funds?
10. What is franchising?
11. What are the main contents of a project report?
12. How would you evaluate a franchise option?
13. Franchisee is a smarter entrepreneur. Do you agree? Explain.
14. Enlist different phases of feasibility analysis.
15. List legal considerations in the establishment of small-scale enterprise.
16. Enumerate legal and tax considerations in setting up a small business firm.
17. List advantages and disadvantages of different forms of business organization.
18. Enlist different phases of feasibility analysis.
19. List Sources of funding for an enterprise.
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20. Define a private limited company and Public Ltd. Co.
21. Explain difference between Limited Liability Co. and private limited company
21. Discuss the basic startup problems in launching of small-scale enterprise.
22. What are the steps in starting a small business and Small-Scale Industry?
23. What are pre-feasibility study report?
24. What is included in feasibility study?
25. List factors of External Environmental Analysis.
26. What do you understand by the Entrepreneurial competency.
27. Explain the various forms of financial support system available to an entrepreneurial
venture.
28. What do you mean by venture capital?
29. What do you understand by the term opportunity analysis in Entrepreneurship?
30. What factors are involved in the economic analysis of an entrepreneurial firm. List them.
1. What do you mean by project preparation? Explain various aspects of project preparation.
2. What is a market survey? Discuss the various methods used for market survey of a new
product.
3. What are the differences are between a business plan and an opportunity assessment plan.
Explain legal considerations in the establishment of small-scale enterprise.
4. Explain how planning strategies differ in large and small firms. Briefly discuss legal and
tax considerations in setting up a small business firm.
5. What are the various ownership forms of organization in India as per India’s legal
framework? Explain the advantages and disadvantages of different forms of business
organization
6. Define a private and public limited company. What are different types of Public Limited
Companies? Discuss the special privileges and exemptions enjoyed by Private Co in
comparison to Public Limited Co.
7. You want to set up a small-scale industry. Which industry would you like to select and
where it should be located? Explain with the help of suitable example.
8. What are the project ideas/business opportunities? What are sources of information for
them? What criteria are used to scan these opportunities to select few of them?
9. List some initiatives by State and Central Governments and other agencies, Pvt. Businesses
for easy access of debt finance?
10. What are sources of funds for a start up in India? Discuss these sources mentioning their
relative merits and demerits?
11. What are procedures involved in establishment of a new unit in India. What registrations
are required? Explain the steps involved with documentation requirements.
12. A product that may be suitable to produce for one entrepreneur may not be suitable for all.
Justify your answer with examples.
13. What are the various steps in writing a business plan?
14. List various types of information that they may be needed for writing a business plan.
Explain through example.
15. Explain the purpose and content of the executive summary of the business plan.
16. A). What kind of information about the competitors needs to be put in a business plan?
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B) Will it not be much more impressive to talk about the entire market than to restrict
your focus on few target segments for a start-up?
17. Explain how you will evaluate a business idea.
18. Explain the purpose and content of the executive summary of the business plan.
19. What kind of information about the competitors needs to be put in a business plan? Will
it not be much more impressive to talk about the entire market than to restrict your focus
on few target segments for a start-up?
20. Explain how you will evaluate a business idea.
21. What are the various aspects involved in the processing of ideas for selecting best idea?
22. Explain the concept ‘Project’ with the help of definition. Explain the characteristics and
classification of projects.
23. Write a note on various Incentive schemes available to MSME in India by Ministry of
MSME.
24. What are MSME? What is their definition as a part of MSME Act 2006? What is the
rationale of SME’s in India? Explain the procedure of establishing SME including its
registration and completing NOC formalities from pollution board.
25. Give definition of MSME both manufacturing and service enterprise as per MSME Act
2006. What are the formalities to be completed to start an MSME in India.
26. What do you understand by financial support system in the context of Entrepreneurial
ventures? Discuss in detail.
27. How important is the role of Government in promoting Entrepreneurship. Support your
answer with example.
28. What are the causes of formation of MSME policy in India? How are government
organizations supporting them?
29. What do you understand by the MSME policy and also explain which type of agencies are
formulating these policies.
30. Explain the process of obtaining venture funding for a start-up in detail.
UNIT – III
1. What is the definition of the term, 'social enterprise'?

A. A commercial organization that seeks to combine a profit seeking motive with the
provision of social benefits.
B. A trading organization that is motivated by profit and a societal orientation.
C. A social enterprise undertakes social marketing and can take a variety of legal
forms, including co-operative, a limited company and a community interest
company.
D. A trading organization which serves a social purpose, and which can take a variety
of legal forms, including co-operative, a limited company and a community interest
company.
ANSWER: D
2. Fabian Entrepreneurs are characterized by:

A. Hardworking
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B. Religious and traditional
C. Shy and Lazy
D. Ready to take risk
ANSWER: C
3. Drone entrepreneur are those who generally

A. Earn super profit
B. Earn normal profit
C. Earn profit or even losses
D. Incur losses
ANSWER: C
4. Systematic innovation means

A. Monitoring different sources of innovative opportunity
B. Developing different types of entrepreneurial behavior
C. Identifying different new business opportunity
D. Creating bases for systematic creativity
ANSWER: A
5. Supply of entrepreneur depends on the

A. Rate of the profit available
B. Prevailing social climate
C. Rate of profit and social climate
ANSWER: B
6. EDP meant for developing

A. Professional skill
B. Entrepreneurial motive
C. Personal qualities
D. Entrepreneurial monitoring
ANSWER: B
7. EDP is required to help

A. Existing entrepreneur
B. First generation entrepreneur
C. Future Entrepreneur
ANSWER: B
8. Following is not involved in EDP

A. Identification of entrepreneurs for training
B. Selection of entrepreneurs for training
C. Developing entrepreneurial capabilities
D. Arranging infrastructural facilities for starting Enterprise
ANSWER: D
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9. EDII was developed by the
A. Government of India
B. State Government
C. All India Financial Institutions
D. Public sector banks
ANSWER: A
10. NIESBUD was established in

A. 1980
B. 1983
C. 1986
D. 1989
ANSWER: B
A. Successful entrepreneurs can be born as well as made
B. All entrepreneurs must willingly invest significant sums of money
C. Successful entrepreneurs must have a break-through invention
D. An entrepreneur faces extraordinary business risks
ANSWER: A
12. Which of the following is not considered a common characteristic of an entrepreneur?

A. High need for achievement
B. Self-confidence
C. External locus of control
D. Willingness to take risks
ANSWER: C
13. Bobby believes that what takes place within his new company is mostly the result of fate
or factors that are outside of his control. It could be stated that Bobby possesses a/an
______.
A. innovative spirit
B. intrapreneurship
C. internal locus of control
D. external locus of control
ANSWER: D
14. The entrepreneur who is committed to the entrepreneurial effort because it makes good
business sense is classed as a/an _____.
A. inventor
B. opportunist
C. hacker
D. craftsman
ANSWER: B
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15. Simran is Entrepreneur, she handles numerous dealings with other companies for the
exchange of goods and services. Her primary goal is to ensure that all parties involved
receive favorable and acceptable terms. Simran is good at the entrepreneurial skill of
_______.
A. negotiating
B. leadership
C. analysis
D. Alliance building
ANSWER: D
16. The steps involved in starting a entrepreneurial endeavor include all but which one of the
following? 38
A. Business plan formulation
B. Obtaining financing
C. Hiring a partner
D. Adapting to growth
ANSWER: D

C. Not flexible
D. Persistent
ANSWER: C
18. In which of the following domain; individuals take decision to help others for achieving
their dreams?
A. Traditional managers
B. Entrepreneurs
C. Intrapreneurs
D. Administrative managers
ANSWER: C
19. An entrepreneur is a person who is a:

A. Risk taker
B. Initiator
C. Actor
ANSWER: D

C. Not flexible
D. Persistent
ANSWER: C
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21. Which among the following aspects affects an entrepreneur's perception of feasibility?
A. Locus of control
B. Learning style
C. Perceived desirability
D. Self-efficacy
ANSWER: C
22. _____ includes initiative and risk taking, as well as competitive aggressiveness and
boldness.
A. New business venturing
B. Self-renewal
C. Innovativeness
D. Proactive Behavior
ANSWER: A
23. In the creativity and innovation matrix, what is a 'medium level of creativity' and a 'medium
level of innovation' referred to as?
A. Winner
B. Loser
C. Mediocre
D. Average
ANSWER: D
24. ______between people in the personal contact network play an important communications
role, enabling the entrepreneur to identify opportunities that are not evident to others.
A. Good relations
B. Weak ties
C. Strong ties
D. Unique connections
ANSWER: C
25. Social innovation refers to:

A. the introduction of new social practices, activities or ways of organizing.
B. the introduction of novelties; the alteration of what is established by the introduction
of new elements or forms.
C. new designs, processes, marketing approaches, or a new way of conducting
training.
D. the means by which entrepreneurs exploit change as an opportunity for a different
business or service.
ANSWER: A
26. EDP (Entrepreneurship Development Programmes) is required to help:

A. Existing entrepreneurs
B. First generation entrepreneurs
C. Future generations entrepreneurs
ANSWER: B
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27. Which of these statements best describes the context for entrepreneurship:
A. Entrepreneurship takes place in small businesses
B. Entrepreneurship does not take place in social enterprises
C. Entrepreneurship takes place in a wide variety of contexts
D. Entrepreneurship takes place in large businesses
ANSWER: C
28. Which of the following is an internal factor that influences entrepreneurs?

A. Technological Capacity
B. Social environment
C. Political environment
D. Economic condition
ANSWER: A
29. If an entrepreneur has an internal locus of control, this means that he/she:
A. has a high need for achievement
B. believes that success or failure depends on his/her own actions.
C. feels comfortable in an unstructured situation
D. believes fate is a powerful force
ANSWER: B
30. The entrepreneur who is committed to the entrepreneurial effort because it makes good
business sense is classed as a/an_____________________
A. inventor
B. opportunist
C. hacker
D. craftsman
ANSWER: B
1. How you link Entrepreneurship and Innovation.

2. What is difference between Entrepreneurship and Innovation?
3. What is difference between Innovation and Creativity?
4. How Innovation drives Entrepreneurship? Explain.
5. Explain how implementing “McClelland’s theory of Motivation” leads to Entrepreneurship
6. Explain Psycho-Theory- Hagen’s Theory helps in understanding Entrepreneurship?
7. Why study of Psycho- theories helps us in Entrepreneurship?
8. What is Corporate Social Responsibility?
9. Does taking care of Social Responsibility help Entrepreneurship?
10. Write a note on Directorate of Industries and DICs for promoting Entrepreneurship
11. Write a note on role and functions of NISBUD for promoting Entrepreneurship
12. What is Employee Development Program (EDP)?
13. What is role of EDP in promoting Entrepreneurship?
14. Discuss the need and significance of EDPs.
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15. List the various Institutions carrying out EDPs.
16. What is role of Small Industries Development Organizations (SIDOs) in carrying out
EDPs?
17. What is role of Accelerators and Incubators in EDPs?
18. What are activities carried in Stimulatory Phase or Initial Phase of EDPs
19. What are activities carried in Support Phase or Second Phase of EDPs
20. What are activities carried in Sustenance Phase or Final Phase of EDPs
21. How National Institute of Small Industry Extension Training (NISIET) and other
Entrepreneurial Development Institutes helping in various EDPs.? Write brie
22. What is role of Govt. in EDPs, write briefly.
23. Write the type of Institutes carrying out EDPs?
24. How EDPs are organized?
25. Why EDPs now has become part of Entrepreneurship Eco-System?
26. Write a short-note on weakness of EDP.
27. Explain the relevance of EDP Cell in brief.
28. What is business incubator?
29. What do you understand by technical analysis?
30. What do you understand by tax holiday for entrepreneurial ventures.
1. Explain the main institutions engaged in the training and development of entrepreneurs in
India and Nature of trainings imparted by them.
2. What do you understand by entrepreneurial motivation? Explain the factors which motivate
the development of entrepreneurs.
3. “EDP is a process of entrepreneurial grooming. “Comment at the statement. Explain
through various types of EDP Programs.
4. What is achievement motivation? Is it essential ingredient for entrepreneurship? Explain
various Psychological theories of motivation which explain the reasons of Entrepreneurial
behavior.
5. Who is an innovator? What are the principles and Process of innovation?
6. a. “Innovation is one of the most important functions of an entrepreneur”. Comment on the
statement and cite examples for it.
b. “Developing countries need imitative rather than innovative entrepreneurs. Do you agree?
Give reasons for your answer.
7. Comment on the statement that creativity is a pre-requisite to innovation and explain the
creative process.
8. What Account for the major problems faced by women entrepreneurs in India. State the
various schemes introduced by the government for the development of women
entrepreneurs.
9. “Entrepreneurial behaviour is the result of an interaction of several internal and external
factors”. Explain the statement. What is the behavioral pattern of entrepreneurs?
10. “The initiative and intentions of an individual are diverted by his ambitions”. In the light
of this statement, describe the ambitions which inspire people to take up enterprise. Also
explain the theories behind the work.
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11. Do you agree with the view that entrepreneurs are born and not made? Evaluate the
relevance of entrepreneurial development programme in this context?
12. Enumerate the characteristics of creative people and discuss what makes an entrepreneur
creative.
13. A product to be produced or service to be given may be suitable for one entrepreneur may
not be suitable for all. Justify your answer with examples.
14. What is the role of EDP in entrepreneurship development? What are the activities/stages
of EDP program? What areas are included in EDPs in India
15. What are the various sources of getting new ideas? How do you select the new ideas?
Explain.
16. What are the project ideas/business opportunities? What are sources of information for
them? What criteria are used to scan these opportunities to select few of them?
17. Explain the sources of information in detail and how they help in idea generation for
starting up a small-scale enterprise.
18. How creativity and innovation can lead to ideas about new product development and
entrepreneurial opportunities?
19. Explain the various problems faced by new ventures.
20. Discuss the slow growth of new entrepreneurship in India despite the potential of India.
21. Explain various environment pollution related clearances while setting a small scale
business unit.
22. Why today organizations give emphasis on the development of human resource into
competitive advantage?
23. “Diversification may be more risky as compared to expansion”. Discuss. What are the
practical problems faced in expansion and diversification.
24. List some of the best practices in New Product development in the context of
entrepreneurial firms?
25. What all steps Govt. has taken to help Start-ups in new and innovative areas?
26. Explain the needs and objectives of EDP for a developing country like India.
27. Explain in detail with a diagram the entrepreneurial development cycle.
28. Explain the role of government in organizing EDP’s critical evaluation.
29. What are the various forms of ownership. Explain each of these in detail.
30. Explain the relevance of Entrepreneurial Development Programmes.
UNIT – 4
1. _______________ involves having a foreign purchaser in the local market or using an

export management firm.
A. Direct Exporting
B. Indirect Exporting
C. Management Contracts
D. Turn-Key Projects
ANSWER: A
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2. The ______________measures the payments that flow between any individual country
and all other countries.
A. International Business
B. Economies of Scales
C. Balance of Payment
ANSWER: C
3. Which of the following statements is FALSE regarding the role of the customs agency of
a government?
A. It deals with smuggling operations.
B. It is increasingly involved in helping protect against foreign terrorist attacks.
C. It deals with the administration of certain navigation laws and treaties.
D. It approves and declines migrant work visas.
ANSWER: A
4. A foreign merchant who purchases the products from the manufacturer and sells them at a
profit is called a:
A. customs agent.
B. distributor.
C. sales representative.
D. commission agent.
ANSWER: B
5. In _______________, the exporter sells goods directly to or through an independent

domestic intermediary in the exporter’s home country that exports the products to foreign
markets.
A. direct selling
B. indirect selling
C. multilevel marketing
D. global resource planning
ANSWER: A
6. All of the following are major types of indirect intermediaries EXCEPT:

A. the export management company
B. the export trading company
C. export agents
D. distributors
ANSWER: D
7. A document that is a receipt for goods delivered to the common carrier for transportation,
a contract for the services rendered by the carriers, and a document of title is known as
a(n):
A. export license.
B. commercial invoice.
C. consular invoice.
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D. bill of lading.
ANSWER: D
8. A bill for goods issued by the seller that contains the description of the goods, the address
of the buyer and seller, and delivery and payment terms is known as a:
A. bill of lading.
C. shipper's export declaration.
D. certificate of origin.
ANSWER: B
9. Countries often use _______________ to determine the specific tariff schedule for imports;
it is a document that indicates where products originate.
A. commercial invoice
B. shipper's export declaration
C. bill of lading
D. certificate of origin
ANSWER: D
10. A document that controls exports and is used to compile trade statistics is known as a:
A. bill of lading.
C. certificate of origin.
D. shipper's export declaration.
ANSWER: D
11. From the exporter’s point of view, all of the following are major issues that relate to the
financial aspects of exporting EXCEPT:
A. the methods of payment
B. the financing of receivables
C. insurance
D. intermodal transportation
ANSWER: B
12. Which of the following basic methods of payments is the least secure in terms of security
to the exporter?
A. letter of credit
B. draft or bill of exchange
C. open account
D. Cash before shipment
ANSWER: C
13. Which of the following major issues DOES NOT relate to the financial aspects of
exporting?
A. the price of the product
B. the method of payment
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C. location of production
D. terms of payment
ANSWER: C
14. A letter of credit:

A. is issued by a credit agency to a bank.
B. cannot be amended.
C. is more secure than cash in advance.
D. obligates the importer's bank to honour a draft presented to it.
ANSWER: D
15. A confirmed letter of credit:

A. obligates the importer's bank to honour a draft presented to it.
B. obligates the exporter's bank to honour a draft presented to it.
C. cannot be amended.
D. only has the confirmed guarantee of the importer’s bank.
ANSWER: D
16. A revocable letter of credit:

A. obligates the exporter's bank to honor a draft presented to it.
B. can only be amended if all the parties involved agree.
C. can be amended by any of the parties involved at any point.
D. obligates the importer's bank to honor a draft presented to it.
ANSWER: C
17. An irrevocable letter of credit:

A. can only be amended if all parties involved agree.
B. is issued by an irrevocable credit agency.
C. can be amended by any of the parties involved at any point.
D. obligates the exporter's bank to pay interest to the importer.
ANSWER: A
18. The distinction between an "entrepreneur" and "small business owner" , if made, revolves
around:
A. really nothing; they are truly one and the same
B. the Small Business Administration definitions
C. whether the business is an Internet based one or not
D. the risk taking or re-invention of a business vs. someone who "simply" starts a
business or buys an existing one.
ANSWER: D
19. One reason for the growth in small businesses relates to the trend for larger business to
downsize by contracting with smaller firms to do many of the functions once done
internally. This is referred to as:
A. concentrating
B. outsourcing
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C. specializing
D. entrepreneuring
ANSWER: B
20. The technical characteristics of the small business would include all of the following
except:
A. independently managed
B. owned by an individual or a small group of investors
C. based locally, even though the market might be widespread
D. significant influence in its industry
ANSWER: D
21. Which of the following might be termed a disadvantage faced by the small business?
A. greater flexibility
B. greater ability to serve specialized markets
C. extreme personal commitment of the owner
D. more personal service
ANSWER: C
22. The financial assistance to small business provided by the State Finance Corporation the
form of:
A. direct loans
B. guidance in locating lenders
C. loan guarantees
D. assistance in filling out paperwork
ANSWER: A
23. Why are small businesses important to a country's economy?

A. They give an outlet for entrepreneurs.
B. They can provide specialist support to larger companies.
C. They can be innovators of new products.
D. All the above.
ANSWER: D
24. Which of the following factors is the most important in forcing Indian companies to focus
on new product development and increased productivity?
A. Entrepreneurship
B. Hyper competition
C. Governmental laws
D. Organizational culture
ANSWER: B
25. The first step in the small business development process is:
A. Planning
B. Organizing
C. Controlling
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D. Retaining
ANSWER: A
26. An entrepreneurial team is:

A. a group of people who work within a corporation to launch new products.
B. a group of people who join together to develop and market a new product.
C. a group from the Small Business Administration which consults with small
business owners.
D. a group of managers who get together to find solutions to problems.
ANSWER: B
27. Indrayani Jungle wants to start a small business importing some products from her native
Kenya. Before she starts, some good advice to Indrayani would be:
A. talk to others who have been or are in the import business.
B. get a loan right away.
C. find a business to buy as soon as possible.
D. incorporate immediately
ANSWER: A
28. An entrepreneur doing business within the national border is called:

A. International entrepreneurship
B. Intrapreneurship
C. Domestic entrepreneurship
D. Imports
ANSWER: C
29. Which one of the following best represents the environment of an entrepreneurial oriented
organization?
A. Corporate culture
B. Entrepreneurial culture
C. Intrapreneurial culture
D. Traditional culture
ANSWER: B
30. Which one of the following is the main problem for the entrepreneur in the beginning stages
of creating a new venture?
A. Lack of experience
B. Limited resources
C. Lack of education
ANSWER: A
1. SSI plays dynamic role in economic development of India. Comment.

2. Discuss the importance of women Entrepreneurs in Society?
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3. Why Entrepreneurship necessary in Economic Development.
4. Relate Entrepreneurship and Economy of a country.
5. What is Economic Development of a country?
6. What is role of Entrepreneurship in Economy?
7. Why Central and State Governments give incentives to Entrepreneurs?
8. What is an achievement motivation force that causes entrepreneurial growth in a country?
9. How entrepreneurs lead to the economic development of a country?
10. How Entrepreneurship helps in bringing social stability?
11. Do promotion of Entrepreneurship in backward regions solve problem of Regional
Balance? How?
12. Do you think Entrepreneurship has role in export promotion? Justify.
13. Do you think Entrepreneurship has role in import promotion? Justify
14. How Entrepreneurship can complement Economic Growth?
15. How Entrepreneurship can complement Economic Growth?
16. How Entrepreneurship can supplement Economic Growth?
17. What is role of State Governments in Entrepreneurship Development?
18. What is role of Central Government in Entrepreneurship Development?
19. How level of Entrepreneurial activity is barometer of Economic Growth of a country?
20. How ease in business in a country helps in growth of economy? Explain through examples.
21. What is contribution of Startups in growth of Indian Economy?
22. How innovations and Economy are linked.
23. Why Innovation by Private Enterprises is critical to leap frog in growth of economy?
24. What role Technology Startups are playing in forex earnings?
25. Do you think various Hackathons (Innovative Technology Competitions) organized by
State and Central Govts. and other associations in future will lead to major Growth for
India? Justify.
26. Explain the role of entrepreneur in economic development.
27. How export marketing helps in the upliftment of startups in India.
28. How does an entrepreneur act as an innovator?
29. What do you understand by the term Forex Earnings?
30. Write a short note on entrepreneur as an innovator and risk-taker.
1. “Entrepreneur is the catalyst in the process of economic development”. In the light of this
statement, explain the role of entrepreneurship in the economic development.
2. “Self-employment is the best method of solving the problem of growing unemployment in
India”. Do you agree? Suggest a suitable strategy for the identification and development of
entrepreneurs.
3. How entrepreneurship helps in the Economic development of a country? What factors
have led to Entrepreneurial growth in our country? Give examples of few successful
entrepreneurs you have come across and list their important characteristics you have noted?
4. How does an Entrepreneur contribute to the economy and the society? Why is
Entrepreneurship important to Society?
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5. Discuss the role of an Entrepreneur in bringing about Economic Growth of a country. How
economic growth takes place with the growth of Entrepreneurship in any country? Explain
with examples.
6. Discuss the role of entrepreneur in Export and Import Substitution in Indian context.
7. What steps are involved in doing export from our country? What steps are involved in
doing export our country? Discuss in brief.
8. Discuss the measures taken by the government to achieve balanced regional development
in the country through promoting Industrialization. Do you find them satisfactory?
9. In the light of "Make in India" call of the Prime Minister of India discuss the role an
entrepreneur.
10. Describe various incentives that are provided to the entrepreneurs engaged in exports.
11. “Entrepreneur is the catalyst in the process of economic development”. In the light of this
statement, explain the role of entrepreneurship in the economic development.
12. On the basis of your observation, do you believe that entrepreneur in your society are living
upto their social responsibilities.
13. Do you think that reservation policy is beneficial to the growth of small-scale sector?
14. Give an account of the role of Government in developing rural entrepreneurship in India.
15. How can the educated unemployed youth be motivated to set up new units in backward
areas of the country?
16. What assistance EDI is providing to entrepreneurs in India? What are the activities and
functions of EDI?
17. Give a critical appraisal of industrial estates in promoting Small business in India.
18. How export marketing helps in the upliftment of various industries in India.
19. Explain the institutions set up in India for promoting Export marketing?
20. Discuss various procedure formalities and documentation for export marketing in small
businesses?
21. What is role of Export Processing Zone (EPZ) in promoting exports?
22. What is role of EXIM Bank in promoting exports?
23. What are various export promotion councils doing to promote exports?
24. What is MSME’s role in economic development of the country?
25. Give a critical appraisal of industrial estates in promoting Small business and Exports in
India.
26. Explain how entrepreneurial ventures help in balanced regional development of industries.
27. How do entrepreneurial ventures help in export promotion? Explain in detail.
28. Explain the role of entrepreneurial ventures in bringing out social stability in the economy.
29. How do entrepreneurial ventures lead to generation of employment opportunities in the
country?
30. Explain the role of an entrepreneur in the economic growth of a nation as an innovator?
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QUESTION BANK
GOODS AND SERVICE TAX
BBA - 309
123
QUESTION BANK
GOODS AND SERVICE TAX - BBA 309
BBA -V
UNIT I
1. The concept of Goods and Services Tax (GST) is originated in………..

A. Canada
B. USA
C. Britain
D. Germany
ANSWER: A
2. Which of the following is statement is not correct about GST?

A. GST is like a last-point retail tax. GST is going to be collected at point of Sale.
B. GST will abolish all the direct tax levied in India .
C. It will be implemented from 1 July, 2017 throughout the country.
D. It will unified the tax structure in India
ANSWER: B
3. Which of the following tax will be abolished by the GST?

A. Service Tax
B. Corporation tax
C. Income Tax
D. Wealth Ta
ANSWER: A
4. Which of the following tax rate is not applicable under the GST?
A. 5
B. 12
C. 18
D. 25
ANSWER: D
5. GST will be levied on………………...

A. Manufacturers
B. Retailers
C. Consumers
D. All of the above
ANSWER:D
6. What kind of Tax is GST?

A. Direct Tax
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B. Indirect Tax
C. Depends on the type of goods and services
ANSWER: B
7. Who is the head of the GST council?

A. Shashi Kant Das
B. Amit Mitra
C. Arun Jaitley
D. Hasmukh Adhia
ANSWER:C
8. Which constitutional amendment is done to pass the GST bill?

A. 101st
B. 120th
C. 122nd
D. 115th
ANSWER: A
9. Which of the following good will not be covered under the GST bill?
A. Cooking gas
B. Liquor
C. Petrol
D. All of the above
ANSWER:D
10. Which of the following is the main motive of government behind the introduction of GST.
A. To bring tax uniformity in the country
B. To increase government revenue
C. To replace all the indirect tax
D. All of the above
ANSWER: B
11. GST stands for

A. Goods and Service Tax
B. Goods and Supply Tax
C. Government Service Tax
D. General Sales Tax
ANSWER: A
12. In India GST became effective from_________________

A. 1st April,2017
B. 1st January,2017
C. 1st July,2017
D. 1st March,2017
ANSWER:C
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13. India has got____________ mode of GST.
A. Singular
B. Dual
ANSWER: B
14. GST is a ____________________ based tax on consumption of goods and services.

A. Destination
B. Duration
C. Destiny
D. Development
ANSWER: A
15. What does “I” stand for in IGST?

A. Integrated
B. International
C. Intra
D. Internal
ANSWER: A
16. How many types of taxes are there in India GST?

A. 2
B. 3
C. 4
D. 5
ANSWER: B
17. First announcement for introduction of GST arose in

A. 2004
B. 2005
C. 2006
D. 2007
ANSWER:C
18. What are the taxes levied on intra-state supply of goods?

A. CGST
B. SGST
C. CGST and SGST
D. IGST
ANSWER: C
19. What type of tax will be levied on import of goods?

A. CGST
B. SGST
C. CGST and SGST
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D. IGST
ANSWER: D
20. HSN code stand for

A. Harmonised System of Nomenclature
B. Home State Number
C. Host State Number
D. Hall State Number
ANSWER: A
21. India has chosen dual mode of GST same as ____________.

A. USA
B. UK
C. CANADA
D. CHINA
ANSWER: C
22. India GST model has ____________ rate structure.

A. 3
B. 2
C. 5
D. 4
ANSWER: 4
23. SAC stand for ____________.

A. Service Accounting Code
B. Software Accounting Code
C. System Accounting Code
D. Service Application Code
ANSWER: C
24. Can a person apply for pan without registration?

A. YES
B. NO
ANSWER: B
25. IGST is payable when the supply is ---

A. Interstate
B. Intra-state
C. Intra- UT
D. All of the above
ANSWER: A
1. What do you mean by indirect tax?

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2. What are the various types of indirect taxes?
3. What are the taxes which have been subsumed under GST?
4. What was the need to bring GST in India?
5. What was the constitutional amendment for introducing GST?
6. What are the acts passed by the parliament to implement GST?
7. What are the rules passed by the parliament to implement GST?
8. What are the benefits of GST?
9. Give historical perspective of GST.
10. What was the need to bring constitutional amendment for introducing GST?
11. What are the salient features of GST?
12. State the importance of GST.
13. Who are the members of GST council?
14. What do you mean by taxable event?
15. Who is considered as a taxable person under GST?
16. What do you mean by related person under GST?
17. What will be the status of Tobacco products under the GST regime?
18. Who is liable to pay tax under GST regime?
19. What is the guiding principle of GST council?
20. What will be the status of alcohol under the GST regime?
21. State the meaning of goods as per GST act.
22. State the meaning of services as per GST act.
23. Explain Article 246 of Constitution of India.
24. Explain article 246A inserted by constitution under GST.
25. What do you mean by IGST?
II. LONG ANSWER TYPE QUESTIONS:
1. What are the commodities proposed to be kept outside the purview of GST?
2. Who are the persons to be considered as distinct persons under the concept of GST?
3. Who are the persons to be considered as related persons under the concept of GST?
4. Distinguish between GST and other taxes.
5. Who should be included under the GST council?
6. What are the various drawbacks of GST?
7. Enlist the various advantages of GST.
8. State briefly the basic requirements of principle of natural justice in the context of
adjudication in indirect taxes.
9. State the powers of Central Government in the area of taxation, as per the Constitution of
India.
10. Bopara & Co., which has heavy indirect taxes outlay, wishes to know the situations in
which it can file a revision application with the Central Government. Please outline the
various situations.
11. What is the difference between short levy and short payment?
12. Explain the concept of CGST.
13. Explain the concept of IGST.
14. Explain the concept of SGST.
15. State the major benefits that accrued because of the introduction of GST.
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16. What are final GST rate slabs for various products?
17. What are the major differences between the UPA’s GST and the NDA’s GST?
18. What are the taxes that GST replaces?
19. What will be the short-term impact of GST?
20. What are the taxes that GST replaces?
21. What will be the short-term impact of GST?
22. What is a constitutional amendment?
23. What is the Empowered Committee under GST?
24. Why is Dual GST required?
25. Which authority will levy and administer GST?
UNIT II
1. Zero Rated Supplies include:

A. Exports
B. Imports
C. SEZs
D. Both A and C
ANSWER: D
2. GSTN stands for:

A. Goods and Services Transport Nation
B. Goods and Service Tax Network
C. Goods and Society Tax Network
D. Goods and Service Tax Net
ANSWER: B
3. 3. What is taxable event under GST?

A. Supply of goods
B. Supply of services
C. Supply of goods and services
ANSWER: C
4. Is reverse charge mechanism applicable to both goods and services?

A. YES
B. NO
ANSWER: A
5. Is composition scheme available to people making inter-state supplies?

A. YES
B. NO
ANSWER: B
.
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6. Goods and Service tax is applicable to:
A. Whole of India
B. Whole of India except Jammu and Kashmir
C. Whole of India, except Jammu and Kashmir and Union Territories of Dadra,
Nagar Haveli, Daman & Diu
D. Partially in India
ANSWER: A
7. Can the taxable person under composition scheme avail the input tax credit?
A. YES
B. NO
ANSWER: B
8. Can the composition tax be collected from customers?

A. YES
B. NO
ANSWER: B
9. Where the supplier involves a movement of goods, the place of supply shall be determined
by -------.
A. Movement of goods
B. Location of goods at the time of final delivery
C. Supplier’s location
D. Recipients’ location
ANSWER: B
10. Which of the following tax is not subsumed in GST?

A. VAT
B. Stamp Duty
C. Entry Tax
D. Entertainment Tax
ANSWER: B
11. What are the taxes levied on inter-state supply of goods?

A. CGST
B. SGST
C. CGST and SGST
D. IGST
ANSWER: D
12. What is the maximum rate prescribed under CGST?

A. 5
B. 10
C. 30
D. 20
ANSWER: D
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13. What is the maximum rate prescribed under UTGST?
A. 5
B. 10
C. 30
D. 20
ANSWER: D
14. What is the maximum rate prescribed under SGST?

A. 5
B. 10
C. 30
D. 20
ANSWER: D
15. How will the goods and services be classified under GST regime?
A. SAC/HSN CODE
B. HSN
C. SAC
ANSWER: A
16. Is there any ceiling limit prescribed for rate under IGST?
A. 12
B. 18
C. 28
D. 40
ANSWER: D
17. IGST deals with

A. Composition scheme
B. Time of supply
C. Service tax on imported services
D. All of the above
ANSWER: C
18. The turnover limit of Rs. 50 Lakh for composition scheme is not applicable to the state of
A. Himachal Pradesh
B. Assam
C. Uttarakhand
ANSWER: C
19. IGST tax levy means

A. Within state
B. Between two states
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C. Only A
ANSWER: B
20. IGST levy can be levied

A. Centre
B. State
C. Union Territory
D. Both a and b
ANSWER: A
21. A person is having multiple business requires registration

A. Single
B. Each business separately
C. Either A or B
ANSWER: B
22. GSTN stands for:

A. Goods and Services Transport Nation
B. Goods and Service Tax Network
C. Goods and Society Tax Network
D. Goods and Service Tax Net
ANSWER: B
23. What is taxable event under GST?

A. Supply of goods
B. Supply of services
C. Supply of goods and services
ANSWER: C
24. Zero rated supply includes supplies made-

A. By SEZ unit in India
B. To SEZ unit in India
C. Both (a & (b) above
ANSWER: B
25. With the introduction of GST, imports will be—

A. more expensive
B. cheaper
C. neutral with no change
ANSWER: A
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1. What do you mean by Credit Note?

2. What do you mean by a Debit Note?
3. What do you understand by a tax invoice?
4. Explain records to be maintained under the GST regime.
5. Why were states unhappy with the implementation of GST?
6. Is GST an accepted System of taxation across the world?
7. Has the GST impacted other Taxes like Income Tax or Corporate Tax?
8. Have all goods and services been covered Under the GST?
9. Have the rates of goods risen in case of implementation of GST making It costlier?
10. Where is the GST going to be collected?
11. Who bears the final tax in the process?
12. What Is the main change that has been witnessed with the introduction of the GST?
13. How will imports be taxed under GST?
14. How will Exports be treated under GST?
15. What are the stages covered in the GST?
16. How GST can be levied In India with an effective administration?
17. Even After implementation of GST, should people need to pay Income Tax?
18. What are the best outcome customers can expect, in case of GST?
19. Describe in detail why GST is being opposed by States?
20. How will the rules for administration of CGST and SGST be framed?
21. How are the legislative steps being taken for CGST and SGST?
22. Why does introduction of GST require a constitutional amendment?
23. Will cross utilization of credits between Goods and Services be allowed under GST
Regime?
24. How Will Imports Be Taxed Under GST?
25. What major constitutional amendments have been introduced under the indirect taxation
system over the years?
1. What is the time period prescribed for issue of tax invoice for supply of taxable goods in a
normal case?
2. What is the time period prescribed for issue of tax invoice for continuous supply of taxable
goods?
3. Can multiple invoices be clubbed to be generate one e-way bill?
4. Discuss briefly the provisions conferring general exemption to small service providers in
the context of levy of goods and service tax.
5. Whether a goods and service tax provider can make payment of service tax act and file
returns before the grant of registration by the proper officer?
6. What should be done in case of change of place in case of goods and service tax act?
7. How is provisional assessment finalized under goods and service tax act?
8. Under what situations, provisional assessment is resorted to under goods and service tax
act?
9. Discuss the provisions of job work.
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10. Discuss the various rates of job work.
11. What steps are to be taken by proper officer in case explanations provided are not
satisfactory?
12. When should a tax invoice be issued under GST?
13. Explain the various types of tax invoice.
14. Explain different types of assessment under GST.
15. Discuss the procedure of job work in detail.
16. When should a debit note be issued under GST?
17. When should a credit note be issued under GST?
18. What is the threshold limit for registration in case of job worker? What are the obligations
to be followed by job worker under GST regime?
19. What details are mentioned in tax invoice.
20. What accounts have been specified under GST?
21. What are the different types of recorded under GST regime?
22. Explain the various provisions of consolidated tax invoice.
23. Explain the various provisions of revised tax invoice.
24. Explain the various provisions of bill of supply.
25. Explain the various provisions of receipt voucher.
UNIT III
1. Compensation to states under GST (Compensation to States) Act, 2017 is paid by

A. Central Government from consolidated fund of India
B. Central Government from GST compensation fund of India
C. Central Government directly from the collection of compensation cess
D. GST Council under Constitution of India.
ANSWER: B
2. While computing compensation to states, tax revenue of this tax/ these taxes is excluded
A. petroleum crude, diesel, petrol, ATF and natural gas
B. Alcohol for human consumption
C. entertainment tax collected by local authorities
D. All of the above
ANSWER: D
3. Input tax credit on compensation cess paid under GST (Compensation to States) Act, 2017.
A. is not available
B. is available
C. is available but not fully
D. is available after one year
ANSWER: B
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4. Input tax credit under GST (Compensation to States) Act, 2017 includes GST
Compensation Cess charged on any supply of
A. Goods and/or services,
B. Goods imported
C. GST Compensation Cess payable on reverse charge basis;
D. All of the above
ANSWER: D
5. Maximum rate of CGST prescribed by law for intrastate supply made is----
A. 18%
B. 20%
C. 40%
D. 28%+cess
ANSWER: B
6. Input tax credit on Compensation cess paid under GST (Compensation to States) Act, 2017
is available for payment of
A. IGST only
B. IGST and CGST only
C. compensation under GST (Compensation to States) Act
ANSWER: C
7. IGST is payable when the supply is ---

A. Interstate
B. Intra-state
C. Intra- UT
D. All of the above
ANSWER: A
8. Zero rated supply includes supplies made-

A. By SEZ unit in India
B. To SEZ unit in India
C. Both (a & (b above
ANSWER: B
9. With the introduction of GST, imports will be—

A. more expensive
B. cheaper
C. neutral with no change
ANSWER: A
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10. The first committee to design GST model was headed by
A. Vijay Kelkar
B. Asim Das Gupta
C. Dr. Chidambaram
ANSWER: B
11. First discussion paper (FDP) which formed the basis for GST in 2009 was released by
A. Union Finance Ministry
B. Dr. Manmohan Singh
C. GST Council
D. Empowered Committee
ANSWER: D
12. Roll out of GST requires constitutional amendment because-

A. existing laws were cascading
B. the powers of levy were exclusive
C. there are separate laws for goods and services
D. All of the above
ANSWER: D
13. Works contract under GST is goods used in work relating to-
A. Immovable property
B. Both movable and immovable property
C. Immovable property treated as supply of service
D. Immovable property treated as supply of goods
ANSWER: C
14. IGST deals with

A. Composition scheme
B. Time of supply
C. Service tax on imported services
D. All of the above
ANSWER: C
15. The turnover limit of Rs. 50 Lakh for composition scheme is not applicable to the state of
A. Himachal Pradesh
B. Assam
C. Uttarakhand
ANSWER: C
16. A supplier is liable to get registered under GST if his aggregate turnover in a financial year
crosses Rs. 20 lakh in a state or UT other than special category states if he is-
A. an interstate supplier
B. an intra-state supplier
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C. Electronic commerce operator
D. Person liable to pay GST under reverse charge
ANSWER: B
17. Registration under GST is not compulsory to-

A. Casual taxable person
B. Input service distributor
C. Non-resident taxable person
ANSWER: D
18. One of the following states does not fall under special category given under Art. 279A of
the Constitution
A. Himachal Pradesh
B. Uttarakhand
C. Chhattisgarh
D. Jammu & Kashmir
ANSWER: C
19. Exemption from registration is available to

A. Central & State Govt. Departments
B. Agriculturists
C. a) & b) above
ANSWER: B
20. Address for delivery

A. Recipient address mentioned in the tax invoice
B. Recipient address mentioned in the delivery challan
C. Recipient address not necessary
D. Recipient address mentioned in the Gate pass
ANSWER: A
21. When President assent was obtained for central GST?

A. 18th April 2017
B. 22nd April 2017
C. 5th April 2017
D. 12th April 2017
ANSWER: D
22. What is applicability of GST?

A. Applicable all over India except Sikkim
B. Applicable all over India except Jammu and Kashmir
C. Applicable all over India
D. Applicable all over India except Nagaland
ANSWER: C
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23. Money means
A. Indian legal tender
B. Foreign currency
C. Cheque/promissory note
D. All the above
ANSWER: D
24. Non-taxable territory means

A. Outside taxable territory
B. Inside taxable territory
C. Inter-state taxable territory
ANSWER: A
25. Person includes

A. Individual
B. HUF
C. LLP
D. All the above
ANSWER: D
1. How to file GST Return Online?

2. What do you mean by Tax Collected at Source (TCS)?
3. What details of outward supplies are required to be filed under GSTR-1?
4. Who is required to file details of outward details?
5. What is the procedure for filing GST details?
6. Who can file quarterly GST returns?
7. How many GST returns are there?
8. Who are liable to file return (GSTR-2)?
9. How to prepare GST return?
10. Is monthly return required to be filed by the person opting to pay tax under the composition
scheme?
11. What are the basic information that need to be furnished in GSTR 4?
12. How to fill the GSTR-4 form?
14. How should a person who opts in or opts out of composition scheme file returns?
15. A person opting to pay tax under the composition scheme receives inputs/input services
from an unregistered person. Will the composition dealer have to pay GST under reverse
charge? If yes, in what manner?
16. What is the form in which an intimation for payment of tax under composition scheme
needs to be made by the taxable person?
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17. A person registered under existing law (Central Excise/Service Tax/VAT) and who has
been granted registration on a provisional basis wants to opt for composition scheme. How
and when can he do that?
18. What are the compliances which a provisionally registered person opting to pay tax under
the composition levy need to make?
20. Explain section-39 0f furnishing returns.
21. What is the need for filing a return when deposit of TDS has already been made?
22. Mr. S has deducted GST amounting to Rs 50,000/- in the month of Mar’19. He filed return
on 16.4.2019. Is he liable to pay a late fee?
23. How can a deductor file FORM GSTR-7?
24. Is there any Offline Tool for filing Form GSTR-7?
25. Can the date of filing of FORM GSTR-7 be extended?
1. How GST returns will be filed?

2. How are the disputes going to be resolved under the GST regime?
3. Describe in detail the various types of GST returns.
4. What are the contributions of IT Technology in The Enforcement of GST Regime?
5. Explain annual returns under GST.
6. Explain First return under GST.
7. Explain final return on cancellation of registration.
8. Explain the details of inward supplies of persons having unique identity number.
9. Explain the provisions of rectification of omission or incorrect particulars in the returns
furnished under Section 39(9).
10. Explain the form and manner of furnishing details of outward supplies.
11. Explain the provisions of levy of late fee for not filing returns on time.
12. Explain the facilitative measures available for filing returns by taxpayers.
13. What are the special features of GST-R 2?
14. What are the type of outward supply details are to be filed in the return?
15. Do composition dealers under the composition scheme need to file GSTR-1? Explain.
16. What are the pre-conditions for filing FORM GSTR-7?
17. What are the modes of signing FORM GSTR-7?
18. What happens after FORM GSTR-7 is filed?
19. Can we file the complete FORM GSTR-7 using Offline Utility?
20. What are the features of FORM GSTR-7 Offline Utility?
21. What are the basic system requirements/ configurations required to use FORM GSTR-7
Offline Tool?
22. I am a tax deductor. I’ve made payment for four different products to one of my suppliers.
Shall I report each payment in four different rows of the 154 offline utility? Explain.
23. I have mistakenly entered rows with the same GSTIN. Should I use the “Delete” option
from the dropdown of “Action” column to delete these rows? Clarify in detail.
24. I’ve uploaded GSTR-7 JSON File and it was processed without error. Do I need to
download the generated file? Explain.
25. How can a supplier download the TDS certificate in FORM GSTR 7A?
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UNIT IV
1. Goods and Service Tax council referred in which section

A. 279A of the constitution
B. 276 of the constitution
C. 277 of the constitution
D. 279 of the constitution
ANSWER: A
2. Weight age of vote for centre at GST council

A. 1/4th of total votes cast
B. 1/3rd of total votes cast
C. ½ of total votes cast
D. Only B
ANSWER: B
3. Weightage of States (combined) at GST council

A. 2/3rd of total votes cast
B. 1/3rd of total votes cast
C. 1/4th of total votes cast
ANSWER: A
4. Who is chairperson of GST council

A. Finance secretary
B. State Finance Minister
C. Union Finance Minister
ANSWER: C
5. Taxable turnover of below Rs.1.5 crore assessee under control of

A. Centre
B. State
C. Both a and b
D. Only c
ANSWER: C
6. Powers to declare certain activities/transactions as neither supply of goods nor of services

A. Schedule I
B. Schedule III
C. Schedule II
D. Schedule IV
ANSWER: B
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7. When GST council constituted
A. 15.09.2016
B. 13.09.2016
C. 12.09.2016
D. 20.09.2016
ANSWER: C
8. Address for delivery is

A. Recipient address mentioned in the invoice
B. Recipient address mentioned in the delivery challan
C. Recipient address not necessary
D. Recipient address mentioned in the Gate pass
ANSWER: A
9. Agriculturist includes
A. Individual or HUF
B. Individual and HUF
C. Partnership
D. All the above
ANSWER: A
10. Associated enterprise is mentioned under

A. Income tax act 1961
B. Companies Act 2013
C. Central GST Act 2017
D. State GST Act 2017
ANSWER: A
11. Appointed day is

A. Date on which the provisions of this Act shall come into force
B. Date on which President assent
C. Date of which both houses passed the act
D. Date on which sent to Finance Ministry
ANSWER: A
12. Deemed exports mentioned in which section

A. Section 137
B. Section 147
C. Section 142
D. Section 145
ANSWER: B
13. Quarter means

A. March
B. September
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C. December
D. All the above
ANSWER: D
14. Taxable levy in case of manufacture under composite scheme

A. Two percent
B. Three per cent
C. One per cent
D. Half per cent
ANSWER: C
15. Whether person opted for composite scheme collect tax under GST
A. No
B. Yes
C. Only A
ANSWER: C
16. Participation of ITC value chain in composite scheme

A. With participation
B. Without participation
C. Either a or b
ANSWER: B
17. Taxes paid on

A. Transaction value
B. Manufacturing cost
C. Both A and B
ANSWER: A
18. ITC available

A. In the course or Furtherance of business
B. Other than business exp
C. Only A
ANSWER: A
19. Input tax credit availability

A. On receipt of goods
B. On payment of taxes paid by supplier to Govt.
C. Taken to manufacturing site or availed services
ANSWER: B
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20. Input tax on capital goods
A. In one instalment
B. Partly five equal instalments
C. Only A
D. Equally 10% every year
ANSWER: C
21. Appellate Tribunal is mentioned in which section?

A. Section 109
B. Section 105
C. Section 103
D. Section 119
ANSWER: A
22. Authorised representative is referred in which section?

A. Section 110
B. Section 116
C. Section 119
D. Section 106
ANSWER: B
23. Common portal is referred in which section?

A. Section 136
B. Section 146
C. Section 143
D. Section 149
ANSWER: B
24. Debit note, and credit note is mentioned in which section?

A. Section 36
B. Section 39
C. Section 34
ANSWER: C
25. Electronic cash ledger and Electronic credit ledger is mentioned in which section?
A. Section 39
B. Section 42
C. Section 49
D. Section 47
ANSWER: C
1. Who can audit returns of GST?

2. What is audit?
143
3. Describe various types of audit under GST.
4. Write a short note on audit by tax authorities.
5. Write a short note on advance ruling.
6. Orders/Decisions under GST can be revised. Enumerate.
7. When can a special audit be initiated?
8. Discuss provisions of arrest.
9. Write a note on role of GSTP.
10. Write a short note on eligibility required to become a GSTP.
11. What are the offences under GST?
12. When can a person claim refund?
13. What is the time limit for refund?
14. Explain the doctrine of unjust enrichment.
15. How would GST be administered In India?
16. What are the major features of the proposed payment procedures under GST?
17. What do you mean by GSTN?
18. What is the role of GSTN in the implementation of GST law in India?
19. What are the major milestones pertinent to GST bill introduction in India?
20. What is tax rate charged on various bankable transactions under GST?
21. What is tax rate chargeable on various commodities like salt and food grain under GST?
22. How will the rules for administration of CGST and SGST be framed?
23. How are the legislative steps being taken for CGST and SGST?
24. What type of GST was proposed to be implemented by the government?
25. How a transaction of goods and services would be taxed simultaneously under Central
GST (CGST) and State GST (SGST)?
1. Describe in detail the different types of audit under GST.

2. Explain the provisions relating to Section 54 under CGST.
3. Explain when the persons are deemed to be guilty of offence.
4. Explain the various types of offences under GST.
5. Explain the process of initiating a special audit.
6. Explain the provisions of offences under GST.
7. Explain the provisions relating to penalties under GST.
8. Explain how people can claim refund under GST.
9. Explain whether or not refunds be withheld under GST.
10. Orders/Decisions under GST can be revised. Enumerate.
11. List down any 15 penalties under GST.
12. Explain AAR under GST.
13. Explain the role of audit conducted by tax authorities.
14. Who is the person responsible to make assessment of taxes payable under the Act?
15. Under what circumstances can provisional assessment be done?
16. Can the proper officer ask for additional documents/clarification upon receipt of request
for provisional assessment? If so how? Whether he has to issue any order for allowing
provisional assessment?
144
17. In case the taxable person does not agree with the discrepancies communicated nor does
he pay tax/interest etc arising out of such discrepancy, what course of action the proper
officer take?
18. State the activities which are not be treated as supply of goods and services under the GST
regime.
19. Explain the doctrine of unjust enrichment.
20. Explain in detail the time frame available for refund under GST.
21. Explain the eligibility conditions to become Goods and Service Tax Practitioner.
22. Explain the responsibilities held by a GSTP.
23. Explain the provisions related to withholding refunds.
24. Explain the provisions relating to Section 122 under GST.
25. Explain the provisions relating to Section 132 under GST.
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MULTIPLE CHOICE QUESTIONS
BASICS OF INCOME TAX LAW
1. The Central Government has been empowered by entry ________________ of the Union list of
schedule VII of the constitution of India to levy tax on income other than agricultural income.
A. 84
B. 82
C. 81
D. 85
2. The Income tax act, 1961 came into force w.e.f........ __________ _
A. Is' April, 1962
B. 31st March, 1961
C. 1st April, 1961
D. None of above
3. Amongst the following _________________ is empowered to levy tax on agricultural income.

A. Central Government
B. State Government
C. Commissioner
D. President
4. Circulars and Notifications are binding on the

A. Central Board of Direct Taxes (CBDT)
B. Assessee
C. Income Tax Appellate Tribunal (ITAT)
D. Income Tax Authorities
5. Supreme Courts precedent in binding on

A. Courts
B. Appellate Tribunals
C. Income Tax Authorities
6. High Court's precedents are not binding on

A. Tribunal
B. Income Tax Authorities
C. Assessee
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D. None of the above.
7. Wherever in the Act the phrase as prescribed appears it means that -

A. Regulations are to be framed is in this respect.
B. Rules have been framed in this respect.
C. Regulations were earlier framed in this respect.
D. Regulations are framed in this respect.
8. Who amongst the following confers on the power to issue circulars and clarifications?
A. ITAT
B. Central Government
C. CBDT
D. State Government
9. Amendments by the finance act are made applicable from

A. First day of next financial year
B. First day of same financial year
C. Last day of same Accounting year
CONCEPT OF CHARGE OF INCOME TAX, PERSON,

ASSESSEE AND EXCEPTIONS TO PREVIOUS YEAR RULE
10. Income Tax is charged in -

A. Financial Year
B. Assessment Year
C. Previous Year
D. Accounting Year
11. A person includes:

A. Only Individual
B. Only Individual and HUF
C. Individuals, HUF, Firm, Company only
D. Individuals, HUF, Company, Firm, AOP or BOI,Local Authority, Every Artificial Juridical
Person
12. As per section 2(31), the following is not included in the definition of 'person'
A. An individual
B. A Hindu undivided family
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C. A company
D. A minor
13. Every assessee is a person, and -

A. every person is also an assessee
B. every person need not be an assessee
C. an individual is always an assessee
D. A HUF is always an assessee
14. Describe the status of the following person (i.e. individual, HUF, Firm, Company etc.) X and Yare
legal heirs of Z. Z died in 2018 and X and Y carry on his business without entering into a
partnership.
A. Firm
B. Limited Liability Partnership
C. Company
D. Body of Individual
15. Assessment year can be a period of :

A. only more than 12 months
B. 12 months and less than 12 months
C. only 12 months
D. 12 months and more than 12 months
16. Year in which income is taxable is known as ___________ and year in which income is earned is
known as ----
A. Previous year, Assessment year
B. Assessment year, Previous year
C. Assessment year, Assessment year
D. Previous year, Previous year
17. The year in which the income is earned is known as

A. Previous year
B. Financial year
C. Both (A) or (B)
18. All assesses are required to follow:

A. Uniform previous year which must be calendar year only
B. Uniform previous year which must be financial year only
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C. Any period of 12 months

D. Period starting from 1st July to 30th June only
19. XYZ LLP falls under which---------- category of person -

A. Individual
B. Partnership firm
C. Company
D. Association of person
20. Municipality of Delhi falls under----- category of person-

A. Artificial juridical person
B. Local authority
C. Individual
D. Association of Person
21. Under Income Tax Act partnership firm includes -

A. Limited liability partnership
B. Limited liability company
C. One person company
D. Association of person
22. A.O.P should consist of :

A. Individual only
B. Persons other than individual only
C. Both individual and non individual persons.
D. None of these
23. Body of individual should consist of :

A. Individual only
B. Persons other than individual only
C. Both individual and non individual persons.
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D. None of these
24. A person becomes a member of HUF by -

A. Contract
B. Agreement
C. Popularity
D. Status
25. In order to be assessed as HUF there should be -

A. Partnership
B. Co-Partnership
C. Co -Parcenership
D. Co-Ownership
26. Section __ of the Income-tax Act, 1961 defines the term 'person' -
A. 4
B. 2(31)
C. 5
D. 2(32)
27. --------------must be one in which two or more persons join in for a common purpose or common
action with the object of earning income or profits or gains.
A. Partnership
B. Co-ownership
C. Body of Individuals
D. Association of Persons
28. Which amongst the following is Artificial Juridical Person?

A. Corporation
B. Local Fund
C. District Board
D. None of these
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29. Previous year is defined in -

A. Section 2(34)
B. Section 2(9)
C. Section 3
D. Section 4
30. Financial year means a year commencing on –

A. 31st March of the period
B. 1" day of the April
C. Mid of the year
D. None of these
31. First previous year in case of a business/profession newly set up on 31-3-2019 would:
A. Start from 1st April, 2018 and end on 31st March 2019
B. Start from 31" March, 2019 and will end on 31st March, 2019
C. Start from 1st January, 2019 and end on 31st December, 2019
D. Start from 1st January, 2019 and will end on 31st March,2019
32. Dr. Ashok commenced medical practice on 1st September, 2018. The previous year for the
profession for the assessment year 2019-20 would be _
A. 1st April, 2018 to 31st March, 2019
B. 1st September, 2018 to 31st March, 2019
C. 1st June, 2018 to 31st March, 2019
D. 1st September, 2018 to 31st January, 2019
33. Income of business commenced on 1st March, 2019 will be assessed in assessment year-
A. 2018-19
B. 2019-20
C. 2020-21
D. 2021-22
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34. A person follows calendar year for accounting. For taxation, he has to follow:
A. Calendar year only :1stJanuary to 31st December
B. Financial year only :1st April to 31st March
C. Any of the Calendar or Financial year as per his choice
D. He will to follow extended year from 1st January to next 31st March (a period of 15
months)
35. In which of the following cases, income of previous year is assessable in the previous year itself:
A. Assessment of persons leaving India
B. A person in employment in India
C. A person who is into illegal business
D. A person who is running a charitable institution
36. In which of the following cases, Assessing Officer has the discretion to assess the income of
previous year in previous year itself or in the subsequent assessment year:
A. Shipping business of non-residents
B. Assessment of Association of Persons or Body of Individuals formed for a particular
event or purpose
C. Assessment of persons likely to transfer property to avoid tax
D. Discontinued business
37. In case of non-residents engaged in shipping business in India income earned during the
financial year is
A. Taxable in India the same financial year
B. Taxable in India the relevant assessment year
C. Not taxable in India in the same financial year
D. Not taxable in India.
38. In case of non-residents engaged in shipping business _____________ freight paid or payable to
the owner or charterer shall be deemed to be total income.
A. 5%
B. 10%
C. 7.5 %
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D. 20 %
39. Which amongst the following is an exception to the previous year rule?
A. Business or Profession newly set up.
B. Where a source of income newly set up.
C. Non-resident engaged in shipping business
40. Income Tax is levied on the ___________ of a person.

A. Total Income
B. Total Income-Debt
C. Gross Total Income
D. Net Income-Debt Perquisites
41. The period of 12 months commencing on the rt day of April every year is known as
____________ _
A. Financial Year
B. Assessment Year
C. Previous Year
D. Accounting Year
42. The charging section of the Income-tax Act, 1961, states that the income earned in a year is
taxable in the next year. This is known as ______
A. Principle of mutuality
B. Previous year rule
C. Financial year rule
D. None of these.
43. Income-tax in India is charged at the rates prescribed by -

A. The Finance Act of the assessment year
B. The Income-tax Act, 1961
C. The Central Board of Direct Taxes
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9
D. The Finance Act of the previous year.
44. A new business was set-up on 1st July, 2018 and trading activity was commenced from 1st
September, 2018, the previous year would be the period commencing from
A. 1st April, 2018 to 31st March, 2019
B. 1st July, 2018 to 31st March, 2019
C. 1st September, 2018 to 31st March, 2019
D. 1st October, 2018 to 31st March, 2019.
CONCEPTS OF INCOME, METHOD OF ACCOUNTING
45. According to section 2(24) definition of 'income' is -------

A. Inclusive
B. Exhaustive
C. Exclusive
D. Descriptive.
46. 'Income' under section 2(24) includes -

(i) The profits and gains of a banking business carried on by a co-operative society with its
members.
(ii) Any advance money forfeited in the course of negotiations for transfer of capital asset.
Choose the correct option with reference to the above statements _
A. Both (i) and (ii)
B. Only (i)
C. Only (ii)
D. Neither (i) nor (ii).
47. Income includes -

A. Profits and gains
B. Profit in lieu of Salary
C. Income from other sources
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10
D. All of the above
48. Income is divided in ___________ heads of Income.

A. 4
B. 5
C. 6
D. 3
49. Income includes -

A. Profits or Gains
B. Capital gains
C. Lottery winnings
D. All of the above
50. The term' income' includes the following types of incomes -

A. ' Legal
B. Illegal
C. Legal and illegal both
D. None of the above,
51. Which of the following income is not included in the term 'income' under the Income-tax Act,
1961 -
A. Profit and gains
B. Dividend
C. Profit in lieu of salary
D. Reimbursement of travelling expenses.
52. Which amongst the following is not a head of Income?

a. Salaries
b. Income from house Property
c. Capital gains
d. Income from exports
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53. Amongst the following which activity will be taxable?

A. Profits & gains of any insurance business
B. Income from specific services provided by carried on by a co-operative society. Trade,
professional or similar association.
C. The profits and gains of any banking business carried on by a co-operative society.
54. AB & Co. received Rs.`2, 00,000 as compensation from CD & Co. for premature termination of
contract of agency. Amount so received is -----
A. Capital receipt and taxable
B. Capital receipt and not taxable
C. Revenue receipt and taxable
D. Revenue receipt and not taxable
55. Subsidy if given as assistance to carry on business already commenced is a -----

A. Revenue receipt
B. Capital receipt
C. It is not a receipt
D. None of these
56. Which of the following is not included in taxable income -

A. Income from smuggling activity
B. Casual income
C. Gifts of personal nature subject to a maximum of `50,000 received in cash
D. Income received in kind.
57. Compensation on account of loss of profit is -

A. Revenue receipt
B. Capital receipt
C. Revenue expenditure
D. Capital expenditure
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58. Out of the following, which of the capital receipt is not taxable:
A. Capital gains of Rs.` 10,00,000
B. Amount of Rs.`5,00,000 won by way of lottery, games, puzzles
C. Amount of Rs.`2,00,000 received by way of gift from relatives
D. Amount of Rs.`1,00,000 received by way of gift from a friend on marriage anniversary
59. In case the Key man insurance policy is taken in name of any other person any sum received on
its maturity by such person shall be taxable under the head -
A. Salaries
B. Profits & Gains of Business or Profession
C. Capital Gains
D. Income from Other Sources
60. Method of Accounting is not relevant for –

A. Salaries
B. Income from House Property
C. Capital Gains
D. All of the above
61. Income-tax in India is charged at the rate(s) prescribed by -

A. The Finance Act
B. The Income-tax Act
C. The Central Board of Direct Taxes
D. The Ministry of Finance.
62. Which of the following is not included in taxable income -

A. Reimbursement of expenses
B. Cash gifts received from non relatives
C. Income from illegal activity
D. Profit on sale of equity shares of unlisted company.
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13
63. The Central Government has notified Income computation and disclosure standards for
computing income under the head Profits and Gains of Business and Profession - .
A. 2
B. 5
C. 8
D. 10
64. An individual is said to have substantial interest in a concern if he or she, along with his or her
relatives, is, at any time during the previous year, beneficial owner of equity shares carrying or
more of the voting power in a company; or entitled to or more of the profits of such concern.
A. 20% ,10%
B. 10% ,20%
C. 10%, 10%
D. 20% ,20%
MODE OF COMPUTATION OF INCOME AND TAX RATES FOR ASSESSMENT YEAR 2019-20
65. Surcharge @ 12 is payable by a domestic company if the total income exceeds.

A. Rs.` 10 lakhs
B. Rs.` 1 crore
C. Rs.` 10 crore
66. Surcharge @ 7 is payable by a domestic company if the total income exceeds.

A. Rs.` 10 lakhs
B. Rs.` 50 lakhs
C. Rs.` 1 crore
D. Rs.` 10 crores.
67. The tax exemption limit for a resident senior citizen is -

A. Up to Rs.` 2,00,000
B. Up to Rs.` 5,00,000
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14
C. Up to Rs.` 1,80,000
D. Up to Rs.` 3,00,000
68. The tax exemption limit for a resident Super senior citizen is -
A. Up to Rs.` 2,00,000
B. Up to Rs.` 5,00,000
C. Up to Rs.` 1,80,000
D. Up to Rs.` 3,00,000
69. Surcharge of 15% is payable by an individual where the total income exceeds:
A. Rs.` 7,50,000
B. Rs.` 8,50,000
C. Rs.` 1,00,00,000
D. None of the three
70. The maximum amount on which income-tax is not chargeable in case a co-operative society is:
A. Rs.` 50,000
B. Rs.` 30,000
C. Rs.` 20,000
D. Nil
71. Additional surcharge (health and education cess) of 4 per cent is payable on-
A. Income tax
B. Income tax plus surcharge
C. Surcharge
D. None of the three
72. What is the maximum amount of income not chargeable to tax in case of AOP /BOI?
A. Rs.` 2,50,000
B. Rs.` 1,45,000
C. Rs.` 10,000
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15
D. None of these.
73. In case of Partnership firm or company and foreign company marginal relief is provided if total
income exceeds ` --
A. . Rs. ` 1 crore
B. Rs.` 10 lakhs
C. Marginal relief
D. None of these
74. The total income is rounded off to the nearest multiple of -

A. Rs.`1
B. Rs.`10
C. Rs.`100
D. Rs.`1,000
75. The MMR of 35.88% for Assessment Year 2019-20 is relevant in case of which of the following
person if income exceed 1crore
A. Individual
B. Association of Persons
C. None of (a) and (b)
D. Both of (a) and (b)
76. If a firm's total Income is Rs.` 1,03,00,000, the marginal relief available to the firm is –
A. Rs.` 3,09,000
B. Rs.` 3,03,000
C. Rs.` 1,60,800
D. None of these.
77. The amount of health and education cess to be collected along with income-tax for assessment
year 2019-20 shall be
A. 1 %
B. 2%
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16
C. 3%
D. 4%
78. In respect of a resident assessee, who is of the age of 60 years or more at any time during the
previous year but less than 80 years on the last day of Previous Year relevant to Assessment
Year 2019-20:
A. Rebate of tax payable subject to a maximum of Rs.20,000.
B. Higher basic exemption of Rs.` 1, 50,000.
C. Higher basic exemption of Rs.` 3, 00,000.
D. Higher basic exemption of Rs.` 1, 35,000.
79. Surcharge of 15% is payable by an Hindu Undivided Family where the total income exceeds:
A. Rs.` 7,50,000
B. Rs.` 8,50,000
C. Rs.` 1,00,00,000
D. None of the three.
80. In case of resident HUF, what is maximum exemption limit for Assessment Year 2019-20 :
A. Rs.` 3,00,000
B. Rs.` 2,50,000
C. Rs.` 5,00,000
D. Rs.` 2,20,000
81. In case of a female individual, who is of 59 years of age, what is the maximum exemption limit
for AY? 2019-20:
A. Rs.` 3,00,000
B. Rs.` 2,50,000
C. Rs.` 5,00,000
D. Nil
82. The income-tax payable by a Resident Individual (aged 30 years) for AY. 2019-20 if his total
income is Rs.`3,00,000 will be:
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17
A. Rs.` 2,600
B. Rs.` 2,210
C. Rs.` 2,206
D. Nil
83. The income-tax payable by a Non Resident Individual (aged 30 years) for Assessment Year 2019-
20 if his total income is Rs.` 2,70,000 will be:
A. Rs.` 2,060
B. Rs.` 2,210
C. Rs.` 2,206
D. Rs.1040
84. The income-tax payable by a Resident Individual (aged 30 years) for AY. 2019-20 if his total
income is Rs.` 3,01,500 will be:
A. Rs.` 2,630
B. Rs.` 78
C. Rs.` 150
D. Rs.` 2,626
85. The income-tax payable by a Mrs. Swati Non Resident Individual (aged 65 years) for AY. 2019-20
if her total income is Rs.` 2,75,000 will be:
A. Rs.560
B. Rs.` 2,575
C. Rs.` 2,580
D. Rs.` 1300
86. The income-tax payable by a Mr. Bansal Resident Individual (aged 25 years) for AY. 2019-20 if his
total income is Rs.` 4,50,000 will be :
A. Rs.10,400
B. Rs.` 15,450
C. Rs.` 20,600
D. Rs.` 540
DIRECT TAX
18
87. Arun, a non-resident of India celebrated his 80th birthday on 10th October 2018. If his total
income for the previous year is Rs.` 6,00,000, his income-tax liability for the previous year 2018-
19 is
A. Rs.` 46,350
B. Rs.` 41,200
C. Rs.` 20,600
D. Rs. ‘ 33,800
88. The amount of marginal relief admissible to Mr. Bansal Resident Individual (aged 25 years) for
AY 2019-20 if his total income is Rs.1,01,00,000 will be :
A. Rs.`3,58,250
B. Rs.` 2,00,000
C. Rs.` 2,20,000
D. Rs.3,56,375
89. The maximum income of ` ---------------is not chargeable to tax is case of non-resident woman of
60 years of age.
A. Rs.` 2,50,000
B. Rs.` 3,00,000
C. Rs.` 5,00,000
D. Rs.` 10,00,000
90. The tax payable is rounded off to the nearest multiple of -

A. Rs.` 1
B. Rs.` 1,000
C. Rs.` 10
D. Rs.` 100
91. The income-tax payable by a Non Resident Individual (aged 30 years) for AY 2019-20 if his total
income s Rs. ` 2,75,500 will be:
A. Rs.` 1,326
B. Rs.` 566
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19
C. Rs.` 570
D. Rs.` 2,626
92. The income-tax payable by a Resident Individual (aged 30 years) for AY 2019-20 if his total
A. Rs.` 20,600
B. Rs.` 25,750
C. Rs.` 33,990
D. Rs. ‘ 13,000
93. The income-tax payable by a Resident Individual (aged 30 years) for AY 2019-20 if his total.
A. Rs.` 46,350
B. Rs.` 44,290
C. Rs.` 45,000
D. Rs.` 33,475
income is Rs. ` 16,00,000 will be:
A. Rs.` 3,14,150
B. Rs.` 3,19,000
C. Rs.` 3,04,200
D. Rs.` 3,30,000
95. The income-tax payable by a Non Resident Individual (aged 62 years) for AY 2019-20 if his total
income is Rs. ` 2,90,000 will be:
A. Rs.2,080
B. Rs.`2,060
C. Rs.` 4,120
D. Rs.` 4,000
income is Rs.` 3,00,000 will be :
DIRECT TAX
20
A. Nil
B. Rs.`2,060
C. Rs.` 4,120
D. Rs.` 4,000
A. Rs.` 2,060
B. Rs.` 1,030
C. Rs.` 4,120
D. Nil
A. Rs.` 1,030
B. Rs.` 6,180
C. Rs.` 8,240
D. Rs. ` 3,120
A. Nil
B. Rs.` 1,030
C. Rs.` 8,240
D. Rs.` 6,180
100. The income-tax payable by a Resident Individual (aged 80 years) for AY 2019-20 if his
total income is Rs. ` 5,10,000 will be:
A. Rs.2,080
B. Rs.` 2,060
C. Rs.`1,030
D. Rs.` 6,180
DIRECT TAX
21
101. An assessee, being an individual resident in India, is entitled to a deduction, from the
amount of income-tax on his total income which is chargeable for an assessment year, of an
amount equal to 100 of such income-tax or a lesser amount. The maximum amount of total
income qualifying for such deduction and the maximum amount of deduction so available is
A. Rs.` 5 lakh and Rs.` 2,000 respectively
B. Rs.` 3lakh and Rs.` 2,000 respectively
C. Rs.` 5 lakh and Rs.` 5,000 respectively
D. Rs.` 3.5 lakh and Rs. ` 2,500 respectively
102. Calculate Income-tax payable by an Individual (aged 30 years) for AY 2019-20 if his total
income is Rs. ` 1,01,20,000:
A. Rs.`30,33,350
B. Rs.`32,47,180
C. Rs.` 29,14,900
D. Rs.` 33,42,300
103. Calculate the amount of rebate u/s 87 A in case of a resident individual having total
income of Rs.` 3, 00,000. For A.Y 2019-20
A. Rs.` 30,000
B. Rs.` 10,000
C. Rs.` 2,500
D. Rs.` 5,000
104. The income-tax payable by a XYZ Inc a foreign company on total income of Rs.`
12,25,500 will be :
A. Rs.` 5,09,800
B. Rs.` 5,04,906
C. Rs.` 3,78,520
D. Rs.` 3,78,525
105. The income-tax payable by a XYZ Cooperative society on total income of Rs.` 50,000 will
be
DIRECT TAX
22
A. Rs.` 12,360
B. Nil
C. Rs.` 20,600
D. Rs.` 12,480
106. Total income is to be rounded off to nearest multiple of __ and tax is to be rounded off
to nearest multiple of
A. Ten, Rupee
B. Hundred, Ten
C. Ten, Ten
D. Rupee, Rupee
107. Unexplained cash credits are chargeable to tax @ ___________ _

A. 10%
B. 15%
C. 20%
D. 30%
108. Long term capital Gains are chargeable to tax @ ___________ _

A. 10%
B. 15%
C. 20%
D. 30%
109. Short term capital gains arising on transfer of listed equity shares through recognized
stock exchange are chargeable to Tax @ _____ _
A. 10%
B. 15%
C. 20%
D. 30%
110. Income by way of dividends in excess of ` 10 lakh in the case of an individual, Hindu
DIRECT TAX
23
undivided family (HUF) or a firm who is resident in India is chargeable to tax at rate of -
A. 10%
B. 15%
C. 20%
D. 30%
111. Income by way of royalty in respect of a patent developed and registered in India in
respect of person who is resident in India is chargeable to tax at rate of -
A. 10%
B. 15%
C. 20%
D. 30%
112. For a domestic company, the minimum amount of total income liable for surcharge and
the rate of surcharge applicable therein are -
A. Rs.` 10 crore and 7 respectively
B. Rs.` 1 crore and 7 respectively
C. Rs.` 1 crore and 12 respectively
D. Rs.` 10 crore and 12 respectively
113. The total income of Atul, a resident individual, is Rs.` 2, 65,000. The rebate allowable u/s
87 A would be –
A. Rs.` 2.000
B. Nil
C. Rs.` 1,500
D. Rs.`7, 50.
114. For the previous year 2018-19, taxable income of A Ltd., a domestic company (Turnover
in FY 2016-17 was Rs. ` 2, 49.5 crores) is Rs.10, 86,920. Its tax liability would be
A. Rs.` 2,82,600
B. Rs.` 3,39,120
C. Rs.` 3,32,770
DIRECT TAX
24
D. Rs.` 3,35,860
115. For the previous year 2018-19, taxable income of A Ltd., a domestic company (Turnover
in FY 2016-17 was Exceed Rs.` 2, 50 crores) is Rs.10, 86,920. Its tax liability would be
A. Rs.` 2,82,600
B. Rs.` 4,47,811
C. Rs.` 3,39,120
D. Rs.` 3,35,860
Answer Key
Question
Number Answer
1 82
2 1ST April, 1962
3 State Government
4 Income Tax Authorities
5 All of the above
6 None of Above
7 Regulations are framed in this respect
8 CBDT
9 First day of next financial year
10 Assessment Year
Individuals, HUF, Company, Firm, AOP or BOI,Local Authority, Every Artificial
11 Juridical Person
12 A minor
13 Every person need not to be an assessee
14 body of individual
15 only 12 months
16 Assessment year, Previous year
17 Previous year
18 Uniform previous year which must be financial year only
19 Partnership firm
20 Local authority
21 Limited liability partnership
22 Both individual and non individual persons
23 Individual only
24 Status
DIRECT TAX
25
25 Co -Parcenership
26 2(31)
27 Association of Persons
28 Corporation
29 Section 3
30 1" day of the April
31 Start from 31" March, 2019 and will end on 31st March, 2019
32 1st September, 2018 to 31st March, 2019
33 2019-20
34 Financial year only :1st April to 31st March
35 Assessment of persons leaving India
36 Discontinued business
37 Taxable in India the same financial year
38 7.50%
39 Non-resident engaged in shipping business
40 Total Income
41 Assessment Year
42 Previous year rule
43 The Finance Act of the assessment year
44 1st July, 2018 to 31st March, 2019
45 Inclusive
46 Both (i) and (ii)
47 All of Above
48 5
49 All of the above
50 Legal and illegal both
51 Reimbursement of travelling expenses
52 income from export
53 all of above
54 Revenue receipt and not taxable
55 Revenue receipt
56 Gifts of personal nature subject to a maximum of Rs.`50,000 received in cash
57 Revenue receipt
58 Amount of Rs.`2,00,000 received by way of gift from relatives
59 Income from Other Sources
60 All of the above
61 The Finance Act
62 Reimbursement of expenses
63 10
64 20% ,20%
65 Rs.10 crore
DIRECT TAX
26
66 Rs.1 core
67 Up to Rs.` 3,00,000
68 Up to Rs.` 5,00,000
69 Rs.` 1,00,00,000
70 Nil
71 Income tax plus surcharge
72 Rs.2,50,000
73 Rs.1 crore
74 10
75 Both of (a) and (b)
76 Rs.1,60,800
77 4%
78 Higher basic exemption of Rs.` 3, 00,000.
79 Rs.` 1,00,00,000
80 Rs.` 2,50,000
81 Rs. 2,50,000
82 Nil
83 Rs.1040
84 Rs.78
85 Rs.1,300
86 Rs.10,400
87 Rs.33,800
88 Rs.3,56,375
89 Rs.-` 2,50,000
90 Rs.-10
91 Rs.1,326
92 Rs.13,000
93 Rs.33,475
94 Rs.3,04,200
95 Rs.2,080
96 Nil
97 Nil
98 Rs.3,120
99 Nil
100 Rs.2,080
101 Rs.3.5 lakh and Rs.` 2,500 respectively
102 Rs.` 33,42,300
103 Rs.2,500
104 Rs.` 5,09,800
105 Rs.` 12,480
106 Ten, Ten
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27
107 30%
108 20%
109 15%
110 10%
111 10%
112 Rs.` 1 crore and 7 respectively
113 Rs.7,50
114 Rs.` 2,82,600
115 Rs.` 3,39,120
CMA VIPUL SHAH TEST - 7 CAPITAL GAIN
CHAPTER 7
'CAPITAL GAINS'
MCQs on Capital Gains
Q1: Capital asset excludes all assets except

(a) Stock in trade
(b) Personal effect
(c) Jewellery
(d) Rural agricultural land
Q2: Cost of acquisition in case of bonus shares allotted before 1/4/2001 will be:
(a) Face value on the date of allotment
(b) Nil
(c) Market value as on 1/4/2001
(d) Current market value
Q3: Where the total income of an assesses includes income by way of long term capital
gains arising from transfer of listed securities (other than listed equity shares)
applicable income tax rate on such income is
(a) 20% of LTCG calculated after doing indexation
(b) 10% of LTCG calculated without doing indexation
(c) Higher of a) or b)
(d) Lower of a) or b)
Q4: In term of section 2(42A), listed securities are treated as long-term capital asset, if
they are held for a period of more than
(a) 12 months
(b) 6 months
(c) 24 months
(d) 48 months
Q5: For claiming exemption under section 54EC, an assessee has to invest the resultant
capital gains within a specified period. Which of the following is not eligible for such
investment
(a) National Highway Authority of India Limited
(b) Rural Electrical Corporation of India Limited
(C) Bonds of NABARD
www.vipulshah.org 75591 73787 Page 1

Q6: Long term capital gains on zero coupon bonds are chargeable tot tax
(a) @ 20% computed after indexation of such bonds
(b) @ 10% computed without indexation of such bonds
(c) Higher of (a) or (b)
(d) Lower of (a) or (b)
Q7: Which of the following is not a required for charging income tax on capital gains
(a) The transfer must have been effected in the relevant assessment year
(b) There must be a gain arising on transfer of capital asset
(c) Capital gains should not be exempt under section 54
(d) Capital gains should not be exempt under section 54EC
Q8: In order to enjoy exemption under section 54EC, the resultant long term capital gains
should be invested in specified bonds within a period from the date of transfer
(a) 36 months
(b) 4 months
(c) 6 months
(d) 12 months
Q9: Residential house is sold for Rs. 90 lakh and the long term capital gains computed are
Rs. 50 lakh. The assesses bought two residential houses for Rs. 30 lakh and Rs. 20
lakh respectively. The amount eligible for exemption under section 54 would be:
(a) Rs. 50 lakhs
(b) Rs. 20 lakhs
(c) Rs. 30 lakhs
(d) Nil
Q10: When shares of a listed company held for more than 36 months are transferred
privately for Rs. 8 lakh, with original cost of acquisition of Rs. 1 lakh whose indexed
cost of acquisition is 2 lakh, the income tax payable would be:
(a) Rs. 1,44,200
(b) Rs. 72,800
(c) Rs. 1,23,600
(d) Rs. 68,100
Q11: Mr. v entered into an agreement with Mr. D for sale of a building for Rs.20 lakh in
June, 2018. Mr. v received advance of Rs. 2 lakh. Subsequently the agreement was
cancelled and Mr. v forfeited the advance money. The advance money is:
(a) To be reduced from the cost of acquisition

(b) To be reduced from indexed cost of acquisition
(c) Taxable as capital gains
(d) Taxable as income under the head income from other sources
Q12: GGC Pvt. Ltd. Issued 10,000 equity shares to Mr. v at Rs.18 per share when the
fair market value of each share was determine at Rs. 11 per shares. Following
statements are given in this regard:
(1) Rs. 70,000 taxable as income for GGC Pvt. Ltd.
(2) Rs. 70,000 taxable as income for Mr. v
(a) (1) is correct and (2) is also correct
(b) 1) is correct and (2) is incorrect
(c) (1) is incorrect and (2) is correct
(d) (1) is incorrect and 2) is also incorrect
Q13: Mr. v acquired 1,000 equity shares of X10 each in a listed company for Rs. 35,000
on 1st July, 2012. The company issued 1,000 rights shares in April, 2014 at Rs. 15
per share. The company issued 2,000 bonus shares in June, 2020. The market price
was Rs. 50 per share before bonus issue. The cost of acquisition of bonus shares
would be
(a) Nil
(b) Rs. 20,000
(c) Rs. 50,000
(d) Rs. 1,00,000
Q14: Ms. Smita inherited a vacant site land consequent to the demise of her father on
10th June, 2000. The land was acquired by her father on 10th April, 1970 for Rs.
40,000. The fair market value of the land on 1st April, 2001 was Rs. 60,000 and on
the date of inheritance i.e., 10th June, 2000 was Rs. 2,00,000. The cost of
acquisition for Ms. Smita is:
(a) Rs. 10,000
(b) Rs. 40,000
(c) Rs. 60,000
(d) Rs. 2,00,000
Q15: Under which section the assesses has to reinvest the entire amount of net
consideration to claim full exemption for the long term capital gains earned during a
previous year
(a) Section 54EC
(b) Section 54F
(c) Section 54B

(d) Section 54D
Q16: Short term capital gains arising from the transfer of listed equity shares in a
company charged with security transaction tax are subject to income tax at the rate
of
(a) 10%
(b) 15%
(c) 20%
(d) Normal rate
Q17: Long term capital gains on sale of a long term capital asset on 15 th October, 2020 is
Rs. 105 lakh. The assesses invested Rs. 50 lakh in RECI bonds on 31s1 March, 2020
and Rs. 55 lakh in NHAI bonds on 18th May, 2020. The amount of exemption eligible
under section 54EC is:
(a) Nil
(b) Rs. 50 lakh
(c) Rs. 55 lakh
(d) Rs. 105 lakh
Q18: Mr. v purchased a car for his personal use for Rs. 5,00,000 in April, 2020 and sold
the same for Rs. 5,50,000 in July, 2020. The taxable capital gains would be:
(a) Nil
(b) Rs. 5,50,000
(c) Rs. 50,000
(d) Rs. 4,00,000
Q19: Mr. v purchased shares of GCC Pvt Ltd. for Rs. 5 lakhs on 3rd April, 2020. The
shares were sold on 5th June, 2020 for Rs. 7 lakhs. She paid STT of Rs. 700 and
brokerage of Rs. 500. The amount chargeable to tax is:
(a) Rs. 2,00,000
(b) Nil
(c) Rs. 1,99,500
(d) t 1,98,700
Q20: Which of the following is not a capital asset for Mr. v who is employed in a public
sector bank ?
(a) Urban land
(b) Agricultural land within 2 kms from local limits of municipality
(c) Gold Jewellery

(d) Car
Q21: On 1/6/2020 Mr. v transferred his vacant land to Mr. D for Rs. 12 lakhs. The land
was acquired on 1/9/2017 for Rs. 3 lakhs. If indexation is applied, the indexed cost of
acquisition would be Rs. 3.30 lakhs. The taxable capital gain would be:
(a) Long term capital gain Rs. 8.70 lakh
(b) Short term capital gain Rs. 9 lakhs
(c) Long term capital gain Rs. 9 lakhs
(d) Short term capital gain Rs. 8.70 lakhs
Q22: Mr. v sold a vacant land to Mr. D for Rs. 36 lakhs. For stamp duty purpose, the
value of land was Rs. 41 lakhs. The indexed cost of acquisition of land was computed
at Rs. 20 lakhs. The taxable long term capital gain would be:
(a) Rs. 21 lakhs
(b) Rs. 16 lakhs
(c) Rs. 5 lakhs
(d) Rs. 20 lakhs
Q23: Capital gain arises on:

(a) All type of asset
(b) All type of capital asset
(c) Land, Building and Shares only
(d) All of the above
Q24: Capital gains is calculated when

(a) Any asset is transferred
(b) any capital asset is transferred
(c) any asset is transferred or not transferred
(d) any capital asset is transferred or not transferred
Q25: Short-term capital gain is gain arising from the transfer of a land and building which
is held by the assessee for not more than:
(a) 36 months from the date of its acquisition
(b) 12 months from the date of its acquisition
(c) 24 months from the date of its acquisition
(d) 48 months from the date of its acquisition
Q26: Period of holding of bonus share allotted shall be reckoned from

(a) The date of holding of original shares
(b) The date of offer of bonus shares
(c) The date of allotment of such bonus shares
(d) the date of approval from shareholders in AGM
Q27: If unlisted debentures are sold after 12 months but before 36 months, the capital
gain arising from such sale is a:
(a) Short-term capital gain
(b) long-term capital gain
Q28: Transfer of capital asset under a gift or will shall:

(a) be regarded as transfer for donor and taxable for donor
(b) not be regarded as transfer for donor and not taxable for donor
(c) be regarded as transfer for donor and taxable for receiver
(d) not be regarded as transfer for donor and taxable for receiver
Q29: Cost of improvement means capital expenditure done on the value addition of capital
asset. It shall be considered for calculation of capital gains and
(a) It is always taken as Nil
(b) always considered irrespective of period when it was incurred
(c) considered when incurred on or after 1/4/2001
(d) considered when incurred before 1/4/2001
Q30: Cost of improvement of tenancy rights, route permits or loom hours shall be:
(a) It is always taken as Nil
(b) always considered irrespective of period when it was incurred
(c) considered when incurred on or after 1/4/2001
(d) considered when incurred before 1/4/2001
Q31: In case of long-term capital gain, the amount to be deducted from sale consideration
shall be:
(a) Cost of acquisition and cost of improvement
(b) Indexed cost of acquisition and indexed cost of improvement
(c) Market value as on 1/4/1981 of capital asset
(d) only cost of improvement
Q32: No indexation of cost of acquisition is done even though there is long-term capital
gain in case of:

(a) Bonds or Debentures
(b) Certain assets held by non-resident
(c) both of the above
(d) none of the above
Q33: Conversion of capital asset into stock in trade will result into capital gain of the
previous year:
(a) in which such conversion took place
(b) In which such converted asset is sold or transferred
(c) both of the above
(d) none of the above
Q34: Securities transaction tax paid by the seller of shares and units shall
(a) be allowed as deduction as expenses of transfer
(b) not be allowed as deduction as expenses of transfer
Q35: Securities transaction tax paid by the purchaser of shares and units shall
(a) form part of the cost of such shares and units
(b) not form part of the cost of such shares and units
Q36: The assessee is allowed to opt for market value as on 1/4/2001 in case of:
(a) all capital assets
(b) all capital assets which are depreciable assets
(c) all capital assets other than intangible assets
(d) only self-generated assets
Q37: Where the capital asset became the property of the assessee in any mode given
under section 49(1), the cost of acquisition of such assets shall be:
(a) The market value of the asset as on the date of acquisition by the assessee
(b) Cost for which the previous owner of the property acquired it
(c) Nil
(d) price which is mutually decided by transferor and transferee
Q38: If the goodwill of a business, right to manufacture or produce, tenancy rights, route
permit or loom hours is acquired before 1/4/2001 the cost of acquisition of such
asset shall be:
(a) Cost for which it was acquired by the assessee

(b) FMV as on 1/4/2001
(c) Always taken as Nil
(d) Higher of (a) or (b)
Q39: If the bonus shares are acquired before

1/4/2001 the cost of acquisition of such bonus share shall be:
(b) FMV as on 1/4/2001
Q40: If the bonus shares are acquire on or after 1/4/1981 the cost of acquisition of such
shares shall be:
(b) FMV as on 1/4/2001
Q41: The cost of acquisition of the right shares to a person who purchased the right to
acquire share from the existing shareholder shall be:
(a) market value of right share are offered
(b) price at which these shares are offered
(c) price at which these shares are offered plus the amount paid to the person renouncing the
right
(d) always taken as NIL
Q42: If any advance money received by the assessee under the agreement of transfer
which could not be matured is forfeited before 1/4/2014 then such money shall
(a) Be taxable as the income of other sources in the year it is forfeited
(b) Be deducted from the cost of acquisition of such asset after doing indexation
(c) Be deducted from the cost of acquisition of such asset before doing indexation
(d) it shall be ignored in all cases
Q43: Where the entire block of the depreciable asset is transferred after 36 months of
its use there will be:
(a) Short-term capital gain
(b) Long-term capital gain
(c) Short-term capital gain or loss

(d) long term capital gain or loss
Q44: If goodwill of a profession which is selfgenerated is transferred there will

(a) liable to capital gain
(b) not be liable any capital gain
(c) be a short-term capital gain
(d) be a long term capital gain
Q45: For claiming exemption under section 54, the assessee should transfer:
(a) A self occupied residential house property
(b) A let out residential house property
(c) A vacant house property
(d) Any of the above three
Q46: Exemption under section 54 is available to:

(a) all assesses
(b) individuals only
(c) individual as well as HUF
(d) HUF only
Q47: For claiming exemption under section 54, the assesses should purchase residential
property:
(a) 2 years after the date of transfer
(b) 3 years after the date of transfer
(c) within one year before or two years after the date of transfer
(d) one year before and 3 years after the date of transfer
Q48: For claiming exemption under section 54, the assessee should complete the
construction of the residential property:
(a) within one year before or two years after the date of transfer
(b) within one year before or three years after the date of transfer
(c) within three years after the date of transfer
(d) within two years after the date of transfer
Q49: The exemption under section 54 shall be available:

(a) to the extent of capital gain invested in the residential house property
(b) proportionate to the net sale consideration invested in the residential house property
(c) to the extent of amount actually invested in the residential house property
(d) to the extent of amount of net sale consideration invested in the residential house
property
Q50: If the assessee wishes to deposit money under capital gain scheme for claiming
exemption under section 54, it should be deposited:
(a) within six months from the date of transfer
(b) within six months from the end of the relevant previous year
(c) within the due date of furnishing the ITR u/s 139(1)
(d) within six months or within due date of furnishing the ITR, whichever is earlier

ANSWERS TO ABOVE QUESTIONS
1 c 2 c 3 c 4 d 5 c 6 a 7 d 8 d 9 a 10 c
11 d 12 c 13 b 14 d 15 b 16 a 17 c 18 b 19 b 20 d
21 b 22 a 23 c 24 b 25 c 26 d 27 a 28 a 29 b 30 b
31 c 32 c 33 a 34 b 35 a 36 b 37 c 38 a 39 b 40 c
41 b 42 c 43 c 44 b 45 d 46 c 47 b 48 a 49 a 50 b

PROFESSIONAL PROGRAMME
MODULE 1, PAPER 2
PRACTICE QUESTIONS
Advanced Tax Laws
(Relevant for June, 2022 examination)
Direct Tax & International Taxation
1
March, 2022
© The Institute of Company Secretaries of India
All rights reserved. No part of this publication may be translated or copied in any form or by any means
without the prior written permission of The Institute of Company Secretaries of India.
DISCLAIMER
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this Practice Questions, the Institute shall not be responsible for any loss or
damage, resulting from any action taken on the basis of the contents of this
Practice Questions. Anyone wishing to act on the basis of the material contained
herein should do so after cross checking with the original source.
2
CONTENTS
Direct Tax & International Taxation (Part II - 30 Marks) Page No.
1. Corporate Tax Planning & Tax Management 4
2. Taxation of Companies, LLP and Non-resident 14
3. General Anti Avoidance Rules ‘GAAR’ 42
4. Basics of International Taxation 49
5. Tax Treaties 73
6. Income Tax Implication on specified transactions 81
3
Corporate Tax Planning & Tax Management
Question 1
Distinguish between ‘tax evasion’ and ‘tax avoidance’.
Answer
Tax evasion means a method of evading tax liability by dishonest means like suppression,
conscious violation of rules, inflation of expenses etc. while tax avoidance means planning
for minimization of tax burden according to the provisions of the tax laws and within legal
framework, though it defeats the basic intention of legislature.
Tax evasion generally begins after the liability of tax has arisen, whereas tax avoidance
begins before the actual liability of tax has arisen.
Tax evasion involves use of unfair means while tax avoidance takes into account various
lacunas of law.
Question 2
Distinguish between tax planning and tax evasion.
Answer
Tax planning is carried out within the framework of law by availing the deductions and
exemptions permitted by law and thereby minimising the tax liability. Tax planning is an
arrangement by which full advantage is taken of the concessions and benefits conferred by
the statute, without violation of legal provisions.
Tax evasion on the other hand is an attempt to reduce tax liability by dubious or artificial
methods or downright fraud. It is illegal and denies the state its legitimate share of tax.
Question 3
Specify with the reason, whether the following acts can be considered as tax planning or
tax management or tax evasion or tax avoidance.
i. “Mr. P deposit Rs.1 lakh in PPF account so as to reduce his total income from Rs. 6
lakh to Rs. 5 lakh” assuming Mr. P does not opt for concessional tax regime u/s
115BAC of the Income tax Act, 1961.
ii. To reduce tax payable, Mr. Kunal Sharma, a resident individual, paid Rs. 55,000 as life
insurance premium on the policy of his minor son. Assuming Mr. Kunal does not opt
for concessional tax regime u/s 115BAC of the Income tax Act, 1961.
iii. Company claiming depreciation on the motor car which is being used by director for
personal purposes.
4
Answer
i. The investment of Rs.1 lakh in PPF account so as to reduce his total income from
Rs.6 lakh to Rs. 5 lakh is considered as Tax Planning because the same is carried out
within the framework of law by availing the deductions permitted by law and
thereby minimising the tax liability.
ii. Premium paid on life insurance policy of minor son is allowed as deduction under
section 80C of the Income tax Act, 1961. Therefore, Rs. 55,000 paid, by Mr. Kunal
Sharma, as premium on life insurance policy of his minor son is an act of Tax
Planning.
iii. Claiming depreciation on motor car being used for personal purpose is not allowed under section
32 of the Income Tax Act, 1961. Therefore, the depreciation claimed by the company on the motor
car which is being used by the director for personal purpose is an act of Tax Evasion.
Question 4
Indicate whether the following acts can be considered as tax evasion/tax avoidance or
otherwise:
(i) Samarth deposits Rs. 65,000 in the term deposit of 5 years with the Post Office
to avail tax deduction under section 80C. Assuming Mr. Samarth does not opt
for concessional tax regime u/s 115BAC of the Income tax Act, 1961.
(ii) Sushil is using a motor car for his personal purposes, but charges as business
expenditure.
(iii) PQR industries Ltd installed an air-conditioner costing Rs. 75,000 at the
residence of a director as per terms of his appointment but treats it as fitted in
quality control section in the factory. This is with the objective to treat it as
plant for the purpose of computing depreciation.
(iv) SQL limited maintains a register of tax deduction at source affected by it to
enable timely compliance.
(v) R. Ltd issues a credit note for Rs.90,000 for brokerage payable to Suresh who is
son of R, managing director of the company. The purpose is to increase his total
income from Rs.1,60,000 to Rs.2,50,000 and reduce it's income correspondingly.
Answer
(i) It is neither a tax avoidance nor tax evasion. The claiming of deduction from gross total
income under Section 80C by depositing Rs. 65,000 in the term deposit of 5 years with
the Post Office falls under the purview of tax planning.
(ii) It is an unlawful act to treat a personal expenditure as business expenditure, which is
disallowed under the law. Sushil is resorting to unfair means to claim deduction by
falsification of records. Therefore it is tax evasion and illegal.
(iii) It is a case of tax evasion as the air-conditioner fitted at residential place is furniture,
depreciable at 10% whereas the rate of depreciation applicable for plant and machinery
fitted at Quality control section in the factory is 15%. The wrong treatment unjustifiably
increases the amount of depreciation and consequently, reduces profit unlawfully.
5
(iv) It is tax management because maintaining register of payment subject to TDS helps in
complying with the obligations under the Income Tax Act, 1961.
(v) Net effect of transaction is reduction of tax liability of the company by improper means.
The company is liable to tax at the flat rate of 30% whereas Suresh would not be liable
to pay tax since income does not exceed the basic exemption limit of Rs.2, 50,000. The
issue of credit note to reduce the liability of company amounts to tax evasion.
Question 5
Suresh is employed in Delhi and is drawing Rs. 50,000 per month as salary. Besides, he got
one month salary as bonus. He is given an option by the employer, either to accept HRA or
a rent-free accommodation which is owned by the employer. HRA is payable @ Rs. 10,000
per month, while the rent for accommodation in Delhi is Rs. 12,000 per month. Advise
Suresh, whether it would be beneficial for him to avail HRA or rent-free accommodation
provided by the employer (assuming Mr. Suresh has not opted for section 115BAC of the
Income tax Act, 1961).
Answer
Calculation of Tax Liability of Suresh, in case he accepts rent free accommodation
Particulars Amount (Rs.)

Salary (Rs. 50,000 x 12) 6,00,000
Bonus (One month salary) 50,000
Value of rent free accommodation 15% x Rs.(6,00,000 97,500
+ 50,000)
Gross salary 7,47,500
Less : Standard deduction u/s16(ia) (50,000)
Taxable Salary/Total Income 6,97,500
Tax Liability
On first Rs. 2,50,000 Nil
(Rs. 250000 to Rs. 500000) @5% 12,500
On remaining Rs. 1,97,500@ 20% 39500
Rebate under section 87A (Nil)
Net Tax 52000
Add: Health & Education Cess @ 4% 2080
Net Tax Liability 54080
Rounded off Tax Liability 54080
Calculation of Tax Liability of Suresh, in case, if he accepts H.R.A
Salary (Rs. 50,000 x 12) 6,00,000
6
Bonus (One month salary) 50,000
Taxable HRA (Note 1) 41,000
Gross salary 6,91,000
Less : deduction u/s 16(ia) Taxable (50,000)
Salary/Total Income 6,41,000

Tax Liability
On first Rs. 2,50,000 Nil
Rs. 250000 to Rs. 500000 @5% 12,500
On remaining Rs. 1,41,000 @20% 28200
Net Tax 40700
Add: Health & Education Cess @ 4% 1628
Net Tax Liability 42328
Rounded off Tax Liability 42330
Extra tax paid by Suresh, if Rent free accommodation opted is Rs. (54080- 42330) i.e. Rs.
11,750. Thus, option II of accepting HRA is better.
Notes:
1. According to section 10(13A) and rule 2A of Income Tax Act, HRA is exempted as least
of the following limits:
(i) HRA actually received i.e. Rs.1,20,000
(ii) 50% of the salary i.e. 50% x Rs.6,50,000 = Rs.3,25,000
(iii) Rent paid in excess of 10% of the salary i.e. (Rs. 1,44,000 -Rs. 65,000) = Rs.
79000
Least of the above is Rs. 79,000, is allowed as exemption. Thus, taxable HRA would
be : (Rs. 1,20,000- 79,000)= Rs.41,000
2. It is assumed that both the houses under HRA and Rent free accommodation are identical.
3. Bonus is not a part of salary for the purpose of computation of HRA.
4. It is assumed that the assessee has not opted for Section 115BAC of the Income tax Act,
1961.
7
Question 6
Differentiate between the diversion of income and application of income in context of
Income Tax Act.
Answer
Sr. No. Diversion of income Application of Income
1 It is an obligation to apply the income in a It is an obligation to apply

particular way before it is received by the income, which has accrued or
assessee or before it has arisen or accrued has arisen or has been received.
to the assessee.
2 Obligation is on the source of income. Obligation is on the receipt of

income.
3 The source is charged with an overriding There is no overriding title in

title, which diverts the income. this case.
4 The income is not included in the income of The income is included in the
the assessee. income of the assessee.
5 Since, the income is diverted from the Income is said to have

source before coming to the hands of the accrued/arisen and therefore, is
assessee, hence he is not liable for tax. taxable in the hands of assessee.
Question 7
Peer Ltd. took over the running business of a Ramu, a sole-proprietor by a sale deed. As per
the sale deed, Peer Ltd. undertook to pay overriding charges of Rs. 15,000 p.a. to Ramu’s wife
in addition to the sale consideration. The sale deed also specifically mentioned that the
amount was charged on the net profits of Peer Ltd., who had accepted that obligation as a
condition of purchase of the going concern. Examine, in the light of a decided case law that
whether the payment of overriding charges by Peer Ltd. is in the nature of diversion of income
or application of income.
Answer
The facts of the case are similar to that of the case Jit & Pal X-Rays (P.) Ltd. v. CIT (2004) 134
Taxman 62 (All), where the Allahabad High Court observed that the overriding charge
which had been created in favour of the wife of the sole-proprietor was an integral part of
the sale deed by which the going concern was transferred to the assessee. The obligation,
therefore, was attached to the very source of income i.e. the going concern transferred to
the assessee by the sale deed. The sale deed also specifically mentioned that the amount in
question was charged on the net profits of the assessee-company and the assessee-
company had accepted that obligation as a condition of purchase of the going concern.
Hence, it is clearly a case of diversion of income by an overriding charge and not a mere
application of income.
Thus, the payment of overriding charges by Peer Ltd to Ramu’s wife is a case of diversion of
income and hence allowed to be deducted from Income of Peer ltd.
8
Question 8
Teerath Ltd. is a widely held company. It is currently considering a major expansion of its
production facilities and the following alternatives are available:
Particulars Alt-1 Alt-2 Alt-3
(Rs.) (Rs.) (Rs.)
Share capital 10,00,000 20,00,000 50,00,000
14% Debentures 15,00,000 20,00,000
18% Loan from Bank 25,00,000 10,00,000
Expected rate of return before tax is 30%. Rate of dividend of the company since 2000 has
not been less than 22% and date of dividend declaration is 30th June every year.
Corporate tax rate is 30%. Which alternative should the company opt with reference to
tax planning?
Answer
Analysis of Financing Options for expansion of Teerath Ltd.
Amount in Rs.
Particulars
Option 1 Option 2 Option 3
Share Capital 10,00,000 20,00,000 50,00,000
14% Debentures 15,00,000 20,00,000 -
Bank Loan @ 18% 25,00,000 10,00,000 -
Total Capital 50,00,000 50,00,000 50,00,000
PBIT (Expected Rate of Return @ 30% of total

Capital) 15,00,000 15,00,000 15,00,000
Less: Interest on debenture@14% (2,10,000) (2,80,000) -
Less: Interest on bank loan @18% (4,50,000) (1,80,000) -
Profit Before Tax 8,40,000 10,40,000 15,00,000
Tax @ 31.20% on PBT (2,62,080) (3,24,480) (4,68,000)
Net Profit After Tax 5,77,920 7,15,520 10,32,000
Rate of Return in % ( Net profit / Share Capital) 57.79% 35.78 20.64
Since, Alternative 1 offers the maximum rate of return. Thus, with reference to tax
planning, company should opt for the same.
9
Question 9
Beaker Ltd. wants to acquire a machine on 1st April, 2022. If he purchases the same, it will
cost Rs. 60 lakhs, have the expected useful life of 5 years and scrap value will be Rs.10,000.
The company could either purchase the machinery with its own fund or borrowed funds. If
the machine is purchased through borrowed funds, rate of interest will be 11.5% per
annum and the loan will be repayable at the end of 5 years. If machine is acquired through
lease, lease rent would be 16 lakh per annum.
Profit before depreciation and tax is expected to be 4.50 crore every year. Depreciation is
charged @ 15% on written down value. Besides, additional depreciation is available in the
first year. Investment allowance is, however, not available. Average rate of tax may be
taken at 32.445%.
Advice Beaker Ltd. whether it should — (i) Acquire the machine through own funds or
borrowed funds; or (ii) Take it on lease.
Present value factor shall be taken @10%. At this rate present values of rupee one are —
year 1 : 0.9091; year 2 : 0.8264; year 3 : 0.7513; year 4 : 0.6830; and year 5 : 0.6209.
Answer
Purchasing Machine out of own fund
Particulars Amount in Rs.
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Profit before
Interest,
depreciation and
tax (PBDT) 4,50,00,000 4,50,00,000 4,50,00,000 4,50,00,000 4,50,00,000
Less:
Depreciation
(including
additional
depreciation) (21,00,000) (5,85,000) (4,97,250) (4,22,663) (3,59,263)
PBT 4,29,00,000 4,44,15,000 4,45,02,750 4,45,77,337 4,46,40,737
Less: Tax @
32.445% of PBT (1,39,18,905) (1,44,10,447) (1,44,38,917) (1,44,63,117) (1,44,83,687)
Profit After Tax 2,89,81,095 3,00,04,553 3,00,63,833 3,01,14,220 3,01,57,050
Add:
Depreciation
(including
additional
depreciation) 21,00,000 5,85,000 4,97,250 4,22,663 3,59,263
Cash Inflows
after tax 3,10,81,095 3,05,89,553 3,05,61,083 3,05,36,883 3,05,16,313
Add: Scrap Value 10,000
Less: Cash (60,00,000)

Outflow
Net cash flow (60,00,000) 3,10,81,095 3,05,89,553 3,05,61,0833 3,05,36,883 3,05,26,313
10
Present Value
Factor @ 10% 1 0.9091 0.8264 0.7513 0.683 0.6209
Present Value (60,00,000) 2,82,55,823 2,52,79,207 2,29,60,542 2,08,56,690 1,89,53,788
Net Present
Value 11,03,06,050
Purchasing Machine out of borrowed fund
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Profit before Interest, 4,50,00,000 4,50,00,000 4,50,00,000 4,50,00,000 4,50,00,000

depreciation and tax (PBDT)
Less: Depreciation including (21,00,000) (5,85,000) (4,97,250) (4,22,663) (3,59,263)

additional depreciation
Less: Interest (60,00,000 x 115) (6,90,000) (6,90,000) (6,90,000) (6,90,000) (6,90,000)
PBT 4,22,10,000 4,37,25,000 4,38,12,750 4,38,87,337 4,39,50,737
Less: Tax @ 32.445% of PBT (1,36,95,035) (1,41,86,576) (1,42,15,047) (1,42,39,247) (1,42,59,817)
PAT 2,85,14,965 2,95,38,424 2,95,97,703 2,96,48,090 2,96,90,920
Add: Depreciation including 21,00,000 5,85,000 4,97,250 4,22,663 3,59,263

additional depreciation
Cash Inflows after tax 3,06,14,965 3,01,23,424 3,00,94,953 3,00,70,753 3,05,07,183
Add: Scrap Value 10,000
Less: Cash Outflow (60,00,000)
Net cash flows 3,06,14,965 3,01,23,424 3,00,94,953 3,00,70,753 2,40,60,183
Present Value (PV) Factor @ 10% 1 0.9091 0.8264 0.7513 0.683 0.6209
Present Value 0 2,78,32,065 2,48,81,948 2,26,10,338 2,05,38,324 1,49,38,968

(Net Cash Flow x PV Factor)
Net Present Value 11,08,01,643
Take Machine on lease (Assumption: Lease rental is payable at each year end)
Cash Outflow Year 1 Year 2 Year 3 Year 4 Year 5
PBDT 4,50,00,000 4,50,00,000 4,50,00,000 4,50,00,000 4,50,00,000
11
Lease rent (16,00,000) (16,00,000) (16,00,000) (16,00,000) (16,00,000)
PBT 4,34,00,000 4,34,00,000 4,34,00,000 4,34,00,000 4,34,00,000
Tax @
32.445% of
PBT (1,40,81,130) (1,40,81,130) (1,40,81,130) (1,40,81,130) (1,40,81,130)
Net Inflow 2,93,18,870 2,93,18,870 2,93,18,870 2,93,18,870 2,93,18,870
Present Value 0.9091 0.8264 0.7513 0.683 0.6209

Factor@10%
Present Value 2,66,53,785 2,42,29,114 2,20,27,267 2,00,24,788 1,82,04,086
Net Present
Value 11,11,39,040
Advice:
From purely financial perspective, Beaker Ltd. should take the machine on lease instead out of
borrowed funds or on lease as the Net Present Value in that case is highest.
Working Note: Calculation of Depreciation and Additional Depreciation
Depreciation* Cost/ WDV Depreciation@15 Additional

% Depreciation @ 20%
For Year 1 60,00,000 9,00,000 12,00,000

For Year 2 39,00,000 5,85,000 -
For Year 3 33,15,000 4,97,250 -
For Year 4 28,17,750 4,22,663 -
For Year 5 23,95,087 3,59,263 -
Scrap Value 10,000
*Additional Depreciation is available as per provisions of Income Tax.

*Assuming this is the only asset in the block.
Question 10
Specify whether the following acts can be considered as (i) Tax planning; or (ii) Tax
management; or (iii) Tax evasion.
(i) P pays premium of Rs.10,000 for health Insurance policy so as to reduce his total
income from Rs. 6,40,000 to Rs. 6,30,000 by claiming deduction u/s 80D (assuming
Mr. P has not opted for section 115BAC of the Income tax Act, 1961).
(ii) SQL Ltd. pays advance tax by estimating his total income in previous year to
ensure timely compliance.
12
(iii) An individual tax payer making tax saver fixed deposit of Rs. 1,00,000 in a
nationalized bank.
(iv) A bank obtaining declaration from depositors in Form No. 15G /15H and
forwarding the same to income-tax authorities.
(v) Z debits his household expenses as business expenses in the books.
Answer
(i) Paying premium for health insurance policy in order to reduce the total income by
claiming deduction u/s 80D and hence reducing tax liability is an act of Tax
Planning.
(ii) Payment of Advance tax by estimation of Total income to enable timely compliance
is an act of Tax Management. Therefore, such act of by SQL Ltd. to enable timely
compliance is an act of Tax Management.
(iii) Investment in tax saver fixed deposits is allowed as deduction u/s 80C of the Income
Tax Act, 1961 and is an act of Tax Planning. Therefore, depositing Rs. 1,00,000 in tax
saver fixed deposit by an Individual tax payer is an act of Tax Planning.
(iv) Obtaining declaration from depositors by a bank in Form 15G / 15H and forwarding
the same to the Income Tax Authorities is an act of Tax Management.
(v) Claiming the household expenses as business expenses in the books of account is
not allowed as deduction u/s 37 of the Income Tax Act, 1961 and is an act of Tax
Evasion. Therefore, the act of Z debiting his household expenses as business
expenses is an act of Tax Evasion.
Question 11
Examine the doctrine of form and substance in the context of tax planning?
Answer
The following are certain principles enunciated by the Courts on the question as to whether
it is the form or substance of a transaction, which will prevail in income-tax matters:
i. Form of transaction is to be considered in case of genuine transactions – It is well
settled that when a transaction is arranged in one form known to law, it will attract
tax liability whereas, if it is entered into in another form which is equally lawful, it
may not. Therefore in considering whether a transaction attracts tax or not, the
form of transaction put through is to be considered and not the substance. However
this rule applies only to genuine transactions.
ii. True Legal relation is crucial element for taxability – It is open for the authorities to
pierce the corporate veil and look behind the legal façade at the reality of the
transaction. The taxing authority is entitled as well as bound to determine the true
legal relation resulting from a transaction. The true legal relation arising from a
transaction alone determines the taxability of a receipt arising from the transaction.
iii. Substance (i.e. actual nature of expenses) is relevant and not the form – In order to
determine whether a particular item of expenditure is of revenue or capital nature,
the substance and not merely the form should be looked into.
***
13
Taxation of Companies, LLP and Non-Resident
Question 1
There is a two-fold distribution of legislative powers as stipulated in Article 246 read with
schedule VII of the Constitution of India. Comment
Answer
The statement that “There is a two-fold distribution of legislative powers as stipulated in
Article 246 read with schedule VII of the Constitution of India” is incorrect as there is a
threefold distribution of legislative powers as stipulated in Article 246 read with Schedule
VII. List I of the Union list which comprises of 97 entries containing various subjects over
which the Parliament shall have the exclusive powers of legislation, list II of the State list
comprises of 66 entries over which the State Legislature shall have the exclusive powers of
legislation and list III of the concurrent list comprises of 47 entries over which the
Parliament and the Legislatures of States shall have concurrent powers to make laws.
Question 2
A non-Indian company is treated as resident, only if the place of effective management is
situated wholly in India during the previous year. Comment
Answer
All Indian companies within the meaning of Section 2(26) of the Act are always resident in
India regardless of the place of effective management of its affairs.
The Finance Act, 2015 has amended the test of residence for foreign companies to provide
that a company would be treated as resident in India if its place of effective management at
any time during the previous year is in India.
“Place of effective management” to mean a place where key management and commercial
decisions that are necessary for the conduct of the business of an entity as a whole are, in
substance made[Explanation to section 6(3)]
Question 3
XYZ Ltd., a foreign company, has its head office at UK. The Board of Directors (BOD) meetings are
held in UK. However, the Board of Directors has delegated major powers to a committee in Delhi and
the members of this committee are based in Delhi. The Board of Directors ratified the decisions of the
said committee. In the light of above,
(1) Discuss the place of effective management (POEM) of XYZ Ltd.
(2) Discuss the guiding factors of POEM for Board of Directors delegating authorities to Committee
Answer
The location where company's Board of Directors (BOD) regularly meets and makes decisions
may be the company's Place of Effective Management (POEM) provided the Board:
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1. Retain and exercises its authority to govern the company: and
2. Does, in substance, make the key management and commercial decisions necessary for the
conduct of the company's business as a whole.
In given case the board meetings are held in UK, but the same formalise the decisions taken by the
committee at Delhi. Hence Place of Board meeting held at UK cannot be POEM, as power is
delegated to committee which is based at Delhi.
Guiding factors when Board Delegating Authorities to Committee are as under:
If Board of Director had delegated some or all of its major authorities to one or more committees
consisting senior management, then POEM shall be at the place where:
1. Members of executive committee are based and
2. Where committee develops and formulate key decisions for formal approval by Board.
Hence in given case, POEM of XYZ Ltd. will be Delhi, as discussed above
Question 4
A Ltd. incurred an expenditure of Rs. 50 lakhs on glow-sign boards displayed at dealer
outlets. Examine with the help of a decided case law, whether the above expenditure is
revenue or capital in nature.
Answer
The facts of the case are similar with that of the CIT v. Orient Ceramics and Industries Ltd.
(2013) 358 ITR 49 where the Delhi High Court noted the following observations of the
Punjab and Haryana High Court, in CIT v. Liberty Group Marketing Division (2009) 315 ITR
125, while holding that such expenditure was revenue in nature.
The expenditure incurred on the glow sign boards are revenue in nature as these were
incurred with the object of facilitating the business operation and not with the object of
acquiring an asset of enduring nature.
Thus, the expenditure incurred by A Ltd. on glow-sign boards are revenue in nature.
Question 5
Bace drinks Ltd. was carrying more than one business activity, namely manufacturing soft
drink and trading in soft drinks. However, the manufacturing activity was not profitable
and was hence, discontinued. The employees who were directly connected with this
manufacturing activity were laid off and severance cost was paid to those employees. The
same was claimed by the assessee as revenue expenditure. The Assessing Officer
disallowed the same treating it as capital expenditure, on the argument that it was
incurred as a result of closure of business of the assessee. Discuss what would be the
nature of expenditure.
Answer
The facts of the case are similar to that of the CIT vs. KJS India P. Ltd. (2012) 340 ITR 380
(Delhi), where the Delhi High Court, held that though one of the business activities was
suspended, it cannot be construed that the assessee has closed down its entire business.
The assessee still continues to trade in soft drinks. Therefore, the said expenditure will be
allowed as revenue expenditure even though it was related to a manufacturing activity
which was suspended.
15
Question 6
Sharad Hospitals purchased second-hand medical equipment for use as spare parts of
existing equipment. Examine with the help of a decided case law, that whether the above
expenditure is revenue or capital in nature.
Answer
The Karnataka High Court, in Dr. Aswath N. Rao v. ACIT (2010) 326 ITR 188, held that since
the second hand machinery purchased by the assessee was for use as spare parts for the
existing old machinery, the same had to be allowed as revenue expenditure.
Question 7
Sukriti Ltd. incurred expenses of Rs. 76,000 for the issue of shares. However, the public
issue could not materialize on account of non-clearance by SEBI. Examine with the help of
a decided case law, whether the above expenditure is revenue or capital in nature.
Answer
The facts of the case are similar to that of the Mascon Technical Services Ltd. v. CIT (2013)
358 ITR 545, where the Madras High Court observed that the assessee had taken steps to
go in for a public issue and incurred share issue expenses. However, it could not go in for
the public issue by reason of the orders issued by the SEBI just before the proposed issue.
The High Court observed that though the efforts were aborted, the fact remains that the
expenditure incurred was only for the purpose of expansion of the capital base. The capital
nature of the expenditure would not be lost on account of the abortive efforts.
Thus, the expenditure incurred by Sukriti Ltd. constitutes capital expenditure.
Question 8
S Ltd., a subsidiary of H Ltds. has been incurring losses year after year. The holding
company H Ltd. paid an amount of Rs. 1 crore to S Ltd. as a grant to recoup the losses. The
assessing officer contends to consider this receipt as a trading receipt and includes it in
the assessable income. Examine the case in the light of provisions of Income Tax Act and
decided case law, if any.
Answer
The facts of the case are similar to CIT v. Handicrafts and Handlooms Export Corporation of
India Ltd. (2014) 360 ITR 0130 (Delhi), where the assessee was a Government company
operating a channelizing agency for sale of handicrafts and handlooms abroad. In the
relevant previous year, it received a grant of Rs. 25 lakh from its holding company, the
State Trading Corporation of India (STC) to recoup the losses. The Assessing Officer opined
that the said amount was a revenue receipt and therefore chargeable to tax.
Tribunal’s view: The Appellate Tribunal held that the grant received was not taxable as
revenue receipt since the said grant was given to recoup the losses incurred by the
assessee and was hence, in the nature of capital contribution.
High Court’s Observations: The High Court examined the judgment of the Supreme Court in
Sahney Steel and Press Works Ltd. v. CIT (1997) 228 ITR 253, which laid down the test for
determining whether subsidy received by an assessee is taxable as capital or revenue
16
receipt. As per the said test, if any subsidy is given, the character of the subsidy in the
hands of the recipient - whether revenue or capital - will have to be determined by having
regard to the purpose for which the subsidy is given. The point of time, the source and the
form of subsidy are immaterial. The object for which the subsidy is given, would, thus
determine the nature of subsidy. If it is given by way of assistance to the assessee in
carrying on of his trade or business, it has to be treated as trading receipt.
The High Court observed that grant was not paid by a third party or by a public authority
but by the holding company. However, it was not on account of any trade or commercial
transaction between the subsidiary and holding company. Further, the intention and
purpose behind the said payment was to secure and protect the capital investment made
by STC Ltd. The payment of grant by STC Ltd. and receipt thereof by the assessee was not
during the course of trade or performance of trade, and thus, could not partake the
character of a trading receipt. The same was in the nature of a capital grant.
The High Court observed the difference between Government Grant and payment made by
STC, as pointed out by the Division Bench in Handicrafts and Handlooms Corporation Ltd. v.
CIT (1983) 140 ITR 532. The grants given were specific amounts paid by STC to the
assessee, in order to enable the assessee, which was its subsidiary and was incurring losses
year after year, to recoup these losses and to enable it to meet its liabilities. These amounts,
therefore, cannot form part of the trading receipts of the assessee since these were not in
the nature of grants received from an outsider or the Government on general grounds such
as for carrying on of trade.
Thus, the grant given by the holding company in this case is in the nature of capital receipt
since its purpose is to secure and protect the capital investment made in the subsidiary
company.
Question 9
X Ltd. owns a barren land of 9,000 sq. mtrs., adjacent to the factory premises. It enters into
an agreement with Y Ltd. for granting of the above land on lease to Y Ltd. for a period of
12 years.
Under the terms of the agreement, Y Ltd. had to build a factory building, pay an annual
rent @ Rs.100 per sq. mtr. of the leased land of 9,000 sq. mtrs. and surrender the building
to X Ltd. at the end of the lease without any consideration. Y Ltd. complied with the terms
and conditions of the lease agreement.
The depreciated value of the building surrendered and taken possession by X Ltd. in June,
2021 was Rs. 4.22 crore. Accounts department of X Ltd. is of the opinion that an equivalent
amount is to be taken in the accounts of the year 2021-22 as income received. Critically
examine the matter in the light of decided case law, if any.
Answer
The opinion of the Accounts Department of X Ltd. is incorrect. The depreciated value of the
building is of course to be brought into the books of accounts. However, the equivalent
amount viz. Rs. 4.22 crores cannot be treated as income from the business or operations.
By its very nature it is a capital receipt and is not a revenue income.
The amount cannot be treated as a revenue receipt unless it is conclusively established that
17
this represented deferred rent as the lease rent was unreasonably low. Further, X Ltd. is
not in the business of real estate to treat the benefit as incidental revenue receipt earned
during the course of such business. Further, the facts of the case of CIT v. Elphinstone Dye
Works Pvt. Ltd. 82 ITR 654 were similar and the Bombay High Court held that the written
down value of the building in such a situation can be treated only as a capital receipt.
Question 10
Examine the taxability of the following receipts with reference to Income tax Act, 1961:
a) Bonus shares received by equity shareholder.
b) Medical allowance received by an employee, the entire amount of which has been
spent by him for medical treatment.
c) Gift of a plot of land given to a company secretary by one of his clients. The company
secretary has been fully compensated for his services and this gift has been given in
appreciation of his personal qualities.
d) Receipt of a cash gift of Rs. 60,000 from a friend on the occasion of wedding
anniversary.
e) Contribution to provident fund recovered from an employee by an employer but not
deposited in his PF Account.
Answer
(a) Issue of bonus shares to equity shareholders does not amount to distribution of
dividend, as there is no release of assets. Therefore, bonus shares received by an
equity shareholder are not taxable as deemed dividend.
(b) Fixed medical allowance received by an employee is taxable under the head
“Salaries”, even if the entire amount has been spent by him for medical treatment.
(c) The value of any benefit or perquisite arising from exercise of profession is taxable as
income under the head “Profits and gains of business or profession”, irrespective of
whether the benefits or perquisites are contractual or gratuitous. Therefore, the
value of plot of land would be taxable in the hands of the company secretary under
the head “Profits and gains of business or profession”. However if the gift was only
in appreciation of his personal qualities, such receipt of immovable property
without consideration from a non-relative would be taxable under section 56(2)(x)
under the head “Income from other sources”.
(d) Cash gift of Rs. 60,000 received from a friend on the occasion of wedding anniversary
is taxable under the head “Income from other sources”, since it represents an
amount exceeding Rs. 50,000 received from a non- relative on a occasion other than
marriage.
(e) Contribution of provident fund recovered from an employee but not deposited in his
Provident Fund account on or before the due date specified under the relevant
provident fund Act is treated as income by virtue of section 2(24)(x) and is taxable
in the hands of the employer under the head “Profits and gains of business or
profession” or “Income from other sources”.
18
However, the employer can claim deduction under section 36(1)(va) or under
section 57(ia), as the case may be, if the same is deposited on or before the due date
specified under the relevant provident fund Act. In the present case, the deducted
contribution is not deposited by the employer, hence deduction u/s 36(1)(va) will
not be allowed.
Question 11
A corporate assessee, who inadvertently failed to claim deduction under section 80IB
during the initial years, cannot claim deduction under the said section for the remaining
years during the period of eligibility, inspite of fulfillment of stipulated conditions.
Examine the above statement in the light of judicial decision.
Answer
The provisions contained in Section 80IB of the Income tax Act, nowhere stipulates any
condition that such a claim has to be made in the first year failing which there would be
forfeiture of such claim in the remaining years. As decided in Praveen Soni v. Commissioner
of Income Tax (2011) (Delhi), if the assessee fulfils the conditions mentioned under Section
80IB of Income Tax Act, he will be eligible for claiming the deduction for 10 consecutive
years. Merely because of the reason that though the assessee was eligible to claim this
benefit from a specific year, but did not claim in that year would not mean that he would be
deprived from claiming this benefit for the remaining years during his eligibility.
Further, had the assessee claimed this benefit in the year in which he became eligible, he
would have been allowed this benefit for 10 consecutive years but now he could claim the
benefit only for the remaining period. For example, if the assessee became eligible in
assessment year 2012-13, he would have claimed deduction for 10 years up to assessment
year 2021-22, but he failed to claim deduction from A/Y 2012-13, now he could start
claimingexemption from current AY upto AY 2021-22 only.
Question 12
Duty drawback receipts cannot be treated as profit derived from business of the industrial
undertaking to be eligible for deduction under section 80-IB of Income tax Act. Examine in
the light of decided case law.
Answer
The above statement is correct, in the case of Liberty India v. Commissioner of Income-tax,
the Supreme Court held that the tax incentives under Chapter VI A are attracted only to the
generation of operational profits and the benefit of deduction under section 80- IB will not
be available in respect of the receipts, which do not have any direct nexus with the
operation of industrial undertaking of the assessee. Thus, the profits derived by way of
incentives like duty drawback did not fall within the expression ‘profits derived from
industrial undertaking’ under section 80-IB.
19
Question 13
Mobile phones were purchased during the year and were exclusively used for the business
purpose. The assessee wants to claim depreciation amounting to Rs. 20 lacs at higher rate
of 40% treating them at par with computer. Examine with the help of decided case law.
Answer
Mobile phones are not computers and therefore, are not entitled to higher depreciation @
40%. It was so held by the Kerala High Court in the case of Federal Bank Ltd. v. ACIT (2011)
332 ITR 319. Therefore, mobile phones would be entitled to depreciation by applying the
rate of 15%, being the general rate applicable to plant and machinery.
Question 14
A Ltd. purchased a new bus for Rs. 12 lacs and donated it to a school where the children of
employees were studying. Examine whether A Ltd could claim deduction under section
37(1) of the Income Tax Act, 1961.
Answer
The expenditure incurred for acquiring a new bus and donating it to the school is for the
welfare of the children of staff/workmen of the company. Such expenditure is a part of
employee’s welfare expenses incurred for the purpose of securing healthy services for staff
members. Therefore, such expenses were incurred wholly and exclusively for the purpose
of the business.
Further, since the bus has been donated to the school, no benefit of enduring nature was
derived by the company as the right of ownership was transferred to school. Hence, it is not
a capital expenditure Thus, A Ltd. is entitled to claim deduction in full under section 37(1).
The same was also held by the Rajasthan High Court in CIT v. Rajasthan Spinning and
Weaving Mills Ltd. (2006) 281 ITR 408.
Question 15
The assessee, purchased a running business from M/s R.G.K. At the time of acquiring the
business, the assessee had paid certain amount in respect of trade name, goodwill and for
all other business and commercial rights and claimed depreciation on said amount. The
Assessing Officer rejected the assessee’s claim holding that goodwill could not be treated
as intangible asset and, therefore, not depreciable. Decide.
Answer
As per Section 32(1)(ii) of Income tax Act, depreciation is allowable in respect of knowhow,
patent, copyrights, trademarks, licenses, franchises or any other business or commercial
rights of similar nature being intangible assets. Scanning the anatomy of this section, it can
safely be stated that the provision allows depreciation on both tangible and intangible
assets and clause (ii) enumerates the intangible assets on which depreciation is allowable.
The assets which are included in the definition of ‘intangible assets’ under Section 32(1)(ii)
includes, along with other things, any other business or commercial rights of similar
nature.
20
To effectively understand what would constitute an intangible asset, certain aspects, like
the nature of goodwill involved, how the goodwill has been generated, how it has been
valued, agreement under which it has been acquired, what intangible asset it represents,
namely, trademark, right, patent, etc. and further whether, it would come within the clause,
namely, ‘any other business or commercial rights which are of similar nature are to be
borne in mind.
Yet, allowability of depreciation on goodwill has been a matter of debate before various
Courts/Tribunal. In various cases, it has been held that depreciation is not allowable on
goodwill because it is not of similar nature to that of intangible assets viz. know-how,
patents, trademarks, licences, franchise, etc. as specified under Section 32 of the Income-
tax Act, 1961 (the Act).
The Supreme Court in the case of Smifs Securities Ltd. has put the above controversy at rest
and held that the goodwill being a difference between the amount paid and cost of shares
in case of amalgamation scheme, is an asset eligible for depreciation under Section 32 of
the Act. The Supreme Court has applied the principle of ejusdem generis and held that the
expression ‘any other business or commercial rights of a similar nature includes goodwill
for the purpose of allowability of depreciation.
Question 16
Mr. Buddhadev is carrying on a business as sole proprietor. He died on 31st March, 2022
and on his death, the same business was continued by his legal heirs, by forming a firm. As
on 31st March 2022, a determined business loss of Rs. 4 lakhs is to be carried forward
under the Income- tax Act, 1961. Does the firm consisting of all legal heirs of Mr.
Buddhadev, get a right to have this loss adjusted against its current income? Examine in
the light of provisions of the Act and decided case law.
Answer
Section 78(2) provides that where a person carrying on any business or profession has
been succeeded in such capacity by another person, otherwise than by inheritance, then,
the successor is not entitled to carry forward and set-off the loss of the predecessor against
his/her income. This implies that generally, set-off of business losses should be claimed by
the same person who suffered the loss and the only exception to this provision is when the
business passes on to another person by inheritance.
The facts of case given in the question are similar to the case of CIT v. Madhukant M. Mehta
(2001) 247 ITR 805, where the Supreme Court has held that if the business is succeeded by
inheritance, the legal heirs are entitled to the benefit of carry forward of the loss of the
predecessor. Even if the legal heirs constitute themselves as a partnership firm, the benefit
of carry forward and set off of the loss of the predecessor would be available to the firm.
In the given case, the business of Mr. Buddhadev was continued by his legal heirs after his
death by constituting a firm. Hence, the exception contained in section 78(2) along with the
decision of the Apex Court discussed above, would apply in this case. Therefore, the firm is
entitled to carry forward the business loss of Rs. 4 lakhs of Mr. Buddhadev.
21
Question 17
Examine the taxability or allowability or otherwise in the following cases while computing
income under the head "Profits and gains from business or profession" to be declared in
the return of income for the assessment year 2022-23:
(a) The amount of margin money forfeited by a bank on the failure of its constituents of
not taking the delivery of the shares purchased by such bank on their behalf.
(b) Amount received towards power subsidy with a stipulation that the same is to be
adjusted in the electricity bills.
(c) Profit derived by an assessee engaged in carrying on the business as dealer in shares,
on exchange of the shares held as stock in trade of one company with the shares of
another company.
(d) Donations received by a person in the course of carrying on vocation, from his
followers.
Answer
(a) Since the bank is purchasing shares on behalf of the constituents, the forfeiture of
margin money by the bank from the constituents for not paying the balance amount
of purchase price and not taking delivery of shares purchased by the bank on their
behalf is in the normal course of its banking business and hence, the forfeited amount is
assessable as business income of the bank. The forfeited amount being revenue in nature
cannot be adjusted against the purchase price of the shares. The Supreme Court has, in the
case of CIT v. Lakshmi Vilas Bank Ltd. (1996) 220 ITR 305, confirmed this view.
(b) As per section 2(24)(xviii) of Income tax Act, assistance in the form of subsidy or
grant or cash incentive by the Central Government or a State Government or any
authority or body or agency in cash or kind is chargeable to tax as income. Also,
ICDS VII seeks admission of such grant as income. Government grants should not be
recognized until there is reasonable assurance that (i) the person shall comply with
the conditions attached to them, and (ii) the grants shall be received. However,
recognition of such grant shall not be postponed beyond the date of actual receipt.
Since power subsidy has been received by the assessee, it is revenue in nature and
therefore chargeable to tax.
(c) The difference between the price of shares of the first company and the market
value of shares of the new company on the date of such exchange has to be treated
as “profit” derived by the dealer in shares (on exchange of shares held as stock-in-
trade of the first company with the shares of the new company) in the normal
course of business, and hence such profit is taxable as business income. It was so
held by the Supreme Court in Orient Trading Co. Ltd. v. CIT (1997) 224 ITR 371.
d) Donations received by a person from his followers in the course of carrying on
vocation for the furtherance of the objects of his vocation are receipts arising from
carrying on of his vocation and are not casual or non-recurring receipts. The
Supreme Court, in Dr. K. George Thomas v. CIT (1985) 156 ITR 412, has held that
such donations are taxable as business income as there is a direct nexus between
the vocation carried on by the assessee and the receipt of such donations.
22
Question 18
Income & Expenditure A/c of Lawyers & Co. for the year ending
March 31, 2022
Amount Amount
Particulars Rs. Particulars Rs.
To Expenses 1,50,000 By Professional
To Depreciation 20,000 Receipts 3,80,000
To Remuneration to
partners 1,50,000 By Other fees 90,000
Interest on Capital to 20,000
partners @ 20 per cent
To Net Profit 1,30,000
Total 4,70,000 4,70,000
Other Information:
1. Expenses include Rs. 18,000 and Rs. 12,000 paid in cash as brokerage to a single
party on a single day.
2. Depreciation calculated as per section 32 is Rs. 40,000
Compute the total income of the firm.
Answer
Computation of Total Income of Lawyers & Co. for A. Y. 2022-23
Particulars Amount Rs.
Net profit as per profit and loss account 1,30,000
Add : Expenses not allowable

Section 40A(3)- Cash payments to a broker exceeding 30,000
Rs. 10,000 (Note 1)
Section 40(b)-Excess interest on capital to partners 20%-12% 8,000 38,000
i.e. (20000*8/20) (Note 2)
Add : Remuneration to partners debited to profit and loss 1,50,000
account
Less : Depreciation u/s 32
(Rs. 40,000-Rs. 20,000 debited in profit and loss account) (20,000)
23
Book profit (Note 3) 2,98,000
Maximum permissible remuneration(lower of the two :
(i.e. 90 per cent of Rs. 2,98,000) 2,68,200
Actual 1,50,000 (1,50,000)
Business Income of the Firm 1,48,000
Tax Liability (30% of 1,48,000) 44,400
Add : Health & Education Cess @ 4% 1,776
Total Tax Liability 46,176
Notes :
1. As per section 40A(3) of the Act, if the aggregate payment made (otherwise than
by an account payee cheque/draft) to the same person during a day exceeds Rs.
10,000/- the entire amount of such payment is disallowed.
2. As per section 40 (b) of the Act, if the interest payable to the partners exceeds
simple interest of 12% per annum, the excess amount is not deductible.
3. It is assumed the partners are working partners. The remuneration paid to the
working partners cannot exceed the permissible limits specified under section
40 (b) of the Act.
Question 19
Alpha Ltd., a manufacturing company, which maintains accounts under mercantile
system, has disclosed a net profit of Rs.12.50 lakhs for the year ending 31st March,
2022. You are required to compute the taxable income of the company for the
Assessment year 2022-23, after considering the following information, duly explaining
the reasons for each item of adjustment:
(i) Advertisement expenditure debited to profit and loss account includes the sum of
Rs. 60,000 paid in cash to the sister concern of a director, the market value of
which is Rs. 52,000.
(ii) Legal charges debited to profit and loss account include a sum of Rs. 45,000 paid
to consultant for framing a scheme of amalgamation duly approved by the
Central Government.
(iii) Repairs of plant and machinery debited to profit and loss account include Rs. 1.80
lakhs towards replacement of worn out parts of machineries.
(iv) A sum of Rs. 6,000 on account of liability foregone by a creditor has been taken to
general reserve. The same was charged to the Revenue Account in the A.Y. 2012-
13.
(v) Sale proceeds of import entitlements amounting to Rs.1 lakh has been credited to
Profit & Loss Account, which the company claims as capital receipt not
chargeable to income-tax.
24
(vi) Being also engaged in the biotechnology business, the company incurred the
following expenditure on in-house research and development as approved by the
prescribed authority:
(a) Research equipments purchased Rs. 1,50,000.
(b) Remuneration paid to scientists Rs. 50,000.
The total amount of Rs. 2,00,000 is debited to the profit and loss account. Assume Tax Rate
30%
Answer
Computation of total income of Alpha Ltd. for A.Y. 2022-23
Amount
Particulars (Rs.)
Net profit as per profit and loss account 12,50,000
Add : Items debited to profit and loss A/c but not deductible
1. Payment of advertisement expenditure of Rs. 60,000
(i) Rs. 8,000, being the excess payment to a relative disallowed 8,000
under section 40A(2)
(ii) As the payment is made in cash and since the remaining 52,000
amount of Rs. 52,000 exceeds Rs. 10,000, 100% shall be
disallowed under section 40A(3)
2. Legal charges for framing amalgamation scheme (deductible under
section 35DD in five years). 1/5th of Rs.45,000 i.e. Rs. 9,000 to be 36,000
allowed in the current year. Balance Rs. 36,000 (Rs. 45,000 -
Rs.9,000)is to be added back (Note)
3. Under section 31, expenditure relatable to current repairs regarding
plant, Machinery or furniture is allowed as deduction.
The test to determine whether replacement of parts of machinery
amounts to repair or renewal is whether the replacement is one
which is in substance replacement of defective parts or replacement
of the entire machinery or substantial part of the entire machinery
[CIT v. Darbhanga Sugar Co. Ltd. [1956] 29 ITR 21 (Pat)].
Here expenditure on repairs does not bring in any new asset into
existence. Such replacement can only be considered as current
repairs.
Hence, no adjustment is required.
Add: Items chargeable as business income but not credited to profit and loss
A/c
4. Liability foregone by creditor [taxable under section 41(1)] 6,000
5. Sale proceeds of import entitlements. The sale of the rights gives rise
to profits or gains taxable under section 28(iiia). As the amount has
already been credited to profit and loss account, no further
25
adjustment is necessary. —
6. Expenditure on in-house research and development is entitled to a

weighted deduction of 150% of the expenditure (both capital and
(1,00,000)
revenue) so incurred under section 35(2AB)(1) = Rs. 2 lakhs x 150%
= Rs. 3 lakhs
Expenditure of Rs. 2,00,000 has already been debited to Profit & Loss
Account, therefore only additional deduction of Rs. 1 lakh further to
be allowed.
Taxable Income 12,52,000

Tax Liability (30% of 12,52,000) 3,75,600
Add : Health & Education cess @ 4% 15024
Total Tax Liability R/O 390620
Note: As per section 35DD, any expenditure incurred wholly and

exclusively for the purpose of amalgamation, would be allowed as a
deduction in 5 successive years (1/5th each year) commencing from the
year in which the amalgamation takes place.
26
Question 20
XYZ LLP is being liquidated. Examine the liability of its partners in respect of its tax dues?
Answer
Section 167C of the Income Tax Act, 1961 provides for the liability of partners of LLP in the
event of its liquidation. In case of liquidation of an LLP, where tax due from the LLP cannot
be recovered, every person who was a partner of the LLP at any time during the relevant
previous year will be jointly and severally liable for payment of tax unless he proves that
non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on
his part in relation to the affairs of the LLP. This provision would also apply where tax is
due from any other person in respect of any income of any previous year during which
such other person was a LLP.
Question 21
XYZ LLP has an income of Rs. 72,00,000 under the head ‘profits and gains of business or
profession’. One of its business is eligible for deduction @ 100% of profits under section 80-
IB for the assessment year 2021-22. The profit from such business included in the business
income is Rs. 58,00,000. Compute the tax payable by the LLP, assuming that it has no other
income during the previous year 2022-23.
Answer
Computation of Tax payable by XYZ LLP for AY 2022-23
Total Income 72,00,000
Less : Deduction under section 80 IB (58,00,000)
Taxable Income 14,00,000
Tax @ 30% 4,20,000
Health & Education Cess @4% 16800
Total Tax 4,36,800
Computation of Alternate Minimum Tax
AMT on adjusted Total Income @ 18.5% 13,32,000
Health & Education Cess @4% 53280
Total Tax 13,85,280
Since, the regular income tax payable is less than AMT, the adjusted total income would be
deemed to be the income of LLP and it would be liable to tax @ 18.5% plus cess and Tax
payable will be higher of AMT or Normal tax i.e. Rs. 13,85,280. Further, the LLP would be
eligible for credit in 15 subsequent years to the extent of difference between the AMT and
Normal Tax i.e. Rs. 9,48,480, in the year in which the tax payable under regular provisions
exceeds the AMT.
27
Question 22
Mr. X, carrying on the business of operating a warehousing facility for storage of sugar,
has a total income of Rs. 80 lakh. In computing the total income, he had claimed deduction
under section 35AD to the tune of Rs. 70 lakh on investment in building (on 1.4.2020) for
operating the warehousing facility for storage of sugar. Compute his tax liability for
A.Y.2022-23. Show the calculations of Alternate minimum Tax also.
Answer
Computation of Tax payable by Mr. X for AY 2022-23
Computation of Normal Tax
Particulars Amount (Rs. in lakh)

Tax liability under the normal provisions of the 22.125
Income-tax Act, 1961
Add: Health & Education Cess @4% 0.885
Total Tax Liability 23.01
Computation of Alternate Minimum Tax
Particulars Amount
(Rs. in lakh)
Adjusted Total Income 80.00
Add : Deduction under section 35AD 70.00
Less : Depreciation under section 32 (7.00)
Adjusted Total Income 143.00
AMT @18.5% 26.455
Surcharge @ 15% (since adjusted total income> Rs. 100 lakh) 3.968
Tax 30.423
Add: Health & Education cess @4% 1.216
Total tax Liability 31.639
Since, the regular income tax payable is less than the AMT payable, the adjusted total
income of Rs. 143 lakhs shall be deemed to be the total income of Mr. X and tax is payable
@18.5% thereof plus surcharge @ 15% and cess @4%. Therefore, tax liability is 31.639
lakhs.
However, Mr. X would be eligible for credit in 15 subsequent years to the extent of
difference between the AMT and Normal Tax i.e. Rs. 8.629 lakhs.
28
Question 23
Minimum Alternate Tax (MAT) is attracted under section 115JB, on account of tax on total
income being less than 15% of net profit as per the profit and loss account for the relevant
previous year. Comment
Answer
The statement is incorrect as, the minimum alternate tax (MAT) is attracted under section
115JB, on account of tax on total income being less than 15% of book profit. Chapter XII-B
is a self contained code for computation of book profit. The net profit as per the profit and
loss account for the relevant previous year prepared in accordance with the provisions of
Companies Act, 2013, as increased/reduced by the specified adjustments provided for in
Explanation 1 to section 115JB would be the book profit for levy of MAT under section
115JB.
The rate of MAT has been reduced from 18.5% to 15% vide amendment in sub-section (1) of
section 115JB by the Taxation Laws (Amendment) Act applicable for FY 2019-20onwards.
Question 24
“The provisions of section 115JB are not applicable in case of foreign companies”. Examine
in the context of the provisions contained in the various Chapters of the Income Tax Act,
1961.
Answer
The statement is incorrect; since, there is no provision in section 115JB restricting its
applicability to only domestic companies and therefore, section 115JB is applicable to both
domestic and foreign companies. The provisions of section 115JB are applicable in the case
of an assessee, being a company, where 15% of its book profit exceeds the tax payable on
the total income computed under the normal provisions of the Act. Therefore, the
provisions of section 115JB would be attracted both in the case of a domestic as well as a
foreign company, if the tax payable on its total income is less than 15% of its book profit.
However, section 115JB will not be applicable to a foreign company which has no presence
or permanent establishment in India - Timken Company., In re. (2010) 326 ITR 193 / 193
Taxman 20 (AAR- New Delhi).
The rate of MAT has been reduced from 18.5% to 15% vide amendment in sub-section (1) of
section 115JB by the Taxation Laws (Amendment) Act applicable for FY 2019-20 onwards.
Question 25
Parul Pvt. Ltd. made a provision of Rs. 50 lakhs for doubtful debts by debit to profit and
loss account. The Assessing Officer, while computing book profit under section 115JB,
disallowed the provision for doubtful debts. Is the action of Assessing Officer justified?
Comment.
29
Answer
Explanation 1 under section 115JB(2) has been amended to provide that the net profit
should also be increased by, inter alia, the amount set aside as provision for diminution in
the value of any asset, if the same has been debited to profit and loss account, for
computing the book profit.
Therefore, the Assessing Officer is justified in disallowing (adding back) the provision of
Rs.50 lakhs for doubtful debts while computing book profit.
Question 26
ABC Ltd. has invested in bonds of National Highway Authority of India within the
prescribed time and claimed exemption on the income from long-term capital gains under
section 54EC. Further, it also claimed exclusion of long-term capital gains in the
computation of "book profit" under section 115JB because of exemption available on it by
virtue of section 54EC.
The Assessing Officer however, reckoned the book profit including long-term capital gains
for the purpose of levy of minimum alternate tax payable under section 115JB. Is the
action of the Assessing Officer justified? Comment.
Answer
The issue under consideration in this case is whether long-term capital gain exempted by
virtue of section 54EC can be included in the book profit computed under section 115JB for
levy of minimum alternate tax.
As long-term capital gains are part of the profits included in the profit and loss account
prepared in accordance with the provisions of Companies Act, capital gains cannot be
excluded unless provided under Explanation 1 to section 115JB.
Since, Explanation 1 to section 115JB does not provide for deduction in respect of capital
gain in course of investment in bonds of National Highways Authority of India within the
prescribed time, the long term capital gains so exempt would still be taken into account for
computing book profit under section 115JB for levy of MAT. The same was so held by the
Kerala High Court in N. J. Jose and Co. (P.) Ltd. v. ACIT (2010) 321 ITR 0132.
Therefore, the action of the Assessing Officer is justified in law.
Question 27
Whether MAT credit admissible under section 115JAA has to be set-off against the
assessed tax payable before calculating interest under sections 234A, 234B and 234C?
Comment.
Answer
The right to carry forward and set-off MAT credit under section 115JAA arises as soon as
the tax is paid by the assessee under section 115JB. The tax credit allowable can be set-off
by the assessee while computing advance tax/self assessment tax payable for the year.
30
Hon’ble Supreme Court in the case of CIT v. Tulsyan NEC Ltd. (2011) 330 ITR 226 decided
that MAT Credit admissible under section 115JAA has to be set-off against the Assessed tax
payable, before calculating interest under section 234A, 234B and 234C.
Question 28
Compute the net income and tax liability of X Ltd. For the assessment year 2022-23
assuming that X Ltd. has a deemed long-term capital gain of Rs. 60,000 under proviso (i)
tosection 54D(2) which is not credited in profit and loss account.
Sale proceeds of goods (domestic sale) 22,23,900
Sale proceeds of goods (export sale) 5,76,100
Amount withdrawn from General Reserve (created bydebiting the P&L

a\c) 2,00,000
Amount withdrawn from revaluation reserve 1,50,000
Total 31,50,000
Less:
Business Expenses 2,10,000
Depreciation (normal) 6,16,000

Depreciation (extra depreciation because of
revaluation) 2,70,000
Salary & wages 2,85,820
Income-tax 3,50,000
Outstanding customs duty (not paid as yet) 17,500
Proposed Dividend 60,000
Consultation fees paid to a tax expert 1,39,000
Other expenses 21,000 (19,69,320)
Net profit 11,80,680
The company wants to claim/ set off the following:-
31
1. Deduction under section 80-IB (30% of Rs. 11,80,680)
2. Depreciation under section 32 (Rs. 5,36,000)
3. Bought forward the loss of 2013-14 being Rs. 14,80,000 for tax purposes and Rs.
40,00,000 for accounting purpose.
4. Unabsorbed depreciation being Rs. 70,000 for accounting purpose.
5. Assume Tax rate at 25%
Answer
Computation of the net income and tax liability of X Ltd. for the assessment year
2022-23
Tax Liability under normal provisions of Income Tax Act
Particulars Amount (Rs.) Amount (Rs.)
Net profit as per P&L A/c 11,80,680
Add:
Excess depreciation 3,50,000
[i.e., Rs. 6,16,000+Rs. 2,70,000 – Rs. 5,36,000]
Income Tax 3,50,000
Customs Duty which is not paid 17,500
Proposed dividend
60,000
7,77,500
Less:
Amount withdrawn from General reserve 2,00,000
Amount withdrawn from Revaluation reserve 1,50,000
Unabsorbed loss 14,80,000 (18,30,000)
Business Income 1,28,180
Long term capital gain 60,000
Deductions under section 80-IB (30% of 1,28,180) (38,454)

Net Income 1,49,726
Tax Liability 38929
32
Computation of Book Profits and Tax Liability as per MAT provisions
under section 115 JB of the Act
Particulars Amount (Rs.) Amount (Rs.)
Net Profit 11,80,680

Add:
Depreciation
(Rs. 6,16,000+Rs. 2,70,000) 8,86,000
Income Tax 3,50,000
Proposed dividend 60,000 12,96,000
Less:
Amount withdrawn from general reserve 2,00,000
Unabsorbed depreciation 70,000
Normal depreciation 6,16,000
Amount withdrawn from revaluation reserve to
1,50,000 (10,36,000)
the extent it does not exceed extra depreciation
because of revaluation
Book Profit 14,40,680
Tax Liability @ 15.6% (15% plus HEC @ 4%) 2,24,746
X Ltd. will pay Rs. 2,24,746 as tax for the A.Y 2021-22 as per section 115JB. Tax credit
however is available in respect of excess tax (Rs. 1,85,817) under section 115JBB).
Question 28
A non-resident Indian acquired shares on 01.02.2009 for Rs. 2,00,000 in foreign currency.
These shares are sold by him on 01.02.2021 for Rs. 6,00,000. He invests Rs. 6,00,000 in
shares on 31.03.2021 and these shares are sold by him on 30.06.2021 for Rs. 7,00,000.
Discuss the tax implications. Ignore the effect of first proviso to section 48.
Answer
Computation of Long term Capital Gains for AY 2021-22
Sale Consideration 6,00,000
Less: Cost of Acquisition 2,00,000
Long Term Capital Gains 4,00,000
Less: Exemption u/s 115F 4,00,000
Long Term Capital Gains Nil
33
Long Term Capital Gain for AY 2022-23:
LTCG of Rs. 4,00,000 which was exempt in AY 2021-22 becomes taxable.
STCG of Rs. 1,00,000 is also taxable in AY 2022-23.
Question 29
During the Financial Year 2022-23, a badminton professional and a non-Indian citizen
participated in India in a badminton tournament and won prize money of Rs. 30 lakhs. He
contributed articles on the tournament in a local newspaper for which he was paid Rs. 2 lakh.
Although his expenses were met by sponsors, he had incur Rs. 6,00,000 towards his travel costs
to India. He was non-resident for tax purposes in India.
What would be his tax liability in India for AY 2022-23? Is he required to file his return of
income?
Answer
As per the provision of Section 115BBA, where the total income of an assessee being a
sportsman (including an athlete), who is not a citizen of India and is a non-resident, includes
any income received or receivable by way of—
(i) participation in India in any game (other than a game the winnings wherefrom
are taxable under section 115BB) or sport; or
(ii) advertisement; or
(iii) contribution of articles relating to any game or sport in India in newspapers,
magazines or journals;
the income-tax payable by the assessee shall be the aggregate of the amount of income-tax
calculated on income referred above at the rate of 20% and the amount of income-tax with
which the assessee would have been chargeable had the total income of the assessee been
reduced by the amount of income referred above.
Further, no deduction in respect of any expenditure or allowance shall be allowed under any
provision of this Act in computing the income referred above.
It shall not be necessary for the assessee to furnish under sub-section (1) of section 139 a
return of his income if his total income in respect of which he is assessable under this Act
during the previous year consisted only of income referred above and tax deductible at
source under the provisions of Chapter XVII-B has been deducted from such income.
Accordingly, both the receipts in India i.e. prize money of Rs. 30 lakhs and amount received
from newspaper of Rs. 2 lakhs are chargeable to tax u/s 115BBA is @ 20% plus surcharge
(if applicable) and 4% health and education cess. The total tax liability is Rs. 6,65,600.
Further, he is not required to file his return of Income his total income in India consists
only of income arising u/s 115BBA and tax have been deducted.
Question 30
Write short note on tax on distributed income by a company for buy-back of unlisted
shares. Also comment would there be any tax implication in the hands of the shareholders.
Answer
As per section 10 (34A) of Income Tax Act, any income arising on account of buy back of
34
shares by the company as referred to in section 115QA shall be exempt in the hands
shareholders. However, the company shall be liable to pay tax @ 20% plus surcharge
@12% and health and cess @ 4% on such distributed income on account of buy back of
shares. For the purpose of the said section, distributed income means the consideration
paid by the company on buy-back of shares as reduced by the amount which was received
by the company for issue of such shares.
The income arising to the shareholders in respect of such buyback of unlisted shares by the
Company would be exempt under section 10(34A) in their hands.
Question 31
Lal Ltd., a domestic company, purchases its own unlisted shares on 17th August, 2021. The
consideration for buyback amounted to Rs. 18 lakh, which was paid on the same day. Lal
Ltd. had received Rs. 11 lakh on issue of these shares one year back. Compute the
additional income-tax payable by Lal Ltd. Further, determine the interest, if any, payable
if such tax is paid to the credit of the Central Government on 7th November, 2021. Discuss.
Answer
Computation of Tax Liability of Lal Ltd.
Particulars Amount ( lakh Rs.)
Consideration for Buy-Back 18.000
Less : Amount received on Issue of shares (11.000)

Distributed income 7.000
Tax @ 20% 1.400
Surcharge @ 12% of Rs. 1.4 lakhs 0.168
Total tax and surcharge 1.56800
Health & Education Cess @ 4% of Rs. 1.568 lakhs 0.06272
Tax Liability 1.63072
The additional income-tax was payable on or before 31st August, 2021. However, the same
was paid only on 7th November, 2021. Thus, interest under section 115QB is attracted
@1% for every month or part of the month on the amount of tax not paid or short paid for
the period beginning from the date immediately after the last date on which such tax was
payable and ending with the date on which the tax is actually paid.
In this case, the period for which interest @1% per month or part of a month is leviable is
calculated as under for 3 months (September-November):
Interest = Rs. (1,63,072 x 1/100 x 3) = Rs. 4,892.
35
Question 32
Explain which income received by a foreign company, be taxable in India. Also mention the
basic tax rate applicable to a foreign company which is based in US.
Answer
A non-resident company be chargeable to tax in India in respect of following incomes:
(i) Income received or deemed to be received in India.
(ii) Income accruing or arising or deemed to accrue or arise in India.
The basic tax rate applicable in respect of the above incomes for the US based company
which is a foreign company is 40% in India. Further, surcharge @ 2% is applicable in case
the taxable income exceeds Rs. 1 crore and is up to Rs. 10 crore, and @5% if the income
exceeds Rs. 10 crore in the previous year. The Health & Education cess @ 4% are also
payable.
Question 33
Determine the tax liability of income of Japan based company Fujistu Ltd., in India on
entering following transactions during the financial year 2022-23:
a) Rs. 5 lakhs received from an Indian domestic company for providing technical know
how in India.
b) Rs. 6 lakhs from an Indian firm for conducting the feasibility study for the new
project in Finland.
c) Rs. 4 lakhs from a non-resident for use of patent for a business in India.
d) Rs. 8 lakhs from a non-resident Indian for use of know how for a business in
Singapore.
e) Rs. 10 lakhs for supply of manuals and designs for the business to be established in
Singapore.
Assume there is no Double Avoidance Tax Agreement and all foreign Income are taxable in
India only.
Answer
Computation of Tax Liability of Fujitsu Ltd.
S. No Particulars Amount in
lakhs (Rs.)
a) Amount received from an Indian domestic company for providing
technical know how in India 5.00
(From Business Connection in India, therefore taxable in India)
b) Amount received from Indian firm for conducting the feasibility Nil
study for the new project in Finland
36
(Not taxable in India as it is for the business outside India)
c) Money received from a non resident for use of patent for a
business in India 4.0
(Amount received for business set up in India is taxable in India)
d) Money received from a non resident Indian for use of know-

howfor a business in Singapore Nil
(The business is outside India, therefore non taxable in India)
e) Payment made for supply of manuals and designs for the
business to be established in Singapore Nil
(Business is to be established outside India, thus not taxable
inIndia)
Tax on Total Income 9.0

Tax @ 40% 3.6
Surcharge -
.144
Health and Education Cess @4%
3.744
Total tax Liability
37
Question 34
Would non-resident match referees and umpires in the games played in India fall within
the meaning of sportsmen to attract taxability under the provisions of section 115BBA of
Income Tax Act, 1961? Discuss briefly with the help of decided case law, if any.
Answer
In the case of Indcom v. CIT, the High Court has held that the payment made to non-resident
match referees & umpires is “income” which has accrued & arisen in India, however, the
same are not taxable under section 115BBA of Income Tax Act as the Umpires and Match
Referee are neither sportsmen (including an athlete) nor they are non-resident sports
association or institution so they do not attract the provisions contained in said section and
the payments made to them do not come within the purview of Section 115BBA.
Question 35
In the context of provisions contained in the Income Tax Act, 1961 examine the
correctness of the following statements:
“Liaison office maintained in India to explore the opportunity of business in India does
not constitute business connection”.
Answer
The statement is correct. If a liaison office is maintained solely for the purpose of
carrying out activities which are preparatory or auxiliary in character, and such
activities are approved by the Reserve Bank of India, then no business connection is
established. In this case the liaison office is maintained for the purpose of exploring the
business opportunity which is in the nature of preparatory or auxiliary activity. It is
assumed that such activities are approved by the Reserve Bank of India. Since it does
not undertake any commercial, trading on industrial activity, directly or indirectly, the
liaison office does not constitute a business connection in this case.
Question 36
X Ltd., a company incorporated in USA has entered into an agreement with Y Ltd. an
Indian company for rendering technical services to the latter for setting up a fertilizer
plant in Orissa. As per the agreement, X Ltd. rendered both off-shore and on-shore
services to Y Ltd at a fees of Rs. 50 lakhs and 1 crores respectively. X Ltd. is of the view
that it is not liable to tax in India in respect of fee of Rs. 50 lakhs as it is for rendering
services outside India. Discuss the correctness of the view of X Ltd.
Answer
The explanation below section 9(2) clarifies that income by way of, inter alia, fess for
technical services from services utilized in India would be deemed to accrue or arise in
India under section 9(1)(vii) in case of non-resident and be included in his total income,
whether or not such services were rendered in India.
38
In this case, the technical services rendered by the foreign company, X Ltd, were for setting
up fertilizer plant in Orissa. Therefore the services were utilized in India. Consequently, as
per section 9(2), the fees of Rs. 1.5 crores for technical services rendered by X Ltd. (both
off-shore and on-shore) to Y Ltd. is deemed to accrue or arise in India and includible in the
total income of X LTd.
Therefore, the view of X Ltd. that it is not liable to tax in India in respect of fee of Rs. 50
lakhs (as it is for rendering service outside India) is not correct.
Question 37
ABC & Co. is a partnership firm consisting of four partners. The partnership deed provides for
remuneration of Rs. 4,00,000 to partners and interest to partners at 12%. Profit for the year
ended 31st March, 2022 is Rs. 1,00,000 after arriving the following adjustments :
Particulars Amount Rs.

Remuneration to partners 4,00,000
Interest to partners on capital account @ 12% 20,000
Municipal tax of house property 5,000
Rent received on house property 50,000
Compute the book profit and remuneration deductible under section 40(b) of the Income tax Act,
1961.
Answer
Computation of book profit for AY 2022-23 and remuneration allowed under section 40(b)
of Income-Tax Act, 1961
Particulars Amount Amount
(Rs.) (Rs.)
Net Profit as per Profit and Loss Account 1,00,000
Add: Remuneration to Partners 4,00,000
Add: Municipal Tax of House Property 5,000 4,05,000
Total 5,05,000
Less : Rent received on House Property (50,000)
Book Profit as per section 40(b) 4,55,000
Remuneration allowed is lower of the amount as per partnership deed (Rs. 4,00,000) or amount
actually paid (Rs. 4,00,000) or the amount computed as under:
Maximum amount deductible on account of payment of remuneration to partners

39
Particulars Amount
First Rs. 300000 @ 90% 2,70,000
Balance of Rs.155000@ 60% 93,000
Total 3,63,000
Lower of above i.e. Rs. 363000 is the maximum remuneration permissible u/s 40(b).
Question 38
Briefly explain the provision of section 115 BBG of the Income Tax Act, 1961, regarding taxability of
income earned from transfer of ‘‘Carbon Credits’’?
Answer
Tax on Income from transfer of Carbon Credits [Section 115BBG]: Where the total income of an assessee
includes any income by way of transfer of carbon credits, the income-tax payable shall be the aggregate of:
(a) amount of income-tax calculated on the income by way of transfer of carbon credits, at the rate of 10%; and
(b) the amount of income-tax with which the assessee would have been chargeable had his total income been
reduced by the amount of income referred to in clause (a).
Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall
be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) of
sub-section (1).
Explanation : "carbon credit" in respect of one unit shall mean reduction of one tonne of carbon dioxide
emissions or emissions of its equivalent gases which is validated by the United Nations Framework on Climate
Change and which can be traded in market at its prevailing market price.
Question 39
An individual has business income of Rs. 35,00,000 for previous year 2021-22. He for the previous year
2020-21 was subject to Alternate Minimum Tax (AMT) because of claiming deduction under section 80-
IE of Income Tax Act, 1961. He has an AMT credit of Rs. 5,00,000.
Calculate the tax to be paid by him for assessment year 2022-23 assuming assessee has not opted for
section 115BAC of the Income tax Act, 1961. Also work out the amount of balance of available AMT
credit.
40
Answer
Computation of Tax Liability for AY 2022-23 of an Individual

Normal Tax Liability on Income of Rs. 35,00,000
On Rs. 2,50,000 – Nil Nil
On (Rs. 5,00,000 – Rs. 2,50,000) @ 5% 12,500
On (Rs. 10,00,000 – Rs. 5,00,000) @ 20% 1,00,000
Balance (Rs. 35,00,000 – Rs. 10,00,000) @ 30% 7,50,000
Total Tax Liability (excluding cess) 8,62,500
Add : Health and Education Cess @ 4% 34,500
Total Tax Liability 8,97,000
Alternate Minimum Tax ‘AMT’ @ 19.24% (18.5% + 4% cess) on Rs. 6,73,400
35,00,000
The tax payable by the assessee shall be Rs. 6,73,400 out of total tax liability of Rs. 8,97,000 after
taking credit of AMT of Rs. 2,23,600. The Assessee will carry forward the balance AMT of Rs.
2,76,400 (Rs. 5,00,000 – Rs. 2,23,600)
***
41
General Anti Avoidance Rules
Question 1
What is General Anti Avoidance Rules ‘GAAR’ and it applicability?
Answer
GAAR refers to General Anti-Avoidance Rules. These rules target any transaction or
business arrangement that is entered into with the objective of avoiding tax. The objective
is to check aggressive tax planning.
It may be noted that the GAAR provisions would be applicable to all taxpayers irrespective
of their residential or legal status (i.e. resident or non-resident, corporate entity or non-
corporate entity). The provisions also apply to all transactions and arrangements
irrespective of their nature (i.e. business or non-business) if, the tax benefit accrues to the
taxpayer and he fails to establish that the main purpose of entering into that
transaction/arrangement was not to obtain tax benefit. For GAAR provisions, it is also not
relevant whether transactions/ arrangements are entered into with group concerns or
third parties and whether they are domestic or cross-border transactions.
For calculation of threshold of INR 30 million (that is, Rs 3 Crores as per the Rules), only
the tax benefit enjoyed in Indian jurisdiction due to the arrangement or part of the
arrangement is to be considered. Such benefit is assessment year specific. GAAR is with
respect to an arrangement or part of the arrangement and limit of INR 30 million cannot be
read in respect of a single taxpayer only
Question 2
What is the Implication of GAAR implementation?
Answer:
The implication of GAAR is that the Income-tax department will have powers to
deny tax benefit if a transaction was carried out exclusively for the purpose of
avoiding tax.
For example, if an entity is set up in Mauritius with the sole intention of claiming
exemption from capital gains tax, the tax authorities have the right to deny the claim
for exemption provided under the India-Mauritius tax treaty.
Question 3
When can an arrangement be declared as an Impermissible Avoidance Arrangement

(IAA)?
42
Answer:
The Income Tax Commissioner will be empowered to declare an arrangement as an

Impermissible Avoidance Arrangement (IAA) if:
(a) creates rights, or obligations, which are not ordinarily created between persons dealing at
arm's length;
(b) results, directly or indirectly, in the misuse, or abuse, of the provisions of this Act;
(c) lacks commercial substance or is deemed to lack commercial substance under section 97,
in whole or in part; or
(d) is entered into, or carried out, by means, or in a manner, which are not ordinarily
employed for bona fide purposes.
This is so far reaching in nature that almost each and every transaction, which results in
saving tax could be regarded as an IAA.
This means that GAAR enables tax authorities to declare any arrangement entered into by a
taxpayer as an IAA. If it is so declared, then the tax authorities can disregard, combine or re-
characterize any step of such arrangement or the entire arrangement, disregard any
accommodating party involved in such arrangement, treat the transaction as if it had not
been entered into or carried out, reallocate any income or expenditure, look through any
arrangement by disregarding any corporate structure, re-characterize debt as equity or
vice-versa and so on.
In effect, for tax purposes, any transaction can be treated in a manner different from the
manner in which it is carried out if it is regarded as an IAA.
Question 4
Difference between Tax Avoidance and Tax Evasion?
Answer:
Tax Evasion and Tax avoidance are two different things. While Avoidance is legal
management to avoid tax, evasion is illegal means to reduce tax liabilities, i.e. falsification of
books, suppression of income, overstatement of deductions, etc.
Tax planning, as opposed to tax evasion which is illegal, is an accepted practice whereby
the tax-payer uses provisions of the law or loopholes to minimise his tax liability.
Some countries, in addition to GAAR, have Specific Anti-Avoidance Rules (SAAR) to plug
particular loopholes in the law or prevent some types of transactions that result in loss to
Revenue. GAAR has been a part of the tax code of Canada since 1988, Australia since 1981,
South Africa from 2006 and China from 2008. Australia and China also have SAAR in place
to check abuse of tax treaties and transfer pricing.
Question 5
What is Round Trip Financing?
Answer:
Section 97(2) of the Income Tax Act defines round trip financing to include any
arrangement in which, through a series of transactions, funds are transferred among the
43
parties to the arrangement and such transactions do not have any substantial commercial
purpose other than obtaining the tax benefit.
Question 6
Difference between General Anti Avoidance Rules ‘GAAR’ and Specific Anti Avoidance Rules
‘SAAR’?
Answer:
Specific Anti Avoidance Rules ‘SAAR’
These are specific and help reduce time and costs involved in tax litigation
These provide certainty to any tax payer while formalising specific arrangements
These don’t provide any discretion to the tax authorities
There is always a possibility that the tax payers find loopholes and circumvent these
limited application, specific provisions
General Anti Avoidance Rules ‘GAAR’
These involve necessarily granting the discretion to the tax authorities to
invalidate the arrangements as impermissible tax avoidance
They have a far broader application and hence interpreted in a more extensive
manner
GAAR has the potential to counter more effectively and outsmart the tax payers
in their “out of the box thinking” and their approach in devising new means of
tax avoidance
Question 7
Exclusion from GAAR ?
Answer:
Exclusions from GAAR
Rule 10U of the Income-tax Rules provides for certain exclusions from the provisions of
GAAR, which are discussed below:
a) Monetary Threshold: As discussed above, there is a monetary threshold of INR 3
crores for the applicability of GAAR. The threshold has to be seen with respect to
each assessment year. Also, the threshold is not taxpayer-specific and it has to be
determined with regard to all the parties to the arrangement.
b) Exemption to Foreign Institutional Investors (FII) and Foreign Portfolio Investors:
The Rules provide that the provisions of GAAR are not applicable to an FII
c) Exclusion for P-Notes/Investments in FIIs: The provisions of GAAR shall not apply
to a person who is a non-resident in relation to investment made by him by way of
offshore derivative instruments or otherwise, directly or indirectly in a FII. The term
‘offshore derivative instruments’ mainly indicates investments made by way of P-
Notes. Further, there is no threshold in respect of this investment. Even de minimis
stakes are grandfathered by this clause.
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Question 8
Discuss in brief some distinguishing features of General Anti-Avoidance Rules (GAAR) and Specific
Anti-Avoidance Rules (SAAR)?
Answer:
Distinguishing features of General Anti Avoidance Rules (GAAR)
1. These involve necessarily granting the discretion to the tax authorities to invalidate the
arrangements as impermissible tax avoidance.
2. They have a far broader application and hence interpreted in a more extensive manner.
3. GAAR has the potential to counter more effectively and outsmart the tax payers in their "out of
box thinking" and their approach in devising new means of tax avoidance.
Distinguishing features of Specific Anti Avoidance Rules (SAAR)

1. These are specific and help reduce to time and cost involved in tax litigation.
2. These provide certainty to any taxpayer while formalising specific arrangements.
3. These don't provide any discretion to the tax authorities. 4. There is always a possibility that the
tax payer may find loopholes and circumvent the limited applications of specific provisions.
Circular No. 7 of 2017 - Clarifications on implementation of GAAR provisions under the

Income Tax Act, 1961
Question No. 1: Will GAAR be invoked if SAAR applies?

Answer: It is internationally accepted that specific anti avoidance provisions may not
address all situations of abuse and there is need for general anti-abuse provisions in the
domestic legislation. The provisions of GAAR and SAAR can coexist and are applicable, as
may be necessary, in the facts and circumstances of the case.
Question No. 2: Will GAAR be applied to deny treaty eligibility in a case where there is
compliance with LOB test of the treaty?
Answer: Adoption of anti-abuse rules in tax treaties may not be sufficient to address all tax
avoidance strategies and the same are required to be tackled through domestic anti-
avoidance rules. If a case of avoidance is sufficiently addressed by LOB in the treaty, there
shall not be an occasion to invoke GAAR.
Question No. 3: Will GAAR interplay with the right of the taxpayer to select or choose
method of implementing a transaction?
Answer: GAAR will not interplay with the right of the taxpayer to select or choose method
of implementing a transaction.
Question No. 4: Will GAAR provisions apply where the jurisdiction of the FPI is finalised based on
nontax commercial considerations and such FPI has issued P-notes referencing Indian securities?
Further, will GAAR be invoked with a view to denying treaty eligibility to a Special Purpose Vehicle
(SPV), either on the ground that it is located in a tax friendly jurisdiction or on the ground that it
does not have its own premises or skilled professional
45
on its own roll as employees.
Answer: For GAAR application, the issue, as may be arising regarding the choice of entity,
location etc., has to be resolved on the basis of the main purpose and other conditions
provided under section 96 of the Act. GAAR shall not be invoked merely on the ground that
the entity is located in a tax efficient jurisdiction. If the jurisdiction of FPI is finalized based
on non-tax commercial considerations and the main purpose of the arrangement is not to
obtain tax benefit, GAAR will not apply.
Question No. 5: Will GAAR provisions apply to (i) any securities issued by way of bonus
issuances so long as the original securities are acquired prior to 01 April, 2017 (ii) shares
issued post 31 March, 2017, on conversion of Compulsorily Convertible Debentures,
Compulsorily Convertible Preference Shares (CCPS), Foreign Currency Convertible Bonds
(FCCBs), Global Depository Receipts (GDRs), acquired prior to 01 April, 2017; (iii) shares
which are issued consequent to split up or consolidation of such grandfathered
shareholding?
Answer: Grandfathering under Rule 10U(1)(d) will be available to investments made

before 1st April 2017 in respect of instruments compulsorily convertible from one form to
another, at terms finalized at the time of issue of such instruments. Shares brought into
existence by way of split or consolidation of holdings, or by bonus issuances in respect of
shares acquired prior to 1st April 2017 in the hands of the same investor would also be
eligible for grandfathering under Rule 1011(1 )(d) of the Income Tax Rules.
Question No. 6: The expression “investments” can cover investment in all forms of
instrument – whether in an Indian Company or in a foreign company, so long as the
disposal thereof may give rise to income chargeable to tax. Grandfathering should extend to
all forms of investments including lease contracts (say, air craft leases) and loan
arrangements, etc.
Answer: Grandfathering is available in respect of income from transfer of investments

made before 1st April, 2017. As per Accounting Standards, ‘investments’ are assets held by
an enterprise for earning income by way of dividends, interest, rentals and for capital
appreciation. Lease contracts and loan arrangements are, by themselves, not ‘investments’
and hence grandfathering is not available.
Question No. 7: Will GAAR apply if arrangement held as permissible by Authority for
Advance Ruling?
Answer: No. The AAR ruling is binding on the PCIT / CIT and the Income Tax Authorities
subordinate to him in respect of the applicant.
Question No. 8: Will GAAR be invoked if arrangement is sanctioned by an authority such as

the Court, National Company Law Tribunal or is in accordance with judicial precedents
etc.?
Answer: Where the Court has explicitly and adequately considered the tax implication
while sanctioning an arrangement, GAAR will not apply to such arrangement.
Question No. 9: Will a Fund claiming tax treaty benefits in one year and opting to be
46
governed by the provisions of the Act in another year attract GAAR provisions? An example
would be where a Fund claims treaty benefits in respect of gains from derivatives in one
year and in another year sets-off losses from derivatives transactions against gains from
shares under the Act.
Answer: GAAR provisions are applicable to impermissible avoidance arrangements as

under section 96. In so far as the admissibility of claim under treaty or domestic law in
different years is concerned, it is not a matter to be decided through GAAR provisions.
Question No. 10: How will it be ensured that GAAR will be invoked in rare cases to deal
with highly aggressive and artificially pre-ordained schemes and based on cogent evidence
and not on the basis of interpretation difference?
Answer: The proposal to declare an arrangement as an impermissible avoidance

arrangement under GAAR will be vetted first by the Principal Commissioner /
Commissioner and at the second stage by an Approving Panel, headed by judge of a High
Court. Thus, adequate safeguards are in place to ensure that GAAR is invoked only in
deserving cases.
Question No. 11: Can GAAR lead to assessment of notional income or disallowance of real
expenditure? Will GAAR provisions expand the scope of charging provisions or scope of
taxable base and/or disallow the expenditure which is actually incurred and which
otherwise is admissible having regard to diverse provisions of the Act?
Answer: If the arrangement is covered under section 96, then the arrangement will be
disregarded by application of GAAR and necessary consequences will follow.
Question No. 12: A definite timeline may be provided such as 5 to 10 years of existence of
the arrangement where GAAR provisions will not apply in terms of the provisions in this
regard in section 97(4) of the IT Act.
Answer: Period of time for which an arrangement exists is only a relevant factor and not a
sufficient factor under section 97(4) to determine whether an arrangement lacks
commercial substance.
Question No. 13: It may be ensured that in practice, the consequences of a transaction
being treated as an ‘impermissible avoidance arrangement’ are determined in a uniform,
fair and rational basis. Compensating adjustments under section 98 of the Act should be
done in a consistent and fair manner. It should be clarified that if a particular consequence
is applied in the hands of one of the participants, there would be corresponding adjustment
in the hands of another participant.
Answer: Adequate procedural safeguards are in place to ensure that GAAR is invoked in a
uniform, fair and rational manner. In the event of a particular consequence being applied in
the hands of one of the participants as a result of GAAR, corresponding adjustment in the
hands of another participant will not be made. GAAR is an anti-avoidance provision with
deterrent consequences and corresponding tax adjustments across different taxpayers
could militate against deterrence.
Question No. 14: Tax benefit of INR 3 crores as defined in section 102(10) may be
47
calculated in respect of each arrangement and each taxpayer and for each relevant
assessment year separately. For evaluating the main purpose to be obtaining of tax benefit,
the review should extend to tax consequences across territories. The tax impact of INR 3
crores should be considered after taking into account impact to all the parties to the
arrangement i.e. on a net basis and not on a gross basis (i.e. impact in the hands of one or
few parties selectively).
Answer: The application of the tax laws is jurisdiction specific and hence what can be seen
and examined is the Tax Benefit’ enjoyed in Indian jurisdiction due to the ‘arrangement or
part of the arrangement’. Further, such benefit is assessment year specific. Further, GAAR is
with respect to an arrangement or part of the arrangement and therefore limit of Rs. 3
crores cannot be read in respect of a single taxpayer only.
Question No. 15: Will a contrary view be taken in subsequent years if arrangement held to
be permissible in an earlier year?
Answer : If the PCIT/Approving Panel has held the arrangement to be permissible in one
year and facts and circumstances remain the same, as per the principle of consistency,
GAAR will not be invoked for that arrangement in a subsequent year.
Question No. 16: No penalty proceedings should be initiated pursuant to additions made
under GAAR at least for the initial 5 years.
Answer: Levy of penalty depends on facts and circumstances of the case and is not
automatic. No blanket exemption for a period of five years from penalty provisions is
available under law. The assessee, may at his option, apply for benefit u/s 273A if he
satisfies conditions prescribed therein.
***
48
Basics of International Taxation
Part I: Transfer Pricing

Question 1
Discuss the meaning of the term ‘associated enterprise’ as defined under section 92A (1).
Answer
Transfer pricing provision applies only to transaction between associated enterprises.
As per Section 92A(1) an associated enterprise in relation to another enterprise means:
a) An enterprise which participates directly or indirectly or through one or more
intermediaries in the management or control or capital of the other enterprise or
b) An enterprise in respect of which one or more persons who participate directly or
indirectly or through one or more intermediaries in its management or control or
capital are the same persons who participates directly or indirectly or through one
or more intermediaries in the management and control or capital of other
enterprise.
Further, sub-clause (2) of Section 92A(1) states the purposes of Section 92(A)(1), two
enterprises shall be deemed to be associated enterprises if at any time during the previous
year any of the conditions prescribed under this sub clause are satisfied. Section 92A(2)
enlists 13 situations in which two enterprises shall be deemed to be associated enterprises
if the prescribed conditions are satisfied.
Question 2
Discuss the meaning of the term ‘deemed associated enterprise’ as defined under section
92A (2).
Answer
Two enterprises shall be deemed to be associated enterprises if, at any time during the previous
year, any of the conditions prescribed below are satisfied. Section 92A(2) enlists 13
situations in which two enterprises shall be deemed to be associated enterprises as
follows:
(a) one enterprise holds, directly or indirectly, shares carrying not less than twenty-six
per cent of the voting power in the other enterprise; or
(b) any person or enterprise holds, directly or indirectly, shares carrying not less than
twenty-six per cent of the voting power in each of such enterprises; or
(c) a loan advanced by one enterprise to the other enterprise constitutes not less than
fifty-one per cent of the book value of the total assets of the other enterprise; or
(d) one enterprise guarantees not less than ten per cent of the total borrowings of the
other enterprise; or
49
(e) more than half of the board of directors or members of the governing board, or one
or more executive directors or executive members of the governing board of one
enterprise, are appointed by the other enterprise; or
(f) more than half of the directors or members of the governing board, or one or more
of the executive directors or members of the governing board, of each of the two
enterprises are appointed by the same person or persons; or
(g) the manufacture or processing of goods or articles or business carried out by one
enterprise is wholly dependent on the use of know-how, patents, copyrights, trade-
marks, licences, franchises or any other business or commercial rights of similar
nature, or any data, documentation, drawing or specification relating to any patent,
invention, model, design, secret formula or process, of which the other enterprise is
the owner or in respect of which the other enterprise has exclusive rights; or
(h) ninety per cent or more of the raw materials and consumables required for the
manufacture or processing of goods or articles carried out by one enterprise, are
supplied by the other enterprise, or by persons specified by the other enterprise,
and the prices and other conditions relating to the supply are influenced by such
other enterprise; or
(i) the goods or articles manufactured or processed by one enterprise, are sold to the
other enterprise or to persons specified by the other enterprise, and the prices and
other conditions relating thereto are influenced by such other enterprise; or
(j) where one enterprise is controlled by an individual, the other enterprise is also
controlled by such individual or his relative or jointly by such individual and relative
of such individual; or
(k) where one enterprise is controlled by a Hindu undivided family, the other
enterprise is controlled by a member of such Hindu undivided family or by a relative
of a member of such Hindu undivided family or jointly by such member and his
relative; or
(l) where one enterprise is a firm, association of persons or body of individuals, the
other enterprise holds not less than ten per cent interest in such firm, association of
persons or body of individuals; or
(m) there exists between the two enterprises, any relationship of mutual interest, as
may be prescribed.
Question 3
Explain in the following cases whether the entities shall be deemed to be 'associated
enterprises' under section 92A(2) of the Income tax Act, 1961 :
(i) Run India Ltd has 12 directors on its Board, out of which 6 directors are appointed
by Race Ltd.
(ii) Cane UK Ltd. possesses 25% of the voting power in Bane (India) Pvt. Ltd.
(iii) Joy India's total borrowings amounted to Rs. 1000 crore, out of which guarantee
has been given by Chapple India Ltd., for a borrowing of Rs. 400 crore.
50
Answer
(i) Two enterprises shall be deemed to be Associated Enterprises, if more than half of
the directors or members of the board of one enterprise are appointed by other
enterprise.
In the given case:-
Race Ltd. has appointed only half (6 out of 12) of the directors on the Board of Run
India Ltd. Thus, both are not Associated Enterprises.
(ii) Two enterprises shall be deemed to be Associated Enterprises, if one enterprise
holds, directly or indirectly, shares carrying not less than twenty-six per cent of the
voting power in the other enterprise.
In the given case, the volume of voting power possessed by Cane UK Ltd. in Bane
(India) Pvt. Ltd. is less than 26%, thus they are not Associated Enterprises.
(iii) Two enterprises shall be deemed to be Associated Enterprises, if one enterprise
guarantees not less than ten per cent of the total borrowings of the otherenterprise;
Here, as the percentage of borrowings guaranteed by Chapple India Ltd. is 40% ( Rs.
400 crore out of Rs 1000 crore) is more than the prescribed limit thus, Joy India
Ltd. and Chapple India Ltd., are deemed to be Associated Enterprises.
Question 4
Brat Inc. of U.K. holds 9% shares in Pit Ltd. of India. The total book value of Assets of Pit
Ltd., is Rs. 57,25,000. Brat Inc. of U.K. has given a loan to Pit Ltd. of Rs. 30,00,000. Examine
whether Brat Inc and Pit Ltd. are associated enterprises.
Answer
Two enterprises shall be deemed to be Associated Enterprises, if a loan advanced by one
enterprise to other constitutes not less than 51% of the book value of total assets of other
enterprise.
In the given case:-
Total book value of Pit Ltd. is Rs. 57,25,000/-
51% of Rs. 57,25,000/- = Rs. 29,19,750/-
Loan given by the UK company = Rs. 30,00,000/-
Since, the loan amount is more than 51% of the book value of the total assets of the Indian
company, Brat Inc. and Pit Ltd. are deemed to be Associated Enterprises.
Question 5
Coco Ltd. supplied consumables and raw material of Rs. 300 crore to Parrot Ltd. Total
consumables and raw materials consumed by Parrot Ltd. was Rs. 400 crore.
Answer
Two enterprises shall be deemed to be Associated Enterprises, if, 90% or more of the raw
materials and consumables required for the manufacture or processing of goods or articles
51
carried out by one enterprise, are supplied by the other enterprise, or by persons specified
by the other enterprise, and the prices and other conditions relating to the supply are
influenced by such other enterprise.
Here, Coco Ltd. supplied 75% of the raw material (i.e. raw material worth Rs. 300 crore out
of Rs. 400 crore) to Parrot Ltd. Therefore, Coco Ltd. and Parrot Ltd. would not be associated
enterprises.
Question 6
Indira Ltd, an Indian Company supplied billets to Charles Ltd. an UK based company which
holds 40% of the shares of Indira Ltd., during the previous year 2021-22. Indira Ltd. also
supplied the same product to another UK based company, Vales Ltd., an unrelated entity.
The transactions with Charles Limited are priced at Euro 400 per MT (FOB), whereas the
transactions with Vales Ltd. are priced at Euro 700 per MT (CIF). Insurance and Freight
amounts to Euro 200 per MT. Compute the arm's length price for the transaction with
Charles. Limited.
Answer
Here, since the foreign company, Charles Ltd., holds more than 26% shares in Indira Ltd.,
both be deemed to be associated enterprises within the meaning of section 92A.
As Indira Ltd. supplies similar product to an unrelated entity, Vales Ltd. UK, the
transactions between Indira Ltd. and Vales Ltd. can be considered as comparable
uncontrolled transactions for the purpose of determining the arm’s length price of the
transactions between Indira Ltd. and Charles Ltd.
Thus, Comparable Uncontrolled Price (CUP) method of determination of arm’s length price
(ALP) would be applicable in this case.
Transactions with Chalres Ltd. are on FOB basis, whereas transactions with Vales Ltd. are
on CIF basis. This difference has to be adjusted before comparing the prices.
Particulars Amount (in Euro)
Price per MT of billets to V Ltd. 700
Less : Cost of insurance and freight per M.T. (200)
Adjusted price per M.T. 500
Since, the adjusted price for Vales Limited, UK is greater than the price fixed for Charles
Ltd., the arm’s length price be Euro 500 per MT.
Question 7
Transfer pricing rules shall have no implication where the income is computed on the
basis of book profits. Comment.
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Answer
The statement is correct. For the purpose of computing book profit for levy of minimum
alternate tax, the net profit shown in the profit and loss account prepared in accordance
with the companies that can be increased/decreased only by the addition / deductions
specified in explanation to section 115JB. No other adjustments can be made to arrive at
the book profit for the levy of MAT, except where:
a) it is discovered that the profit and loss account is not drawn up in accordance with
the relevant schedule of the Companies Act
b) incorrect accounting policies and or accounting standards have been adopted for
preparing such accounts and
c) the method and rate of the depreciation adopted is not correct.
Therefore transfer pricing adjustment cannot be made while computing book profit for
levy of MAT.
Question 8
Explain how the arm’s length price in relation to an international transaction is computed
under ‘resale price method’ as per rule 10B(1)(b) of the Income-tax Rules, 1962.
Answer
Rule 10B (1) (b) of Income tax Rules, 1962 prescribes Resale Price method under which
arm’s length price is determined in the following manner:
(a) The price at which property purchased or services obtained by the enterprise from
an associated enterprise is resold or are provided to an unrelated enterprise is
identified;
(b) Such resale price is reduced by the amount of a normal gross profit margin accruing
to the enterprise or to an unrelated enterprise from the purchase and resale of the
same or similar property or from obtaining and providing the same or similar
services, in a comparable uncontrolled transaction, or a number of such
transactions;
(c) The price so arrived at is further reduced by the expenses incurred by the
enterprise in connection with the purchase of property or obtaining of services;
(d) The price so arrived at is adjusted to take into account the functional and other
differences, including differences in accounting practices, if any, between the
international transaction and the comparable uncontrolled transactions, or between
the enterprises entering into such transactions, which could materially affect the
amount of gross profit margin in the open market;
(e) The adjusted price arrived as under (d) is taken to be an arm’s length price in
respect of the purchase of the property or obtaining of the services by the enterprise
from the associated enterprise.
Example: A sold a machine to B (Associated Enterprise) and in turn B sold the same
machinery to C (an independent party) at sale margin of 30% for Rs. 4,00,000 but B has
incurred expenses of Rs. 4000 in sending the machine to C. Here Arm’s length price would
be calculated as:
53
Sales price to B = Rs. 4,00,000
Less : Gross Margin = Rs. 4,00,000 × 30%= Rs.1,20,000
Less : Expenses incurred by B = Rs.4,000
Arm’s length price = Rs. 2,76,000
Question 9
Write a short note on Advance Pricing Agreement (APA).
Answer
“An APA is an agreement between a tax payer and tax authority determining the transfer
pricing methodology for pricing the tax payer’s international transactions for future years.”
Types of APA’s
• Unilateral APA: an APA that involves only the tax payer and the tax authority of the
country where the tax payer is located.
• Bilateral APA (BAPA): an APA that involves the tax payer, associated enterprise (AE)
of the tax payer in the foreign country, tax authority of the country where the tax
payer is located, and the foreign tax authority.
• Multilateral APA (MAPA): an APA that involves the tax payer, two or more AEs of the
tax payer in different foreign countries, tax authority of the country where the tax
payer is located, and the tax authorities of AEs.
Benefits of APA’s
• Certainty with respect to tax outcome of the tax payer’s international transactions,
by agreeing in advance the arm’s length pricing or pricing methodology (ies) to be
applied to the tax payer’s international transactions covered by the APA.
• Removal of an audit threat (minimize rigours of audit), and deliverance of a
particular tax outcome based on the terms of the agreement.
• Substantial reduction of compliance costs over the term of the APA.
• For tax authorities, an APA reduces cost of administration and also frees scarce
resources.
Procedure for an APA
• An application for a unilateral agreement should be made to the Director General of

Income Tax (International Taxation) (DG-IT).
• For BAPA/MAPA, application should be made to the Competent Authority (CA) in

India. The CA will send the application to DG-IT who in turn will send it to
respective APA teams.
• In the case of BAPA/MAPA, negotiations between the CAs of India and other country
(ies) shall be carried out in accordance with the provisions of the tax treaties.
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• Further, the process in India will be initiated, only after filing the application with
the CAs in the AEs’ jurisdiction and evidence to that effect is provided to the Indian
CA.
Question 10
Briefly explain the concept of rollback provisions under the Advance Pricing Agreement
(APA).
Answer
The Finance (No.2) Act, 2014 introduced the rollback provisions under the Advance Pricing
Agreement (APA) program. The roll back provisions were made applicable to the APAs
signed or applied post 1st October 2014.
An Advance Pricing Agreement (APA) is an ahead of time agreement between a taxpayer

and a taxing authority on an appropriate transfer pricing methodology for some set of
transactions at issue over a fixed period of time. The Roll Back provisions allow an APA
entered into from April 1, 2013 to be applied to four previous years for the international
transactions covered in the APA. Rules/regulations, including the manner in which the
Rollback will apply to bilateral APAs have been notified on vide Notification No. S.O. 758 of
2015 (E) dated 14th March 2015.
Question 11
State the consequences that would follow, if the Assessing Officer makes adjustment to
arm’s length price in international transactions of the assessee resulting in increase in
taxable income. What are the remedies available to the assessee to dispute such
adjustment?
Answer
In case the Assessing Officer makes adjustment to arm’s length price in an international
transaction it will results in increase in taxable income of the assesse. Further, the
following consequences shall follow:-
(a) No deduction under section 10AA or Chapter VI-A of Income tax Act shall be allowed
from the income so increased.
(b) No corresponding adjustment would be made to the total income of the other
associated enterprise (in respect of payment made by the assessee from which tax
has been deducted or is deductible at source) on account of increase in the total
income of the assessee on the basis of the arm’s length price so recomputed.
The remedies available to the assessee to dispute such an adjustment are:-
1) In case the assessee is an eligible assessee under section 144C of Income tax Act he
can file his objections to the variation made in the income within 30 days [of the
receipt of draft order by him] to the Dispute Resolution Panel and Assessing Officer.
Appeal against the order of the Assessing Officer in pursuance of the directions of
the Dispute Resolution Panel can be made to the Income-tax Appellate Tribunal.
55
2) In any other case, he can file an appeal under section 246A of the Act to the
Commissioner (Appeals) against the order of the Assessing Officer within 30 days of
the date of service of notice of demand.
3) The assessee can opt to file an application for revision of order of the Assessing
Officer under section 264 within one year from the date on which the order sought
to be revised is communicated, provided the time limit for appeal to the
Commissioner (Appeals) or the Income-tax Appellate Tribunal has expired or the
assessee has waived the right of such an appeal. The eligibility conditions stipulated
in section 264 should be fulfilled.
Question 12
Discuss whether adjustment is required in the context of transfer pricing provisions where
the transfer price adopted for an international transaction on sale of goods by an Indian
company during the financial year 2021-22, is Rs. 25 lakhs whilst the Arm’s Length Price
determined using appropriate method are Rs. 25 lakhs and Rs. 27 lakhs. Assume that the
rate of permissible variation prescribed by the Central Government is 3% of the transfer
price for this class of international transaction.
Answer
The proviso to section 92C (2) of Income tax Act, provides that where more than one price
is determined by the most appropriate method, the arm's length price (ALP) shall be taken
to be the arithmetical mean of such prices. However, if the arithmetical mean, so
determined, is within such percentage of the transfer price notified by the central
government, then the transfer price shall be deemed to be the arm's length price and no
adjustment is required to be made.
Here, the arithmetical mean of the prices =
(Rs. 25 + Rs. 27) / 2 = Rs. 26 lakhs
Permissible variation =
3% of 25 lakhs = 0.75 lakhs
Thus, since the variation between the arm’s length price of Rs. 26 lakhs and the transfer
price of Rs. 25 lakhs is outside 3% of Transfer Price (i.e., Rs. 0.75 lakhs), adjustment in
price is required.
Question 13
List out the method for determination of arm’s length price?
Answer:
Computation of arm's length price [Section 92C]
The arm's length price in relation to an international transaction or specified domestic
transaction shall be determined by any of the following methods, being the most
appropriate method, having regard to the nature of transaction or class of transaction or
class of associated persons or functions performed by such persons or such other relevant
factors as the Board may prescribe namely:
56
(a) comparable uncontrolled price method;
(b) resale price method;
(c) cost plus method;
(d) profit split method;
(e) transactional net margin method;
(f) such other method as may be prescribed by the Board.
The most appropriate method referred to in sub-section (1) shall be applied, for
determination of arm's length price, in the manner as may be prescribed.
Provided that where more than one price is determined by the most appropriate method,
the arm's length price shall be taken to be the arithmetical mean of such prices:
Provided further that if the variation between the arm's length price so determined and
price at which the international transaction or specified domestic transaction has actually
been undertaken does not exceed such percentage not exceeding three per cent of the
latter, as may be notified by the Central Government in the Official Gazette in this behalf,
the price at which the international transaction or specified domestic transaction has
actually been undertaken shall be deemed to be the arm's length price :
Provided also that where more than one price is determined by the most appropriate
method, the arm's length price in relation to an international transaction or specified
domestic transaction undertaken on or after the 1st day of April, 2014, shall be computed
in such manner as may be prescribed and accordingly the first and second proviso shall not
apply.
Question 14
Explain the term ‘Specified Domestic Transaction’?
Answer:
Meaning of specified domestic transaction [Section 92BA]
For the purposes of this section and sections 92, 92C, 92D and 92E, "specified domestic
transaction" in case of an assessee means any of the following transactions, not being an
international transaction, namely:
(i) any transaction referred to in section 80A;
(ii) any transfer of goods or services referred to in sub-section (8) of section 80-IA;
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(iii) any business transacted between the assessee and other person as referred to in
sub-section (10) of section 80-IA;
(iv) any transaction, referred to in any other section under Chapter VI-A or section
10AA, to which provisions of sub-section (8) or sub-section (10) of section 80-IA are
applicable; or
(v) any other transaction as may be prescribed,
and where the aggregate of such transactions entered into by the assessee in the previous
year exceeds a sum of twenty crore rupees.
Question 15
Discuss the factors to be considered by the Assessing Officer while selecting the appropriate transfer
pricing method?
Answer:
Factors to be considered by the Assessing Officer while selecting an appropriate transfer pricing
method are as under:
1. The nature and class of the International or Specified Domestic Transaction.
2. The class or classes of Associated Enterprises entering into the transactions and the functions
performed by them taking into account assets employed or to be employed and risk assumed by
each enterprises.
3. The availability, coverage and reliability of data necessary for application of the method.
4. The degree of comparability existing between the International transaction or Specified
Domestic Transaction and the uncontrolled transaction, and between the enterprises entering
into such transaction
5. The extent to which reliable and accurate adjustments can be made to account for differences, if
any, between the International or Specified Domestic Transaction and the comparable
uncontrolled transactions or between the enterprises entering into such transactions.
6. The nature, extent and reliability of assumptions required to be made in the application of the
method.
Question 16
Discuss in brief a few benefits derived from the Safe Harbour Rules, relating to the transfer pricing
regulations?
Answer:
Benefits derived from Safe Harbour Rules are as under:
1. Compliance Simplicity: Safe Harbour Rules tends to substitute requirements in place of existing
regulations, thereby reducing compliance burden and associated costs for eligible taxpayers, who would
otherwise be obligated to dedicate resources and time to collect, analyze and maintain extensive data to
support their inter-company transactions.
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2. Certainty and Reduce litigation: Electing Safe Harbours may grant a greater sense of assurance to
taxpayers regarding acceptability of their transfer price by the authorities without onerous audits. This
conserves administrative and monetary resources for both the taxpayer and tax administration.
3. Administrative Simplicity: Since Tax administration would be required to carry out only a minimal
examination in respect of taxpayers opting for safe harbours, they can channelize their efforts to examine
more complex and high - risk transactions and high- risk transactions and taxpayers.
Question 17
ABC Ltd. is a foreign subsidiary company of XYZ Ltd. XYZ Ltd. sells refrigerators to ABC Ltd. at a
price of Rs. 10,000 each for sale to its dealers in Singapore. In other States, XYZ Ltd. is directly
selling to their dealers at Rs. 12,000 with a warranty of one year (Rs. 500 for each fridge). ABC
Ltd. does not offer such warranty. Quantity sold to ABC Ltd. is 8000 units and to dealers of XYZ
Ltd. is 3000 units.
Discuss the method to be applied to arrive at the arm’s length price and compute the ALP.
How is the assessment of XYZ Ltd. going to be affected?
Answer:
ABC Ltd. and XYZ Ltd. are associated enterprise as ABC Ltd is subsidiary of XYZ Ltd. Comparable
product (fridge) is sold to dealers (Uncontrolled transactions). Hence in given circumstances
Comparable Uncontrolled Price (CUP) Method for determining arm’s length price can be
applied.
Particulars Amount
Sale price charged to Dealers of XYZ Ltd. 12,000
Less cost of warranty included in price (5,00)
Arm length price 11,500
Actual price paid by ABC Ltd. to XYZ Ltd. 10,000
Difference per unit 1,500
Addition required to be made in the computations of the total Income of 12,00,0000
XYZ Ltd. (1500 x 8000 units)
No deduction under chapter VI-A would be available in respect of the enhanced Income.
Question 18
Zonik Inc of Canada holds 35% shares of Gama India Ltd. Gama India Ltd. imports 2000 unit of
product X from Zonik Inc Canada at a price of Rs. 1,500 per unit and these are sold to Sunil Regency
Ltd. at a price of Rs. 1,700 per unit. Gama India Ltd. has bought similar products from Ronak India
Ltd. and sold to Vijay Ltd. at a gross profit of 14% on sales. Zonik Inc Canada offers a quantity
discount of Rs. 15 per unit whereas Ronak India Ltd. does not offer such quantity discount. Gama
India Ltd. incurred freight of Rs. 10 per unit and customs duty of Rs. 30 per unit in case of purchases
made from Zonik Inc Canada.
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On the basis of these facts explain the method which would be applicable for determination of Arm’s
Length Price (ALP) under Income Tax Act, 1961.
Determine the Arm’s Length Price on the basis of the method as found to be applicable and also
determine the effect on the net Profit/Income of Gama India Ltd. (assuming that there is no advance
pricing agreement) in the scenario discussed above.
Answer:
Arm’s Length Price is determined on the basis of Resale Price Method
Particular Amounts (Rs.)

Resale price of goods purchased from Zonik Inc Canada (per unit) 1700
Less: Normal Gross Profit Margin @ 14% on Rs. 1700 (per unit) (238)
Less: Expenses connected with purchases (fright and customs duty i.e. Rs. (40)
10 + Rs. 30)
Less: Quantity discount allowed by Zonik Inc Canada (15)
Arm’s Length Price (per unit) 1407
Price paid to Zonik Inc Canada (per unit) 1500
Excess price paid per unit (Rs. 1500 – Rs. 1407) 93
Increase in Income of Gama Limited (Rs. 93 * 2000 units) 186000
Question 19
State with reasons, whether Jackson LLC., (incorporated in Japan) and Vijayshree Ltd. a domestic
company, are/can be deemed to be associated enterprises for the transfer pricing regulations in the
following independent situations :
(a) Jackson LLC. has advanced a loan of Rs. 55 crores to Vijayshree Ltd. on 12th January, 2022. The
total book value of assets of Vijayshree Ltd. is Rs. 100 crores. The market value of the assets,
however, is Rs. 140 crores. Vijayshree Ltd. repaid Rs. 10 crores before 31st March, 2022.
(b) Total value of raw materials and consumables of Vijayshree Ltd. is Rs. 800 crores. Of this, Jackson
LLC supplies to the tune of Rs. 740 crores, at prices mutually agreed upon once in six months and
depending upon the market conditions.
Answer:
(a) Jackson LLC (a foreign company, has advanced loan of Rs. 55 crores to Vijayshree Ltd., a
domestic company, which amounts to 55% of book value of assets of Vijayshree Ltd. Since the
loan advanced by Jackson LLC is not less than 51% of the book value of assets of Vijayshree Ltd.,
Jackson LLC and Vijayshree Ltd. are deemed to be associated enterprises for the purpose of
transfer pricing regulations. The deeming provision would be attracted even if there is a
repayment of loan during the same previous year which brings down its percentage below 51%.
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(b) The Jackson LLC supplies 92.50% (Rs. 740 crore / Rs. 800 crores *100) of the raw material
and consumables required by Vijayshree Ltd. which is more than the specified threshold limit of
90%, however, Jackson LLC and Vijayshree Limited are not deemed to be associated enterprises
since the price of supply is not influenced by Jackson LLC but is mutually agreed upon once in six
months depending upon prevailing market conditions.
Question 20
What are the practical difficulties in applying Arm’s length price?
Answer:
The practical difficulties involved in application of Arm’s length price are as follows:
 True comparison difficult in certain cases.
 Availability of data and reliability of available data.
 Absence of market price.
 Absence of comparable market price for “intangible” transactions.
 Administrative burden.
 Time lag.
Question 21
A person fails to furnish audit report under section 92E of the Income Tax Act, 1961. The Income Tax
Officer imposes penalty on the assessee. Assessee challenges the penalty stating that there was
reasonable cause for not furnishing the report. Can the assessee escape the penalty if the cause was
genuine.
Answer:
As per section 271BA of the Income-tax Act, 1961 “the Act”, if any person fails to furnish audit
report as required under section 92E of the Act, then the assessing officer may direct that such
person shall pay, by way of penalty, a sum of Rs. 1 lakh.
However, as per section 273B of the Act, penalty shall not be levied if the assessee proves that
there was reasonable cause for such failure.
In this case, as the assessee is able to proves genuine reasonable cause of failure to furnish report
u/s 92E, the assessing officer is not justified in imposing the penalty.
Question 22
Mr. Joy has entered into International transactions aggregating to Rs. 75 lakhs and specified
domestic transactions aggregating to Rs. 5 crores. He did not mention any document/information
relating to transfer pricing nor has filed any report/certificate/document/information with the tax
authorities. Discuss penal consequences, if any.
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Answer:
Mr. Joy is not required to maintain information and documents since neither the aggregated value
of international transactions exceed Rs. 1 crore, nor the aggregated value of specified domestic
transactions exceed Rs. 20 Crore. Therefore, no penalty shall be levied for non-maintenance of
information and documents.
However, Mr. Joy is required to obtain and furnish the audit report u/s 92E even if the aggregated
value of international transactions does not exceed Rs. 1 crore or specified domestic transaction
does not exceed Rs. 20 crore. Hence, Mr. Joy was required to obtain and furnish audit report u/s
92E in respect of international transactions aggregating to Rs. 75 lakh and specified domestic
transaction aggregating to Rs. 5 crore. He shall be liable to penalty u/s 271BA of Rs. 1,00,000 for
such default.
Question 23
Comment on the following independent situations, whether X Ltd. and Y Ltd. constitute associated
enterprises under the provisions of Section 92A :
(a) Book value of total assets of X Ltd. is Rupees 100 crores, Y Ltd. has advanced a loan of Rupees 80
crores to its wholly subsidiary A Ltd., A Ltd., in term advanced a loan of Rupees 80 crore to X Ltd.
(b) Y Ltd. is engaged in trading of furniture. During the previous year 2021-22 it purchases furniture
of Rupees 50 lakh from X Ltd. Total purchases of Y Ltd. during the year is Rupees 55 lakh.
(c) X Ltd. has two units, Unit A and Unit B, Unit A manufactures industrial equipment using the
manufacturing process exclusively owned by Y Ltd. Unit B is engaged in buying and selling of toys.
(d) X Ltd. holds whole of equity share capital of C Ltd. C Ltd. holds 30% equity shares of Y Ltd. X Ltd.
also holds 60% of preference share capital of Y Ltd.
(e) Y Ltd. has the right to appoint one of the executive director of X Ltd. However Y Ltd. does not
exercise its right and therefore it did not appoint any executive director of X Ltd.
Answer:
(a) X Ltd. and Y Ltd. are not Associated Enterprise. As per section 92A of the Income-tax Act, 1961,
two enterprises are deemed to be associated enterprise if loan advanced by one enterprise to
another enterprise constitutes not less than 51% of book value of the total asset of the other
enterprise. Under this clause, direct loans are covered and loan advanced indirectly is not
covered. In this case, Y Ltd. has not directly given loan to X Ltd. and hence they do not qualify as
Associated Enterprises.
(b) X Ltd. and Y Ltd. are not Associated Enterprise. As per section 92A of the Income-tax Act,
1961, two enterprises are deemed to be associated enterprises if 90% or more of the raw material
required for the manufacture or processing of goods carried out by one enterprise, are supplied
by the other enterprise. This clause is applicable only if the purchasing enterprise is engaged in
manufacturing or processing of goods. In this case, Y Ltd. is not engaged in manufacturing or
processing of goods and hence, X Ltd. and Y Ltd. do not qualify as Associated Enterprises.
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(c) X Ltd. and Y Ltd. are not associated enterprises. As per section 92A of the Income-tax Act,
1961, two enterprises are deemed to be associated enterprises if the business carried on by one
enterprise is 'wholly' dependent upon the intangible owned by the other enterprise. In this case, X
Ltd. is engaged in two businesses, out of which only one business is dependent on Y Ltd. Thus, X
Ltd.'s business is not wholly dependent upon Y Ltd. and therefore they do not qualify As
associated Enterprises.
(d) X Ltd. and Y Ltd. are Associated Enterprises. As per section 92A of the Income-tax Act, 1961,
two enterprises are deemed to be associated enterprises if one enterprise holds, directly or
indirectly, shares carrying not less than 26% of voting power in other enterprise. In this case, X
Ltd. indirectly (through C Ltd.) holds more than 26% equity shares (i.e. 30%) in Y Ltd. and thus
they qualify as associated enterprises.
(e) X Ltd. and Y Ltd. are not associated enterprises. As per section 92A of the Income-tax Act,
1961, two or more enterprises are deemed as associated enterprises if one or more executive
director of one enterprise is appointed by other enterprise. In this case, Y Ltd. has actually not
appointed any executive director of X Ltd. Merely having a right to appoint is not sufficient. Hence,
X Ltd. and Y Ltd. do not qualify as associated enterprises.
Clarifications on Rollback Provisions of Advance Pricing Agreement Scheme

Under rule 10 MA(2)(ii) there is a condition that the return of income for the relevant
roll back year has been or is furnished by the applicant before the due date specified in
Explanation 2 to sub-section (1) of section 139 of the Income-tax Act (hereinafter
referred to as the ‘Act’). It is not clear as to whether applicants who have filed returns
under section 139(4) or 139(5) of the Act would be eligible for roll back.
Answer:
The return of income under section 139(5) of the Act can be filed only when a return under
section 139(1) has already been filed. Therefore, the return of income filed under section
139(5) of the Act, replaces the original return of income filed under section 139(1) of the
Act. Hence, if there is a return which is filed under section 139(5) of the Act to revise the
original return filed before the due date specified in Explanation 2 to sub-section (1) of
section 139, the applicant would be entitled for rollback on this revised return of income.
However, rollback provisions will not be available in case of a return of income filed under
section 139(4) because it is a return which is not filed before the due date.
Rule 10MA (2)(i) mandates that the rollback provision shall apply in respect of an
international transaction that is same as the international transaction to which the
agreement (other than the rollback provision) applies. It is not clear what is the
meaning of the word “same”. Further, it is not clear whether this restriction also
applies to the Functions, Assets, Risks (FAR) analysis.
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Answer:
The international transaction for which a rollback provision is to be allowed should be the
same as the one proposed to be undertaken in the future years and in respect of which the
agreement has been reached. There cannot be a situation where rollback is finalised for a
transaction which is not covered in the agreement for future years. The term same
international transaction implies that the transaction in the rollback year has to be of same
nature and undertaken with the same associated enterprise(s), as proposed to be
undertaken in the future years and in respect of which agreement has been reached. In the
context of FAR analysis, the restriction would operate to ensure that rollback provisions
would apply only if the FAR analysis of the rollback year does not differ materially from the
FAR validated for the purpose of reaching an agreement in respect of international
transactions to be undertaken in the future years for which the agreement applies.
The word “materially” is generally being defined in the Advance Pricing Agreements being
entered into by CBDT. According to this definition, the word “materially” will be
interpreted consistently with its ordinary definition and in a manner that a material change
of facts and circumstances would be understood as a change which could reasonably have
resulted in an agreement with significantly different terms and conditions.
Rule 10MA (2)(iv) requires that the application for rollback provision, in respect of
an international transaction, has to be made by the applicant for all the rollback
years in which the said international transaction has been undertaken by the
applicant. Clarification is required as to whether rollback has to be requested for all
four years or applicant can choose the years out of the block of four years.
Answer:
The applicant does not have the option to choose the years for which it wants to apply for
rollback. The applicant has to either apply for all the four years or not apply at all. However,
if the covered international transaction(s) did not exist in a rollback year or there is some
disqualification in a rollback year, then the applicant can apply for rollback for less than
four years. Accordingly, if the covered international transaction(s) were not in existence
during any of the rollback years, the applicant can apply for rollback for the remaining
years. Similarly, if in any of the rollback years for the covered international transaction(s),
the applicant fails the test of the rollback conditions contained in various provisions, then it
would be denied the benefit of rollback for that rollback year. However, for other rollback
years, it can still apply for rollback.
Rule 10 MA(3) states that the rollback provision shall not be provided in respect of an
international transaction for a rollback year if the determination of arm’s length price of
the said international transaction for the said year has been the subject matter of an appeal
before the Appellate Tribunal and the Appellate Tribunal has passed an order disposing of
such appeal at any time before signing of the agreement. Further, Rule 10 RA(4) provides
that if any appeal filed by the applicant is pending before the Commissioner (Appeals),
Appellate Tribunal or the High Court for a rollback year, on the issue which is subject
matter of the rollback provision for that year, the said appeal to the extent of the subject
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covered under the agreement shall be withdrawn by the applicant.
There is a need to clarify the phrase “Tribunal has passed an order disposing of such
appeal” and on the mismatch, if any, between Rule 10MA(3) and Rule 10RA(4).
Answer:
The reason for not allowing rollback for the international transaction for which Appellate
Tribunal has passed an order disposing of an appeal is that the ITAT is the final fact finding
authority and hence, on factual issues, the matter has already reached finality in that year.
However, if the ITAT has not decided the matter and has only set aside the order for fresh
consideration of the matter by the lower authorities with full discretion at their disposal, the
matter shall not be treated as one having reached finality and hence, benefit of rollback can still
be given.
There is no mismatch between Rule 10MA(3) and Rule 10RA(4).
Rule 10MA(3)(ii) provides that rollback provision shall not be provided in respect of an
international transaction for a rollback year if the application of rollback provision has
the effect of reducing the total income or increasing the loss, as the case may be, of the
applicant as declared in the return of income of the said year. It may be clarified whether
the rollback provisions in such situations can be applied in a manner so as to ensure that
the returned income or loss is accepted as the final income or loss after applying the
rollback provisions.
Answer:
It is clarified that in case the terms of rollback provisions contain specific agreement
between the Board and the applicant that the agreed determination of ALP or the agreed
manner of determination of ALP is subject to the condition that the ALP would get modified
to the extent that it does not result in reducing the total income or increasing the total loss,
as the case may be, of the applicant as declared in the return of income of the said year, the
rollback provisions could be applied. For example, if the declared income is Rs. 100, the
income as adjusted by the TPO is Rs. 120, and the application of the rollback provisions
results in reducing the income to Rs. 90, then the rollback for that year would be
determined in a manner that the declared income Rs. 100 would be treated as the final
income for that year.
Rule 10RA(7) states that in case effect cannot be given to the rollback provision of an
agreement in accordance with this rule, for any rollback year to which it applies, on
account of failure on the part of applicant, the agreement shall be cancelled. It is to
be clarified as to whether the entire agreement is to be cancelled or only that year
for which roll back fails.
Answer:
The procedure for giving effect to a rollback provision is laid down in Rule 10RA. Sub-rules
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(2), (3), (4) and (6) of the Rule specify the actions to be taken by the applicant in order that
effect may be given to the rollback provision. If the applicant does not carry out such
actions for any of the rollback years, the entire agreement shall be cancelled. This is
because the rollback provision has been introduced for the benefit of the applicant and is
applicable at its option. Accordingly, if the rollback provision cannot be given effect to for
any of the rollback years on account of the applicant not taking the actions specified in sub-
rules (2), (3), (4) or (6), the entire agreement gets vitiated and will have to be cancelled.
If there is a Mutual Agreement Procedure (MAP) application already pending for a

rollback year, what would be the stand of the APA authorities? Further, what would
be the view of the APA Authorities if MAP has already been concluded for a rollback
year?
Answer:
If MAP has been already concluded for any of the international transactions in any of the
rollback year under APA, rollback provisions would not be allowed for those international
transactions for that year but could be allowed for other years or for other international
transactions for that year, subject to fulfilment of specified conditions in Rules 10MA and
10RA. However, if MAP request is pending for any of the rollback year under APA, upon the
option exercised by the applicant, either MAP or application for roll back shall be
proceeded with for such year.
Rule 10MA(1) provides that the agreement may provide for determining ALP or
manner of determination of ALP. However, Rule 10MA(4) only specifies that the
manner of determination of ALP should be the same as in the APA term. Does that
mean the ALP could be different?
Answer:
Yes, the ALP could be different for different years. However, the manner of determination
of ALP (including choice of Method, comparability analysis and Tested Party) would be
same.
Will there be compliance audit for roll back? Would critical assumptions have to be
validated during compliance audit?
Answer:
Since rollback provisions are for past years, ALP for the rollback years would be agreed
after full examination of all the facts, including validation of critical assumptions. Hence,
compliance audit for the rollback years would primarily be to check if the agreed price or
methodology has been applied in the modified return.
Whether applicant has an option to withdraw its rollback application? Can the
applicant accept the rollback results without accepting the APA for the future years?
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Answer:
The applicant has an option to withdraw its roll back application even while maintaining
the APA application for the future years. However, it is not possible to accept the rollback
results without accepting the APA for the future years. It may also be noted that the fee
specified in Rule 10MA(5) shall not be refunded even where a rollback application is
withdrawn.
For already concluded APAs, will new APAs be signed for rollback or earlier APAs
could be revised?
Answer:
The second proviso to Rule 10MA(5) provides for revision of APAs already concluded to
include rollback provisions.
For already concluded APAs, where the modified return has already been filed for
the first year of the APA term, how will the time-limit for filing modified return for
rollback years be determined?
Answer:
The time to file modified return for rollback years will start from the date of signing the
revised APA incorporating the rollback provisions.
In case of merger of companies, where one or more of those companies are APA
applicants, how would the rollback provisions be allowed and to which company or
companies would it be allowed?
Answer:
The agreement is between the Board and a person. The principle to be followed in case of
merger is that the person (company) who makes the APA application would only be
entitled to enter into the agreement and be entitled for the rollback provisions in respect of
international transactions undertaken by it in rollback years. Other persons (companies)
who have merged with this person (company) would not be eligible for the rollback
provisions.
To illustrate, if A, B and C merge to form C and C is the APA applicant, then the agreement
can only be entered into with C and only C would be eligible for the rollback provisions. A
and B would not be eligible for the rollback provisions. To illustrate further, if A and B
merge to form a new company C and C is the APA applicant, then nobody would be eligible
for rollback provisions.
In case of a demerger of an APA applicant or signatory into two or more companies

(persons), who would be eligible for the rollback provisions?
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Answer:
The same principle as mentioned in the previous answer, i.e., the person (company) who
makes an APA application or enters into an APA would only be entitled for the rollback
provisions, would continue to apply. To illustrate, if A has applied for or entered into an
APA and, subsequently, demerges into A and B, then only A will be eligible for rollback for
international transactions covered under the APA. As B was not in existence in rollback
years, availing or grant of rollback to B does not arise.
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II
Place of Effective Management
Question 1
How the residential status of a company would be determined under Income Tax Act, 1961.
Answer:
As per Section 6(3) of the Income-tax Act, 1961 (the Act), a company is said to be resident
in India in any previous year, if-
(i) it is an Indian company; or

(ii) its place of effective management in that year is in India .
"Place of effective management" is defined in the Act to mean a place where key
management and commercial decisions that are necessary for the conduct of the business
of an entity as a whole are, in substance, made.
Question 2
ABC Inc., a Swedish company headquartered at Stockholm, not having a permanent
establishment in India, has set up a liaison office in Mumbai in April, 2021 in compliance
with RBI guidelines to look after its day to day business operations in India, spread
awareness about the company's products and explore further opportunities. The liaison
office takes decisions relating to day to day routine operations and performs support
functions that are preparatory and auxiliary in nature. The significant management and
commercial decisions are, however, in substance made by the Board of Director at Sweden.
Determine the residential status of ABC Inc. for A.Y.2022-23.
Answer:
Section 6(3) provide that a company would be resident in India in any previous year, if-
(i) it is an Indian company; or
(ii) its place of effective management, in that year, is in India . ,
In this case, ABC Inc. is a foreign company. Therefore, it would be resident in India for P.Y.
2021-22 only if its place of effective management, in that year, is in India.
Explanation to Section 6(3) defines "Place of effective management" to mean a place where
key management and commercial decisions that are necessary for the conduct of the
business of an entity as a whole are, in substance, made. In the case of ABC Inc., its place of
effective management for the PY 2021-22 is not in India, since the significant management
and commercial decisions are in substance made by the Board of Directors outside India in
Sweden.
ABC Inc. has only liaison office in India through which it looks after routine day to day
business operations in India. The place where decisions relating to day to day routine
operations are taken and support functions that are preparatory or auxiliary in nature are
performed are not relevant in determining the place of effective management.
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Hence, ABC Inc. being a foreign company is a non-resident for AY 2022-23 since its place of
effective management is outside India in the PY 2021-22.
Example 1
Company A Co. is a sourcing entity, for an Indian multinational group, incorporated in

country X and is 100% subsidiary of Indian company (B. Co.). The warehouses and stock in
them are the only assets of the company and are located in country X. All the employees of
the company are also in country X. The average income wise breakup of the company’s
total income for three years is:
i) 30% of income is from transaction where purchases are made from parties which
are non associated enterprises and sold to associated enterprises;
ii) 30% of income is from transaction where purchases are made from associated
enterprises and sold to associated enterprises;
(iii) 30% of income is from transaction where purchases are made from associated
enterprises and sold to non-associated enterprises; and
(iv) 10% of the income is by way of interest.
Interpretation: In this case passive income is 40% of the total income of the company. The
passive income consists of, -
(i) 30% income from the transaction where both purchase and sale is from/to
associated enterprises; and
(ii) 10% income from interest.
The A Co. satisfies the first requirement of the test of active business outside India. Since no
assets or employees of A Co. are in India the other requirements of the test is also satisfied.
Therefore, company is engaged in active business outside India.
Example 2: The other facts remain same as that in Example 1 with the variation that A Co.
has a total of 50 employees. 47 employees, managing the warehouse, storekeeping and
accounts of the company, are located in country X. The Managing Director (MD), Chief
Executive Officer (CEO) and sales head are resident in India. The total annual payroll
expenditure on these 50 employees is of Rs. 5 crore. The annual payroll expenditure in
respect of MD, CEO and sales head is of Rs. 3 crore.
Interpretation: Although the first limb of active business test is satisfied by A Co. as only
40% of its total income is passive in nature. Further, more than 50% of the employees are
also situated outside India. All the assets are situated outside India. However, the payroll
expenditure in respect of the MD, the CEO and the sales head being employees resident in
India exceeds 50% of the total payroll expenditure. Therefore, A Co. is not engaged in active
business outside India.
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Example 3: The basic facts are same as in Example 1. Further facts are that all the directors
of the A Co. are Indian residents. During the relevant previous year 5 meetings of the Board
of Directors is held of which two were held in India and 3 outside India with two in country
X and one in country Y.
Interpretation: The A Co. is engaged in active business outside India as the facts indicated
in Example 1 establish. The majority of board meetings have been held outside India.
Therefore, the POEM of A Co. shall be presumed to be outside India.
Example 4: The facts are same as in Example 3 but it is established by the Assessing Officer
that Although A Co.'s senior management team signs all, the contracts, for all the contracts
above Rs. 10 lakh the A Co. must submit its recommendation to B Co. and B Co. makes the
decision whether or not the contract may be accepted. It is also seen that during the
previous year more than 99% of the contracts are above Rs. 10 lakh and over past years
also the same trend in respect of value contribution of contracts above Rs. 10 lakh is seen.
Interpretation: These facts suggest that the effective management of the A Co. may have
been usurped by the parent company B Co. Therefore, POEM of A Co. may in such cases be
not presumed to be outside India even though A Co. is engaged in active business outside
India and majority of board meeting are held outside India.
Example 5: An Indian multinational group has a local holding company A Co. in country X.
The A Co. also has 100% downstream subsidiaries B Co. and C Co. in country X and D Co. in
country Y. The A Co. has income only by way of dividend and interest from investments
made in' its subsidiaries. The Place of Effective Management of A Co. is in India and is
exercised by ultimate parent company of the group. The subsidiaries B, C and D are
engaged in active business outside India. The meetings of Board of Director of B Co., C Co.
and D Co. are held in country X and Y respectively.
Interpretation: Merely because the POEM of an intermediate holding company is in India,

the POEM of its subsidiaries shall not be taken to be in India. Each subsidiary has to be
examined separately. As indicated in the facts since companies B Co., C Co., and D Co. are
independently engaged in active business outside India and majority of Board meetings of
these companies are also held outside India. The POEM of B Co., C Co., and D Co. shall be
presumed to be outside India.
Question 3
XYZ Ltd., a foreign company, has its head office at USA. The Board of Directors (BOD)
meetings are held in USA. However, the Board of Directors has delegated major powers to a
committee in Kolkata and the members of this committee are based in Kolkata. The Board
of Directors ratified the decisions of the said committee. In the light of above,
(1) Discuss the place of effective management (POEM) of XYZ Ltd.
(2) Discuss the guiding factors of POEM for Board of Directors delegating authorities to
Committee
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Answer:
The location where company's Board of Directors (BOD) regularly meets and makes
decisions may be the company's Place of Effective Management (POEM) provided the
Board:
1. Retain and exercises its authority to govern the company: and
2. Does, in substance, make the key management and commercial decisions necessary for
the conduct of the company's business as a whole.
In given case the board meetings are held in USA, but the same formalise the decisions
taken by the committee at Kolkata. Hence Place of Board meeting held at USA cannot be
POEM, as power is delegated to committee which is based at Kolkata.
Guiding factors when Board Delegating Authorities to Committee are as under:

If Board of Director had delegated some or all of its major authorities to one or more
committees consisting senior management, then POEM shall be at the place where:
1. Members of executive committee are based and
2. Where committee develops and formulate key decisions for formal approval by Board.
Hence in given case, POEM of XYZ Ltd. will be Kolkata, as discussed above.
***
72
Tax Treaties
Question 1
Discuss the relief provided to the foreign income of an assessee in following cases:
(a) In case there is bilateral DTAA
(b) In case there is no DTAA.
Answer
Double Taxation Relief is applicable in the case of those assesses whose income is taxed in
two or more countries due to residential status or due to source principle. To mitigate the
impact of double taxation of income, the provisions for double taxation relief were made.
(a) India has entered into agreement with many countries regarding avoidance of
double taxation. In case there is a bilateral Double Taxation Avoidance Agreement
(‘DTAA’ or ‘the Treaty’) concluded between India and the other country, the
assessee can claim relief under section 90 of the Income tax Act, 1961. Foreign tax
credit is provided to the assessee who has paid taxes in India as well as in a foreign
country. This tax relief is governed by the provisions of respective DTAA. Further,
the provision of Income-tax Act, 1961 are applicable to the assessee to the extent
they are more beneficial to him.
(b) Where there is no bilateral agreement with a country, under Section 90 of the
Income tax Act, section 91 of the Act grants unilateral relief in respect of income
which has suffered tax both in India and in a country with which no DTAA exists (i.e.
doubly taxed income). This relief is provided in the form of a deduction from the
income tax payable in India and is calculated on the doubly taxed income at Indian
Tax rate or the tax rate of the foreign country whichever is lower or at Indian rate of
tax, if both rates are equal. An assessee shall be allowed deduction under section 91
provided all the following conditions are fulfilled:-
(a) The assessee is a resident in India during the relevant previous year.
(b) The income accrues or arises to him outside India during that previous year.
(c) Such income is not deemed to accrue or arise in India during the previous
year.
(d) The income in question has been subjected to income-tax in the foreign
country in the hands of the assessee and the assessee has paid tax on such
income in the foreign country.
(e) There is no agreement under section 90 for the relief or avoidance of double
taxation between India and the other country where the income has accrued
or arisen.
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Question 2
The Income-tax Act, 1961 provides for taxation of a certain income earned by Shyam. The
Double Taxation Avoidance Agreement, which applies to Shyam, excludes the income
earned by him from the purview of tax. Will he be liable to pay tax on the income earned
by him? Discuss in the light of provisions of Income Tax Act, 1961 and decided case law, if
any.
Answer
Section 90(2) makes it clear that where the Central Government has entered into a Double
Taxation Avoidance Agreement, then in respect of an assessee to whom such agreement
applies, the provisions of the Act shall apply to the extent they are more beneficial to the
assessee. This means that where tax liability is imposed by the Act, the Double Taxation
Avoidance Agreement may be resorted to for reducing the tax liability.
Further, in CIT v. P.V.A.L. Kulandagan Chettiar (2004) 267 ITR 654, the Supreme Court has
held that in case of any conflict between the provisions of the Double Taxation Avoidance
Agreement and the Income-tax Act, 1961, the provisions of the Double Taxation Avoidance
Agreement would prevail over those of the Income-tax Act, 1961.
Shyam will, therefore, not be liable to pay tax on such income earned by him.
Question 3
Yogita Kumari, a resident individual, is a freelance dancer deriving income of Rs. 75,000
from shows performed outside India. Tax of Rs. 10,000 was deducted at source in the
country where the shows were performed. India does not have any double tax avoidance
agreement with that country. Her income in India amounted to Rs. 5,00,000. Compute tax
liability of Yogita for the assessment year 2022-23 assuming she has deposited Rs. 10,000
in Public Provident Fund and paid Rs. 20,000 as medical insurance premium in respect of
her father (aged 65 years). Assuming assessee has not opted for Section 115BAC of the
Income tax Act, 1961.
Answer
Computation of Tax Liability of Ms. Yogita Kumari
Indian Income 5,00,000
Foreign Income 75,000
A Gross Total Income 5,75,000
B Less : Deductions under Chapter VIA
PPF Contribution Rs. 10,000

Medical Insurance Premium Rs. 20,000 (30,000)
for senior citizen
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C Total Income (A-B) 5,45,000
Tax on first Rs. 2,50,000 Nil

Tax on next Rs. 250000 @ 5% 12,500
Tax on next Rs. 45,000 @ 20% 9000 21,500
Health and Education Cess @ 4% 860
D Total Tax 22,360
Average rate of Tax in India

Rs. (22360/5,45,000 * 100) : 4.1027%
Average rate of tax in foreign country

Rs. (10,000 /75,000 * 100) : 13.33%
Doubly Taxed Income : Rs. 75,000
E Relief under section 91 (on Rs. 75,000 @ 4.1027%) (3077)
F Tax payable in India (D-E) 19,283
Note:
An assessee shall be allowed Relief under section 91 provided all the following conditions
are fulfilled:-
(a) The assessee is a resident in India during the relevant previous year.
(b) The income accrues or arises to him outside India during that previous year.
(c) Such income is not deemed to accrue or arise in India during the previous year.
(d) The income in question has been subjected to income-tax in the foreign country in
the hands of the assessee and the assessee has paid tax on such income in the
foreign country.
(e) There is no agreement under section 90 for the relief or avoidance of double
taxation between India and the other country where the income has accrued or
arisen.
In this case, Yogita Kumari is eligible for deduction under section 91 since all the above
conditions are fulfilled.
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Question 4
The following are the particulars of income earned by Ms. Sunita, a resident Indian aged
25, for the assessment year 2022-23:

Income from playing basketball match in Netherland 12,00,000
Tax paid in Netherland 1,80,000
Income from playing basketball match in India 19,20,000
Life insurance premium paid 1,20,000
Medical Insurance Premium paid through net banking for her 25,000
father aged 62 years
Compute her total income and tax liability for the assessment year 2022-23. Assume there
is no Double Taxation Avoidance Agreement between India and Netherland. Assuming
assessee has not opted for Section 115BAC of the Income tax Act, 1961.
Answer
Computation of total income and tax liability of Ms. Sunita for the A.Y 2022-23

(Rs.) (Rs.)
A Indian Income
(Income from playing basketball tournaments in India) 19,20,000
Foreign Income
(Income from playing basketball matches in 12,00,000
Netherland)
Gross Total Income 31,20,000
B Less : Deduction under chapter VIA
Deduction u/s 80C for Life Insurance Premium 1,20,000
Deduction u/s 80D for Medical Insurance Premium paid 25,000 (1,45,000)
for her father
C Total Income 29,75,000
D Tax on total income
Tax upto Rs. 10,00,000 - Rs. 1,12,500
Tax on income above Rs. 10,00,000 Rs. 592500 7,05,000
Add: Health and Education Cess @ 4% 28200 7,33,200
E Average rate of tax in India
Rs. (7,33,200/ 29,75,000 x 100) 24.65%
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Average rate of tax in foreign country
Rs.( 1,80,000/12,00,000 X 100) 15%
Rebate u/s 91 (180000)

On Rs. 12 lakh @15% (lower of average Indian tax rate or average
foreign tax rate)
Tax payable in India 5,53,200
Note :
Ms. Sunita shall be allowed Relief under section 91 of Income Tax Act, 1961, since
conditions mentioned therein are fulfilled.
Question 5
Sudesh (age 62 years) is a resident and ordinarily resident in India. Details of his Income/
Investment are as under:
Rs. 16,80,000 is income from a business in India
Rs.5,45,000 is income from a business in country A
Rs. 32,000 has been paid as tax on income earned in country A
Rs. 28,000 paid as tuition fee for his daughter studying in India
Rs. 90,000 paid as tuition fee for his son studying outside India
Rs. 48,000 received as interest on Government securities.
Assume there is no Double Taxation Avoidance Agreement:
(i) Find out the tax liability of Sudesh for the Assessment Year 2022-23.
(ii) Does it make any difference, if Sudesh is a non-resident?
Note: Assuming assessee has not opted for Section 115BAC of the Income tax Act, 1961.
Answer
(i) Computation of Tax Liability of Sudesh
For A.Y 2022-23
Particulars Rs.
Business Income in India 16,80,000
Interest on Government Securities 48,000
A Gross Total Income 17,28,000
B Deduction u/s 80C 28,000
For tuition fee (Note 1)
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C Total Income 17,00,000
Foreign Income to be included in Indian Income for 5,45,000

computation of tax rate
Total Income for calculating tax rate 22,45,000
D Tax on 22,45,000
Upto Rs. 3,00,000 (in case of senior citizen) Nil
From Rs. 3,00,001 to 5,00,000 @ 5% Rs. 10,000
From Rs. 5,00,001 to 10,00,000 @ 20% Rs. 1,00,000
On balance Rs. 12,45,000 @ 30% Rs. 3,73,500 4,83,500
E Health and Education Cess (4% of tax) 19,340
F Tax Payable 5,02,840
G Average Tax Rate in India

22.40%
(Rs.5,02,840/22,45,000 * 100)
Tax rate in Foreign Country
(32000/545000*100)=5.87%
Relief u/s 91 (545000*5.87%) (32000)
H Indian Tax Liability 470840
Rounded off Tax liability 470840
Note:
1. Deduction under Section 80C is not available for tuition fee paid outside India.
(ii) If Sudesh is non-resident, his income taxable in India would be Rs. 17,00,000.
Rs. 5,45,000 would not be included in his income as the same is earned outside India
and would be taxable in country A.
Further, the tax liability of Sudesh in India would be calculated in following manner:
Particular Rs. Rs.
Tax on 17,00,000
Upto Rs. 2,50,000 (for non-resident) Nil
From 2,50,000 to 5,00,000 @ 5% 12,500
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From 5,00,000 to 10,00,000 @ 20% 1,00,000
On balance 7,00,000 @ 30% 2,10,000 3,22,500
Health & Education Cess @ 4% 12,900
Tax liability in India 3,35,400
Question 6
What is Tax Information Exchange Agreement ‘TIEA’?
Answer
A Tax Information Exchange Agreement (TIEA) is an agreement between two
jurisdictions and creates for both parties, rights and obligations, which are to be
respected. It is not a double taxation avoidance treaty between two states but an
agreement between two jurisdictions only for the purpose of exchange of information.
Question 7
Types of Double Taxation Agreement.
Answer:
Comprehensive DTAA: Comprehensive DTAAs are those which cover almost all types of
incomes covered by any model convention. Many a time a treaty covers wealth tax, gift tax,
surtax etc. too.
Limited DTAA: Limited DTAAs are those which are limited to certain types of incomes only,
e.g. DTAA between India and Pakistan is limited to shipping and aircraft profits only.
Foreign nationals of several countries such as USA, Canada and UK are required to declare
and pay taxes on their worldwide income. Double taxation avoidance treaties, actually help
in either minimizing the tax payable to your home country or in some cases even
eliminating further tax liabilities, depending on the tax rates applicable.
Question 8
Need of Double Taxation Agreement
Answer
1. The need for Double Taxation Avoidance Agreement (DTAA) arises because of rules
in two different countries regarding chargeability of income based on receipt and
accrual, residential status etc.
2. Double taxation is frequently avoided through DTAAs entered into by two countries
for the avoidance of double taxation on the same income.
3. The DTAA eliminates or mitigates the incidence of double taxation by sharing
revenues arising out of international transactions by the two contracting states of
the agreement.
4. As there is no clear definition of income and taxability threreof, which is accepted
internationally, an income may become liable to tax in two countries.
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5. In such a case, the possibilities are as under:
• The income is taxed only in one country.
• The income is exempt in both countries.
• The income in taxed in both countries, but credit for tax paid in one country
is given against tax payable in other country.
If the two countries do not have DTAA then in such a case, the domestic law of the country
will apply. In the case of India, the provisions of Section 91 of the Income Tax Act will apply.
The CBDT has clarified vide circular no. 333 dated 2nd April, 1982 that in case of a conflict
in the provisions of the agreement of Tax Avoidance of double taxation and the Income Tax
Act, the provisions contained in the Agreement for Double Tax Avoidance will prevail.
Question 9
Define Tax Treaty. Discuss the principal objectives of Indian Tax Treaties.
Answer:
Tax Treaty: A Tax treaty is a bilateral agreement made by two countries to resolve issues
involving double taxation of passive as well as active income Tax treaties generally determine
the amount of tax that a country can levy on a taxpayer’s income/capital. It is also called a
Double Taxation Avoidance Agreement.
Principal objective of India Tax Treaties are as under:
(1) For granting relief in respect of
a. Income on which tax have been paid both under the Income Tax Act, 1961 and Income
Tax Act prevailing in the other country ; or
b. Income -tax chargeable under the Income Tax Act, 1961 and under law in force in that
country to promote mutual economic relations, trade and investment; or
(2) For the avoidance of double taxation of on income under the Income Tax Act, 1961 and
under the corresponding law in force in that country; or
(3) For exchange of information for the prevention of evasion or avoidance of Income Tax
chargeable under the Incomes Tax Act, 1961 or under corresponding law in force in that
country, or investigation of cases of such evasion or avoidance, or
(4) For recovery of income tax under Income Tax Act, 1961 and under the corresponding law in
force in that country.
***
80
Income Tax Implication on specified transactions
Question 1
Distinguish between Slump sale and demerger.
Answer
Slump Sale: As per Section 2(42C) of Income tax Act slump sale means the transfer of one or
more undertakings by any means for a lump sum consideration without values being
assigned to the individual assets and liabilities in such sales. Any profits or gains arising
from the slump sale, affected in the previous year, shall be chargeable to income tax as
capital gains and shall be deemed to be the income of the previous year in which the
transfer took place. Slump sale can be between any person and consideration is always in
cash.
Demerger: As per section 2(19AA) of Income tax Act demerger, in relation to companies,
means the transfer, pursuant to a scheme of arrangement under sections 391 to 394 of the
Companies Act, 1956. The transfer is ongoing concern basis and all the property and
liabilities of the undertaking, being transferred by the demerged company, immediately
before the demerger, becomes the property and liabilities of the resulting company by
virtue of the demerger. Demerger is between companies only and consideration is in form
of shares only.
Question 2
ABC Finance Corp., a finance company had received certain amount from its subsidiary,
under a scheme of arrangement sanctioned by the High Court under sections 391 to 394 of
the Companies Act, 1956. Can this scheme of arrangement be treated as slump sale to
attract capital gains provisions? Discuss in the light of decided case law.
Answer
The facts of the case are similar to that of SREI Infrastructure Finance Ltd. v. Income-tax
Settlement Commission (2012) 207 Taxman 74 of Income tax Act (Delhi), where the Delhi
High Court held that it would be wrong to infer that section 50B is applicable only in case of
actual “sale” of assets. Moreover, section 50B of Income tax Act shall be applicable in all
types of “transfer” mentioned in section 2(47). When a scheme under sections 391 to 394
of the Companies Act, 1956 is sanctioned by the Court, it is treated as a binding statutory
scheme because the scheme has to be implemented and enforced. However, this cannot be
a ground for the assessee to escape tax on ‘transfer’ of a capital asset under the provisions
of the Income-tax Act, 1961. The taxability of the said transaction is to be decided as per the
provisions of the Income-tax Act, 1961.
Therefore, although the scheme is approved by the court under sections 391 to 394 of the
Companies Act, 1956 it shall be treated as slump sale and capital gains provisions would be
attracted.
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Question 3
XYZ Pvt. Ltd. has converted itself into a Limited Liability Partnership (LLP) on 1.4.2019
and at the time of conversion, all the conditions specified in section 47(xiiib) have been
fulfilled. The unabsorbed business loss and depreciation of the company as on the date of
conversion were Rs. 40 lakhs and Rs. 27 lakhs respectively. The business profits of the LLP
for the previous year 2019-20 were Rs. 75 lakhs. However on 5.9.2020 two partners (who
were erstwhile shareholders of XYZ Pvt. Ltd) having in aggregate 51% of the profit
sharing in LLP, resigned. Discuss the tax consequences of the conversion of company into
LLP and subsequent resignation of partners.
Answer
As per section 72A(6A), the LLP would be able to carry forward and set-off the unabsorbed
depreciation and business loss of Rs. 40 lakhs and Rs. 27 lakhs, respectively, of XYZ Pvt. Ltd.
since at the time of conversion, all the conditions specified in section 47(xiiib) have been
fulfilled. Further, the LLP can set off the unabsorbed depreciation and business loss
aggregating to Rs. 67 lakhs against its business profits of Rs. 75 lakhs for A.Y.2020-21.
However, if in any subsequent year, the LLP fails to fulfill any of the conditions mentioned
in section 47(xiiib), the business loss or unabsorbed depreciation of the company already
set off by the LLP would be deemed to be the income chargeable to tax of the LLP for the
year in which it fails to fulfill such conditions.
One of the conditions mentioned in section 47(xiiib) is that the erstwhile shareholders of
the company continue to be entitled to receive at least 50% of the profits of the LLP for a
period of 5 years from the date of conversion. Since two partners (who were erstwhile
shareholders of ABC Pvt. Ltd.) holding in aggregate 51% of the profit-sharing in the LLP
have resigned on 5.9.2020, thus the LLP has failed to fulfill this condition.
Therefore, the amount of Rs. 67 lakhs representing unabsorbed depreciation and business
losses set-off against profits of the LLP for the A.Y. 2020-21, would deemed to be income of
the LLP for the A.Y.2021-22, being the year in which it failed to fulfill the conditions.
Question 4
ABC Ltd. was amalgamated with XYZ Ltd. on 31.03.2021. All the conditions of section
2(1B) were satisfied. ABC Ltd. has the following carried forward losses as assessed till the
Assessment Year 2021-22:
Particulars Rs. (in lakhs)
(i) Speculative Loss 4
(ii) Unabsorbed Depreciation 18
(iii) Unabsorbed expenditure of capital nature on scientific research 2
(iv) Business Loss 120
XYZ Limited has computed a profit of Rs. 140 lakhs for the financial year 2021-22 before
setting off the eligible losses of ABC Ltd. but after providing depreciation at 15% per
82
annum on 150 lakhs, being the consideration at which plant and machinery were
transferred to XYZ Ltd. The written down value as per income-tax record of ABC Ltd. as on
31st March, 2021 was Rs. 100 lakhs. The above profit of XYZ Ltd. includes speculative
profit of Rs. 10 lakhs. Compute the total income of XYZ Ltd. for Assessment Year 2022-23.
Answer
Computation of total income of XYZ Ltd. for the A.Y. 2022-23
Particulars Rs. (in lakhs)

Business income
Business income before setting-off brought forward losses of ABC Ltd. 140
Add: Excess depreciation claimed in the scheme of
amalgamation of ABC Limited with XYZ Ltd.
Value at which assets are transferred by ABC Ltd. 150
WDV in the books of ABC Ltd. 100
Excess accounted 50
Excess depreciation claimed in computing taxable income of
XYZ Ltd. [Rs. 50 lakhs × 15 %] [Explanation 2 to section 43(6)] 7.50
147.50
Set-off of brought forward business loss of ABC Ltd.
(Notes 2 & 4) (120.00)
Set-off of unabsorbed depreciation under section 32(2) read
with section 72A (Notes 2 & 4) (18.00)
Set-off of unabsorbed capital expenditure under section
35(1)(iv) read with section 35(4) (Note 5) (2.00)
Income 7.50
Notes:
1. It is presumed that the amalgamation is within the meaning of section 72A of the
Income tax Act, 1961.
2. In the case of amalgamation of companies, the unabsorbed losses and unabsorbed
depreciation of the amalgamating company shall be deemed to be the loss or
unabsorbed depreciation of the amalgamated company for the previous year in
which the amalgamation was effected and such business loss and unabsorbed
depreciation shall be carried forward and set-off by the amalgamated company for a
period of 8 years and indefinitely, respectively.
3. As per section 72A(7), the accumulated loss to be carried forward specifically

excludes loss sustained in a speculative business. Therefore, speculative loss of Rs. 4
83
lakhs of ABC Ltd. cannot be carried forward by XYZ Ltd.
4. Section 72(2) provides that where any allowance or part thereof unabsorbed under
section 32(2) (i.e., unabsorbed depreciation) or section 35(4) (i.e., unabsorbed
scientific research capital expenditure) is to be carried forward, effect has to be first
given to brought forward business losses under section 72.
5. Section 35(4) provides that the provisions of section 32(2) relating to unabsorbed
depreciation shall apply in relation to deduction allowable under section 35(1)(iv)
in respect of capital expenditure on scientific research related to the business
carried on by the assessee. Therefore, unabsorbed capital expenditure on scientific
research can be set-off and carried forward in the same manner as unabsorbed
depreciation.
6. The restriction contained in section 73 is only regarding set-off of loss computed in
respect of speculative business. Such a loss can be set-off only against profits of
another speculation business and not non-speculation business. However, there is
no restriction under the Income-tax Act, 1961 regarding set-off of normal business
losses against speculative income. Therefore, normal business losses can be set-off
against profits of a speculative business.
Question 5
A resident by name Mr. Ram received gifts during the financial year 2021-22 as follows –
a. Rs. 1,00,000 from his friend residing in USA,

b. Rs. 20,000 from his elder brother residing in Lucknow,
c. Rs. 50,000 from his friend residing in Mumbai (received on the occasion of birthday
of Mr. Ram),
d. Shares received from his father, the fair market value(i.e. value as per stock
exchange) of the shares on the date of gift was Rs. 2,00,000
e. Rs. 50,000 from his friend residing in Mumbai (received on the occasion of
marriage of Mr. Ram).
f. Jewellery received from his friend, the fair market value of the jewellery is Rs.
84,000.
We need to advice Mr. Ram with regard to tax treatment of above items in the hands of
Mr. Ram.
Answer –
The tax treatment of gifts in the hands of Mr. Ram will be as follows –
a. Rs. 1,00,000 received from his friend will be fully included in income because
friend is not covered in the definition of ‘relative’.
b. Rs. 20,000 received from elder brother will not be charged to tax because elder
brother is covered in the definition of ‘relative’.
c. Birthday is not covered in the list of prescribed occasion on which gift is not
charged to tax, hence Rs. 50,000 received on the occasion of birthday will be
included in income.
d. Nothing will be included in income in respect of shares received from his father,
84
since father comes under the definition of the term ‘relative’
e. Marriage is covered in the list of prescribed occasion on which gift is not charged
to tax, hence Rs.50,000 received on the occasion of marriage will not be taxed.
f. Friend is not covered in the definition of relative and hence, in respect of
jewellery received from his friend, the fair market value, i.e., Rs. 84,000 will be
included in income.
Question 6
A held 2000 shares in a company ABC Ltd. ABC Ltd amalgamated with another company
during the previous year ended 31.03.2022. Under the scheme of amalgamation, A was
allotted 1000 shares in the new company. The market value of shares allotted is higher by
Rs. 50000 than the value of holding in ABC Ltd.
The assessing officer proposes to treat the transaction as an exchange and to tax Rs.
50000 as capital gains. Is he justified?
Answer:
Assuming that the amalgamated company is an Indian company, the transaction is covered
by the exemption u/s 47 and the proposal of the assessing officer to treat the transaction as
an exchange is not justified.
Question 7
ABC Limited is an company incorporated under the Companies Act which is having two
undertakings engaged in manufacture of cement and steel, decided to hive off cement
division to XYZ Limited a company incorporated under the Companies Act, by way of
demerger. The net worth of ABC Limited immediately before demerger was Rs.
40,00,00,000/-. The net book value of assets transferred to XYZ Limited was Rs.
10,00,00,000/-. The demerger was made in January 2022. In the scheme of demerger, it
was fixed that for each equity share of Rs. 10 each (fully paid up) of ABC Limited, two
equity shares of Rs. 10 each (fully paid up) were to be issued.
Mr. Ram. held 25,000 equity shares in ABC Limited which were acquired in the financial
year 2003-2004 for Rs. 6,00,000. Mr. Ram received 50,000 equity shares from XYZ Limited
consequent to demerger in January 2022. He sold all the shares of XYZ Limited for Rs.
8,00,000 in March, 2022.
Now following are the questions to be answered –
i. Does the transaction of demerger attract any income tax liability in the hands of
above two companies?
ii. Would capital gain arise in the hands of Mr. Ram on receipt of shares of XYZ
Limited and on sale of shares.
iii. Whether the sale of shares by Mr. Ram affect the tax benefits availed by ABC
Limited and/or XYZ Limited?
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Also compute the capital gain in hands of Mr.Ram on sale of share of XYZ Ltd.
Answer
(i) No, the transaction of demerger would not attract any income-tax liability in the
hands of any of the above companies.
(ii) There would be no capital gains liability in the hands of Mr. Ram on receipt of shares
of XYZ Limited, In case he sells these shares than Capital gains would arise.
(iii) No, sale of shares by Mr. Ram would not affect the tax benefits availed by ABC Limited
or by XYZ Limited.
(iv) Capital gain in the hands of Mr. Ram on sale of shares of XYZ ltd for AY 2022-23
Period of Holding 2003-04 to March,

2022 LTCA
FVC Rs. 8,00,000
Less ICOA
Rs. 6,00,000 x 10,00,000/40,00,000 Rs. 1,50,000
LTCG Rs. 6,50,000
(We have ignored Section 112A implications while solving capital gains)
Question 8
ABC Ltd. proposes to sell one unit XYZ which was set up in 2010 (out of 10 units) and is not
related to company’s main line of business. Total consideration for sale of XYZ unit as a
going concern by way of slump sale is Rs. 3,50,000. The summarized financial position of
XYZ unit as on 31st January, 2022 (Date of Sale) is as under:
Capital and Liabilities Amount Rs. Assets Amount Rs.
Paid up capital 50,000 Fixed assets 70,000
General Reserve 40,000 Debtors 40,000
Revaluation Reserve 30,000 Inventories 40,000
Current liabilities 30,000
150000 150000
Additional information as under :

1. Fixed assets includes Land purchased at Rs. 5,000 in May, 2013 revalued at Rs. 50,000.
86
2. For the remaining fixed assets, their written down value as per the Income-tax Act, 1961
is Rs. 10,000.
Compute the capital gain arising on sale of XYZ unit of ABC Ltd.
Answer:
Computation of long term capital gain on slump sale of XYZ Unit of ABC Ltd.

Fixed assets at W.D.V. 10,000
Land at cost price 5,000
Debtors 40,000
Inventories 40,000 95,000
Less Current liabilities (30,000)
Net worth of XYZ Unit Full 65,000
Value of Consideration 3,50,000
Long Term Capital Gain 2,85,000
Note:
1. In slump sale, benefit of indexation is not available.
2. Revaluation Reserve is not to be considered.
***
87
CMA VIPUL SHAH TEST-2 RESIDENTIAL STATUS
TEST 2 - RESIDENTIAL STATUS & TAX INCIDENCE
Q1. Mr. RAVI is a citizen of Australia and has been staying in India since 1/1/2014. He
leaves India on 16/7/2020 to visit Australia and returns on 4/1/2021. Determine his
residential status for the AY 2021- 2022 i.e. PY 2020-2021
(a) Resident and ordinary resident
(b) Resident and not ordinary resident
(c) Non resident
(d) Person of Indian origin
Q2. HUF is situated in Delhi whose Karta is Mr. Vikas has been in India since 1/1/2016 and
before that he was in UK. Mr. Vikas takes all decisions regarding the working of
HUF in India. Determine residential status of HUF for the AY 2021-2022 i.e. PY
2020-2021.
(a) Resident and not ordinary resident
(b) Resident and ordinary resident
(c) Indian citizen
(d) None of the above
Q3. HUF is situated in Mumbai. Its karta is Mr. Aman who is of 95 years of age has
delegated power to his eldest son Mr. Yogesh. Mr. Aman is in USA for his medical
treatment and left India for the first time on 18/9/2019. Mr. Yogesh has full
controls over affairs of HUF. Mr. Yogesh excises partial control from India and
partially from Nepal. Calculate residential status of HUF and Karta Mr. Aman for
the AY 2021-2022 i.e. PY 2020-2021—
(a) HUF is resident, Mr. Aman is non resident
(b) HUF is non-resident, Mr. Aman is non resident
(c) HUF is resident and ordinary resident, Mr. Aman is non resident
(d) HUF is resident and ordinary resident, Mr. Aman is resident and ordinary resident
Q4. Reliance limited is a company incorporated in India and which has its registered office
in Mumbai. For the AY 2020-2021 i.e. PY 2019-2020 its Place of Effective
Management is in Nepal. Determine its residential status for the AY 2021-2022 i.e.
PY 2020-2021.
(a) Non Resident
(c) Resident and not ordinary resident
Page 1
(d) Resident of India
Q5. If Anirudh has stayed in India in the AY 2021- 2022 i.e. PY 2020-2021 for 181
days, and he is nonresident in 9 out of 10 years immediately preceding the current previous
year and he has stayed in India for 365 days in all in the 4 years immediately preceding
the current previous year and 420 days in all in the 7 years immediately preceding the
current previous year, his residential status for the AY 2021- 2022 i.e. PY 2020-2021
would be—
(a) Resident and ordinarily resident
(b) Resident but not ordinarily resident
(c) Non-resident
(d) Cannot be ascertained with the given information
Q6. Raman was employed in Hindustan Lever Ltd. He received a salary of Rs. 40,000pm
from 1/4/2020 to 27/9/2020. He resigned and left for Dubai for the first time on
1/10/2020 and got salary of rupee equivalent of Rs. 80,000pm from 1/10/2020 to
31/3/2021. His salary for October to December 2020 was credited in his Dubai bank
account and the salary for January to March 2021 was credited in his Bombay
account directly. He is liable to tax in respect of—
(a) Income received in India from Hindustan Lever Ltd;
(b) Income received in India and in Dubai;
(c) Income received in India from Hindustan Lever Ltd. and income directly credited in India;
(d) Income received in Dubai
Q7. A company would be a resident in India for the AY 2021-2022 i.e. PY 2020-2021 if—
(a) it is an Indian company
(b) during the year, majority of its directors are resident in India
(c) during the year, its Place of Effective Management is in India
(d) both (a) and (c)
Q8. Income accruing in London and received there is taxable in India in the case of
(a) resident and ordinarily resident only
(b) both resident and ordinarily resident and resident but not ordinarily resident
(c) both resident and non-resident
(d) non-resident
Q9. Incomes which accrue or arise outside India but received directly in India are taxable
in case of—
Page 2
(c) non-resident
(d) All the above
Q10. Income earned from a contract negotiated by an agent in India in the name of a non-
resident but approved by such non-resident shall:
(a) be taxable in India as such income is deemed to accrue or arise in India
(b) not be taxable in India as there is no business connection in India
(c) be taxable in India only if it is received in India
(d) be taxable in India as such income accrues or arises in India
Q11. Fees for technical services paid by the Central Government will be taxable in case
of—
(c) non-resident
(d) All the above
Q12. Short term capital gains on sale of shares of an Indian private limited company but
received in Australia is taxable in case of—
(c) non-resident only
(d) All the above
Q13. Income from a business in Canada, controlled from Canada is taxable in case of
(c) non-resident
(d) All the above
Q14. Dividend Income from Australian company received in Australia in the year 2017,
brought to India during the AY 2021-2022 i.e. PY 2020-2021 is taxable in case of—
(b) resident but not ordinarily resident
(c) non-resident
Q15. Under the Income-Tax Act, the incidence of taxation depends on—
(a) The citizenship of the tax-payer
Page 3
(b) The age of the taxpayer
(c) The residential status of the tax-payer
(d) The gender of the taxpayer
Q16. A company is considered to be resident if
(a) It is an Indian Company
(b) During the previous year foreign company’s place of effective management is situated in
India
(c) (a) & (b) both
(d) Any of the above
Q17. Mr. J is a person of Indian origin and comes to India on 29/10/2020 and plans to
stay here for 185 days. During 4 years prior to PY 2020-2021 he was in India for
750 days. Earlier to that he was never in India. For AY 2021-2022 i.e. PY 2020-
2021 he shall be:
(a) Resident and ordinarily resident in India
(b) Resident but not ordinarily resident in India
(c) Non-resident
Q18. Mr. John is a citizen of India left India for France on 6/8/2020 for booking orders
on behalf of an Indian company for exporting goods. He came back to India on
5/10/2021. He had been resident in India for the past 10 years. For AY 2021-2022
i.e. PY 2020 2021 he shall be:
(c) None Resident in India
Q19. Mr. Rakesh a citizen a India and is working as a crew member on an Indian ship.
During the AY 2021- 2022 i.e. PY 2020-2021 he leaves India for Germany on
15/9/2020 for holidays and returned on 1/4/2021. He had been non-resident for
the past 3 years. Earlier to that he was permanently in India. For AY 2021- 2022
i.e. PY 2020-2021 he shall be—
(c) Non-resident in India
Page 4
Q20. Remuneration for rendering services on a foreign ship is not taxable in India in the
case of—
(a) A resident
(b) A non-resident who is not a citizen of India
(c) Not ordinarily resident
(d) A citizen of India
Q21. Every financial year, the residential status of an assesses—
(a) May change
(b) Will certainly change
(c) Will not change
Q22. Income accruing from agriculture in a foreign country is taxable in India in case of an
assesses who is—
(b) Not-ordinarily resident
(c) Non-resident
Q23. Foreign income received in India during the previous year is taxable in the case of—
(a) Resident
(b) Not-ordinarily resident
(c) Non-resident
(d) All of the above
Q24. Income earned and received outside India but later on remitted to India, is taxable
in the case of—
(a) All the assesses
(b) Resident and ordinarily resident in India
(c) Non-resident
Q25. Which of the following may be a ‘Resident but not ordinarily resident’ in India—
(a) Partnership firm
(b) Joint stock company
(c) Association of persons
(d) Hindu Undivided Family
Page 5
Q26. Past untaxed profit of the Previous Year 2019- 2020 brought to India in Previous
Year 2020-2021 is chargeable to tax in the AY 2021-2022 in the hands of
(a) All the assesses
(b) Resident and ordinarily resident in India
(c) Non-resident in India
Q27. Total income of a person is determined on the basis of his
(a) Residential status in India
(b) Citizenship in India
(c) Both (a) and (b) above
Q28. The following additional conditions are to be satisfied by a person to be resident and
ordinarily resident in India—
(a) He is a resident in at least any 2 out of the 10 previous years immediately preceding the
relevant previous year
(b) He has been in India for 730 days or more during the 7 previous years immediately
(c) Both (a) and (b) of above
Q29. Mr. vikas an Indian citizen, who is living in Delhi since 1980, left for Japan on 1st
July, 2018 for employment. He came back to India on 1st January, 2020 on a visit
and stayed for 4 months. His residential status for the AY 2021-2022 i.e. PY 2020-
2021 would be—
(b) Not ordinarily resident
(c) Non-resident
(d) Resident
Q30. Mr. Vikas earns the following Income during the PY ended 31st March, 2021.
Interest on U.K. Development Bonds (1 /4th being received in India): Rs. 2,00,000:
Profits on sale of a building in India but received in Holland: Rs. 2,00,000. The
income liable to tax for the AY 2021-2022 i.e. PY 2020-2021 if Mr. Vikas is
resident and not ordinarily resident in India, is
(a) Rs. 2,50,000
(b) Rs. 4,00,000
(c) Rs. 2,00,000
Page 6
(d) Rs. 50,000
Q31. If Karta is resident and ordinarily resident in India but control and management of
HUF is situated partly outside India in the previous year, the HUF is -
(c) Non-resident
(d) Resident
Q32. Mr. Vikas is a foreign citizen. His father was born in Delhi in 1951 and mother was
born in England in 1950. His grandfather was born in Delhi in 1922. Mr. Vikas visited
India to see Taj Mahal and other historical places. He came to India on 1st
November, 2020 for 200 days. He has never come to India before. His residential
status for AY 2021-2022 i.e. PY 2020-2021 will be—
(a) Non-resident in India
(b) Not ordinarily resident in India
(c) Resident and ordinary resident in India
Q33. Mr. Rahul is a software engineer at ABC Ltd. left India on 10th August, 2020 for
the treatment of his wife. This is first time he and his wife have left India. For
Income-tax purpose residential status of Mr. Rahul for the AY 2021-2022 i.e. PY
2020-2021 will be—
(b) Non-resident
(d) Cannot be determined from the given information
Q34. Residential status of an Indian company is resident in India for the year -
(a) If the place of effective management is wholly in India
(b) If part of the effective management in India
(c) Regardless of the place of effective management
(d) If it is listed on recognized stock exchange
Q35. HUF of Mr. Ram consisting of himself, his wife and 2 sons is assessed to income-tax.
The residential status of HUF would be non-resident, when -
(a) The management and control of its affairs is wholly in India
(b) The management and control of its affairs is wholly outside India
(c) The status of karta is non-resident for that year
(d) When majority of the members are nonresidents
Page 7
Q36. Mr. SUBHASH who was born and brought up in India left for employment in Dubai on
20th August, 2020. His residential status in respect of the AY 2021- 2022 i.e. PY
2020-2021 would be:
(b) Non-resident
Q37. X Ltd. is an Indian company. It carries its business in Delhi and London. The place of
effective management of the company is situated in London. More than 85% of its
business income is from the business in England. If so, its residential status will be—
(a) Resident
(b) Non-resident
(d) Foreign company
Q38. A company incorporated outside India having its place of effective management fully
situated in India in the previous year will be treated as—
(a) Resident
(c) Non-resident
Q39. Mr. P, an Indian citizen, left India for U.K. on 1st September, 2020 to take up a
job there. His residential status for AY 2021-2022 i.e. PY 2020- 2021 would be—
(c) Non-resident
Q40. Mr. J brought into India, in the previous year, past untaxed income which was earned
in U.K. The income will be taxable if Mr. J is—
(a) An ordinarily resident
(b) A not-ordinarily resident
(c) A non-resident
(d) Non taxable
Q41. Mr. M born and brought up in India left for employment in Belgium on 31-10-2020.
He has never gone out of India, previously. What in his residential status for the AY
2021-2022 i.e. PY 2020-2021?
Page 8
(a) Non-resident
(c) Resident and ordinary resident
(d) Indian citizen
Q42. Mr. Pankaj (age 55) is Karta of HUF doing textile business at Nagpur. Mr. Pankaj is
residing in Dubai for the past 10 years and visited India for 20 days every year for
filing the Income tax return of HUF. His two, major sons take care of the day to
day affairs of the business in India. The residential status of HUF for the AY
2021-2022 i.e. PY 2020-2021 is:
(a) Non-resident
Q43. Thomas Inc. of Australia borrowed money from various companies in Australia for
doing business in India by name ANS Co. Ltd., Mumbai. Thomas Inc. paid interest of
Rs. 5 lakhs to various lenders. The amount of interest paid:
(a) Has accrued in India
(b) Is exempt from tax
(c) Does not accrue in India
(d) Is taxable in Australia
Q44. A company is said to be resident in India in previous year if,

(a) It is an Indian company
(b) Its place of effective management is in India
(c) Either it is an Indian company or is place of effective management is in India.
(d) It is both an Indian company or is place of effective management is in India.
Q45. ABC Ltd. An Indian company will be ----- in India if its place of effective
management is wholly situated outside India during the previous year.
(a) Resident
(b) Non- Resident
(c) Not ordinarily Resident
(d) Any of these
Q46. The person who concludes contracts on behalf of the non-resident is known as-
Page 9
(a) Concluding agent
(b) Stocking agent
(c) Indenting agent
(d) None of these
Q47. Business activity carried on with which of the following agent is not a business
connection
(a) Concluding agent
(b) Stocking agent
(c) Indenting agent
(d) None of these
Q48. Which of the following activity will be considered as business connection in India?
(a) All the operations of a firm are not carried in India
(b) An office set up by non-resident for caring out business activity in India
(c) The profits earned by assesse on supplies of fabricated platforms
(d) All of these
Q 49: Mr. Anil fulfills all conditions given in sec 6(1A). In such case he shall be treated as
…………..
a. RI
b. ROR
c. RNOR
d. NR
Q 50: Mr. Sunil is in Indian citizen. His income other than foreign source exceeds Rs 15
lakhs and not liable to pay tax in other country. His R.S. for relevant PY shall be
a. Resident
b. non-resident
c. Not ordinarily resident
d. Can’t say
Page 10
ANSWERS
1 a 11 d 21 a 31 a 41 c
2 b 12 d 22 a 32 d 42 c
3 c 13 a 23 d 33 a 43 a
4 d 14 d 24 b 34 c 44 c
5 b 15 c 25 d 35 b 45 a
6 a 16 c 26 d 36 b 46 a
7 d 17 a 27 a 37 a 47 d
8 a 18 c 28 c 38 a 48 b
9 d 19 a 29 c 39 a 49 c
10 a 20 b 30 a 40 d 50 c
Page 11

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QUESTION BANK

The Questions contained in this booklet have been prepared by the

INCOME TAX LAW & PRACTICES

1. Income tax is collected on all types of income except .

2. The Income Tax Act came into force from .

5. The tax payer liability is determined with reference to his or her .

6. As per the definition of Income, the income includes the following .

8. Previous year means the financial year immediately preceding the .

9. Agricultural income is completely exempted for assessment year .

11. An individual is said to be resident in India if .

12. The HUF is said to be resident in India if .

24. __________ is exempted from income tax.

II SHORT ANSWER TYPE QUESTIONS:

III LONG ANSWER TYPE QUESTIONS:

1. Mr. X has a business income of Rs 3, 00,000 and agricultural income of Rs 4, 00,000.

2. _________ of Income Tax Act is related to residential status.

3. Resident of India includes .

4. The Company may have the residential status as .

5. The meaning of exempted income is .

6. The number of income source for a person are .

8. The agricultural income includes .

9. ____________ comes under agricultural income.

10. The Income Tax Act, 1961 broadly covers .

11. The capital gain is chargeable under of Income Tax Act.

12. The definition of the person includes .

14. Residential Status of an assesses can be .

15. The income of previous year is chargeable to tax in the .

17. An individual is resident and ordinarily resident of India if .

18. The Resident HUF is ordinarily resident in India, if

21. R, a chartered accountant is employed with R Ltd., as an internal auditor and

25. ____________are capital assets.

III LONG ANSWER TYPE QUESTIONS:

Interest on American development bonds, 50 per cent of Rs. Rs.

received in India 46,000 18,000

Dividend for a Japanese company received in America 10,000 15,000

Profit on sale of shares of on Indian company received in India 45,000 75,000

Profit from a business in Mumbai, but managed directly from 10,000 -

Income from a business in Mumbai 32,000 28,000

Fees for technical services rendered in America and received in

America. The services were, however, utilized in India 1,50,000 -

Rent received in respect of house property at Mumbai 96,000 55,000

Life insurance premium paid - 25,000

I MULTIPLE CHOICE QUESTIONS:

2. Salary, bonus, commission or remuneration due to or received by a working partner from

4. Interest on capital or loan received by a partner from a firm is:

6. Expenditure incurred on family planning amongst the employees is allowed to

8. ____________are capital assets.

13. Bonus shares are the shares issued by a company_____________.

23. Deduction in respect of contribution to political party will .

III SHORT ANSWER TYPE QUESTIONS:

1 How do you compute Income from house property?

III LONG ANSWER TYPE QUESTIONS:

1 Write a note on computation of income in case of a house property which is in business

Dearness Allowance 3,000 p.m. (forming pan of salary)

Particulars Company X Company Y

Basic Salary 32,000 13.000

17 R is neither a Director nor a substantial Shareholder of Either X ltd. or Y ltd. Is he Specified

I MULTIPLE CHOICE QUESTIONS:

3. Gross Total Income is arrived after .

6. Deduction in respect of contribution to political party will .

8. Government’s contribution to the new pension scheme referred to in Section 80CCD is

21. The provisions regarding TDS on Salaries are contained in .

23. Deduction of tax at source for insurance commission is @ ___________________.