RS Classes
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Prof.N.Srinivasan
Solutions for Direct tax questions (only practical) of PCC – May 2010 questions
DT Batch for Final Nov 2010 to begin in July 2010
Solution 1:
(i)
(ii)
(iii)
(iv)
(v)
Mumbai
Scope of Income of Non resident: According to section 5(2) and income which is received or
deemed to be received in India by the non resident & any income accruing or arising in India
shall be liable to tax in India. To put it differently, a non resident shall be liable to pay tax
only on Indian incomes
As per section 9(1)(iii), any income chargeable under the head salaries payable by the
government of India to a citizen of India shall be deemed to accrue or arise in India.
However please note that allowances and perquisites will not be hit by this section since
they are specifically exempt u/s 10(7).
The situation will be covered by Rule 7B which provides that where the income comprises
of income from grown and cured by the assessee, 25% of the income shall be liable to tax
whereas the balance 75% shall be classified as agricultural income which will be exempt u/s
10(1). Hence the assessee’s contention that the entire income is agricultural income is
erroneous and not tenable.
There is no time limit prescribed for making application for registration of trust u/s 12AA.
However section 12AA does provide that the exemption u/s 11 shall be available only in
respect of the income of the FY in which the application is made.
Sec 2(23) which has been amended to include LLP puts LLP at par with partnership firm as
far as taxation is concerned – so they will taxed in the same manner and at the same rate as
applicable to a firm.
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Prof.N.Srinivasan
Solution 2:
Computation of total income of HUF of Mr. Raman (Age: 70 yrs) for the AY 2010-11
Heads
Income under the head Salaries
Income from House property
Income from profits and gains of business
and profession
Income under the head Capital gains
Income from other sources
Gross Total Income
Less: Deduction under Chapter VI-A:
Section 80C:
LIC premium
22500
Pension fund of LIC
17500
Repayment of Housing loan
30000
PPF
20000
Net Income
Mumbai
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W.Note
Amount
1
235000
2
450000
Nil
71100
756100
3
90000
666100
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Prof.N.Srinivasan
W.Note: 1 – Income from House property:
GAV
Less: Municipal taxes
NAV
Less: Interest u/s 24c
Income from HP
Arrear Rent d
120000
Less: Std deduction
36000
Income from House property
Unit 1
Unit 2
(treated as SOP) (Treated as DLOP)
Nil
96000a
Nil
5000
Nil
91000
12000
12000
(12000)
79000
Unit 3
Total
(LOP)
96000
Nil b
96000
12000
84000 151000
84000
235000
Notes and Assumptions:
(a) The Reasonable expected rent of the DLOP has been assumed on the basis of the rent received
for Unit 3.
(b) Municipal taxes paid by tenant will not be allowed as deduction u/s 24.
(c) Interest under section 24 is allowable on accrual basis
(d) In the absence of information about the rent prevailing during 1-1-07 to 31-12-08, for the
purposes of calculating Arrear rent the GAV has not been recomputed.
Working note : 2: Income from profits and gains of business and profession
Income from poultry farming (taxable since it is not agricultural income)
Income from dealing in shares
Less: Brought forward losses of automobile business
Income from business and profession
400000
88500
(38500)
450000
Working note : 3: Income from other sources
Income from horse races
Interest on company deposit
Rental income clubbed in pursuance of section 60
Income from other sources
Mumbai
30000
15100
26000
71100
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Prof.N.Srinivasan
Solution 3(a)
In respect of the profits earned out of business in which the amounts gifted by Mrs. John has been
invested, the tax treatment will be as under:
Amount taxable in the hands of Mrs. John:
Taxable income from business for PY: 09-10:
440000
Total amount of investment of Mr.John as on 1-4-09 (600000+200000+300000)
1100000
Of the above 1100000 the amount gifted by Mrs John
200000
Hence amount of current year profits taxable in the hands of Mrs. John
Amt gifted by Mrs John
× 𝑇𝑎𝑥𝑎𝑏𝑙𝑒 𝑖𝑛𝑐𝑜𝑚𝑒
𝑇𝑜𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑎𝑠 𝑜𝑛 𝑡ℎ𝑒 𝑓𝑖𝑟𝑠𝑡 𝑑𝑎𝑦 𝑜𝑓 𝑡ℎ𝑒 𝑝𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑦𝑒𝑎𝑟
200000
i.e 1100000 × 440000 = 80000
And the business profits taxable in the hands of Mr.John will be :
440000-80000 = 360000
Computation of tax liability of Mr. John for the AY 09-10
Income from salary
Income from House property
Income from Business and profession
Income under the head “ Capital Gains”
- Long term capital gains (land)
GTI
Less: Deduction under Chapter VI-A
Net Taxable income
Tax on above:
a. On LTCG @ 20%
100000
Mumbai
360000
500000
864000
Nil
860000
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b. On balance
Add: SC + SHEC
Total tax payable
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26000
126000
3780
129780
Calculation of Advance Tax payable:
15-9-2009 30% of tax payable (excluding capital gains) – i.e 30% of 26780 8034
15-12-2009 60% of tax payable – 0.60 x 26780 = 16068
Less: Already paid in 1st instalment = 8034
Balance now payable
8034
15-3-2009 Total tax payable minus already paid:
Total tax
=129780
Less: 1st Instalment paid
8034
Less: 2nd Instalment paid
8034
Balance now payable
113712
Solution 3(b)
WDV on 1-4-2006
Less: depreciation u/s 32 for PY 06-07
WDV as on 1-4-2007
Less: depreciation u/s 32 for PY 07-08
WDV as on 1-4-2008
Less: depreciation u/s 32 for PY 08-09
WDV as on 1-4-2009
Add: Additions
Less: Sale proceeds restricted to 322825
Balance on 31-3-2010
Depreciation for PY 09-10:
Normal depreciation
Nil
Additional depreciation:
@ 10% on 200000 = 20000
200000
30000
170000
25500
144500
21675
122825
200000
(322825)
NIL
Mumbai
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Prof.N.Srinivasan
Solution 4(a)
i.
ii.
iii.
iv.
Mumbai
TDS on Insurance commission [194D]
In respect of insurance commission the payer will have to deduct Tax at source @ 10%
on Rs.45000 at the time of credit or payment whichever is earlier. No tax would need to
have been deducted at source if the amount payable was Rs.5000 or less in a year.
TDS on contract payment : 194C:
Before 1-10-2009: tax to be deducted at source @ 2%
After 1-10-2009: tax to be deducted at source @ 1%
On discount allowed on prompt payment – Tax need not be deducted at source
On Maruti car given away as prize:
As per section 194B, tax needs to be deducted at source @ 30% on the market value of the
prize and such tax needs to be deducted before the winning is handed over to the winner.
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Income from house property:
- House 1:
- House 2:
- House 3:
Income from Business and profession:
- Textile business
- Speculation business
- Automobile business
Capital gains:
- LTCG on STT paid transactions – Exempt u/s 10(38)
- LTCG on sale of vacant plot
- STCL on sale of building
Other sources:
- Gift from friend – non relative
- Gift from brother of grandfather – not a relative
- Gift from relative – Exempt u/s 56
Gross total income
Mumbai
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36000
(20000)
60000
76000
200000
200000
(300000) 100000
200000
(100000) 100000
60000
100000
Nil
160000
436000
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