Income Tax Law and Practice Solved Question Paper 2020, Dibrugarh University, B.Com 3rd Sem Non-Hons

Income Tax Law and Practice Solved Question Paper 2020 Held in 2021,

Dibrugarh University, B.Com 3rd Sem Non-Hons

3 SEM TDC ITLP (CBCS) NH CC 303

2 0 2 0(Held in April–May, 2021)

COMMERCE – Paper: CC–303

(Income Tax Law and Practice)

(Non-Honours)

Full Marks: 80

Pass Marks: 32

Time: 3 hours

The figures in the margin indicate full marks for the questions

1. (a)Fill in the blanks: 1×3=3

i) Dividend received from Indian company is taxable

ii) Winning from lotteries is casual income.

iii) Loss from house property can be carried forward for 8 years.

(b) State whether the following statements are ‘True’ or ‘False’:               1×3=3

i) Deduction under Section 80C to 80U shall be allowed from gross total income. True

ii) Unabsorbed depreciation is deducted from profit. True

iii) Long-term capital losses can be set off only against short-term capital profit. False

2. Answer the following questions in short: 2×5=10

(a) Determine the status of the following persons:

(i) Local authority – A local authority is said to be resident at the place where the control and management of its affairs are situated and its residential status is governed

(ii) Dibrugarh University – Resident in India since it is established in India.

(b) What is dual residential status?

Ans: A dual status alien is an individual who is classified as both a Indian resident alien and a nonresident alien in the same tax year.

(c) What is house rent allowance?

Ans: House rent allowance (HRA) received by an employee from his employer is an exempted income. If the actual house rent allowance received by the employee is in excess of the lowest limit as prescribed, the excess sum will be taxable salary.

(d) Write the tax treatment of loss due to vacant.

Ans: Rent actually received or receivable after excluding unrealized rent but before deducting loss due to vacancy. Out of sum computed above, any loss incurred due to vacancy in the house property shall be deducted and the remaining sum so computed shall be deemed to the gross annual value.

(e) What is ‘tax incidence’ under income tax?

Ans: Tax incidence on an assessee depends on his residential status. The residential status of an assessee is determined with reference to his residence in India during the previous year. Therefore, the determination of the residential status of a person is very significant in order to find out his tax liability. Residence and citizenship are two different things. The incidence of tax has nothing to do with citizenship.

3. Explain in brief any three incomes which are exempted u/S 10 of the Income-tax Act, 1961. 3

Ans: Income Exempted from tax under Sec. 10:

– Agricultural Income: Income from agriculture is exempt. However, if the net agricultural income exceeds Rs.5, 000, it is taken into account for determining the rates of income-tax on incomes liable to tax. [Sec.10 (1)]

– Receipt from Hindu Undivided Family: Any sum received by an individual as a member of Hindu Undivided Family where such sum has been paid out of the income of the family or in the case of any Impartible estate, where such sum has been paid out of the income of the estate belonging to the family, irrespective of whether tax is payable or not by the HUF on its total income. However, certain receipts from HUF are liable to be clubbed in the hands of an individual member u/s 64(2). [Sec.10 (2)]

– Partner’s Share in the Firm’s Income: In the case of a person being a partner of a firm which is separately assessed as such, partner’s share in the total income of the firm is exempt. Share of a partner of the firm shall be computed by dividing the total income of the firm in the profit sharing ratio mentioned in the Partnership Deed. [Sec.10 (2A)]

4. What do you mean by casual income? Give example. 3

Ans: Income received from winning lotteries, crosswords, puzzles, card games, horse race, gambling, betting or any other games is known as casual income. Casual Income is taxed at a flat rate of 30%. No expenditure is allowed as a deduction from casual income. Examples of Casual Income: winning lotteries, crosswords, puzzles, card games, horse race, gambling and betting income.

5. Write short notes on (any four):

a) Agricultural income.

Ans: As per Section 2(1A) agricultural income includes the following:

a) any rent or revenue derived from land used for agricultural purposes;

b) any income derived from such land by agriculture or from processing of agricultural produce to make it fit for the market;

c) any income from farm building situated on or in the immediate vicinity of agricultural land and used as (a) dwelling house; (b) store house; or (c) other out building. Further such land should be assessed to land revenue or a local rate. However, if it is not assessed to land revenue or local rate then such land should be situated outside urban area.

Income from agriculture is exempt. However, if the net agricultural income exceeds Rs.5, 000, it is taken into account for determining the rates of income-tax on incomes liable to tax. [Sec.10 (1)]

b) Rent-free accommodation.

Ans: Rent-free accommodations are those for which no rent is recovered from employees. Such rent free accommodations may be furnished or unfurnished. Provisions of Income Tax Act, 1961 relating to rent-free accommodation for both government and non-government employees are given below:

1. For govt. employee: License fees fixed by government + 10% of the cost of furniture or hire charges is the value of rent-free accommodation.

2. For non- Government employee:

Population Owned by employer Hired by employer
If population is <10 lakhs

If population is >10 lakhs but < 25 lakhs

If population is> 25 lakhs

7.5% of salary

10% of salary

15% of salary

Actual hire charges or 15% of salary whichever is less.
If furnished Add 10% of the cost or hire charges Add 10% of the cost or hire charges
Hotel accommodation (more than 15 days) 24% of salary or actual expenses whichever is lower 24% of salary or actual expenses whichever is lower
Meaning of salary Basic + DP + DA which enters + fee + commission of all types + statutory bonus + all fully taxable allowance + salary in lieu of leave for current year but does not include arrears advance perquisites, provident fund excess, gratuitous bonus.

c) Net annual value of house property

Ans: The Annual Value of a house property is the inherent capacity of the property to earn income and it has been defined as the amount for which the property may reasonably be expected to be let out from year to year. It is not necessary that the property should actually be let out. It is also not necessary that the reasonable return from property should be equal to the actual rent realized when the property is, in fact, let out.

The annual value of a house property is called Gross Annual Value which is calculated by Comparing MRV, FRV, SRV and Actual rental value. From gross annual value municipal taxes paid by landlord during previous is deducted to find net annual value.

d) Short-term capital assets

Ans: Short-term capital asset [Section 2(42A)]: A capital asset held by an assessee for not more than 36 months immediately preceding the date of its transfer is known as a short term capital asset. However, the following assets shall be treated as short-term capital assets if they are held for not more than 12 months (instead of 36 months mentioned above) immediately preceding the date of its transfer:

(a) A security and shares of companies listed in a recognised stock exchange in India.

(b) A unit of an equity oriented fund.

(c) A zero coupon bonds.

The following assets shall be treated as short term capital assets if such assets are held by the owner (before transfer) for not more than 24 months:

(a) Unlisted shares of companies.

(b) An immovable property being land and building or both.

e) General income under Section 56(1)

Ans: Sec. 56(1): General Incomes: Following are the popular and general incomes that are offered for tax under the head “income from other sources”:

  1. Income from subletting;
  2. Interest on bank deposits and loans;
  3. Income from royalty (if it is not an income from business/profession);
  4. Director’s fee;
  5. Ground rent;
  6. Agriculture income from a place outside India;
  7. Directors ‘s commission for standing as guarantor to bankers;
  8. Director’s commission underwriting shares of new company;
  9. Examination fees received by a teacher from a person other than his employer
  10. Rent of plot of land
  11. Insurance commission;
  12. Mining rent and royalties
  13. Casual income;
  14. Annuity payable a will, contact trust deed (excluding annuity payable by employer which is chargeable under the head ‘’
  15. Salary to payable to member of parliament;
  16. Interest on securities issued by a foreign Government;
  17. Family pension received by family members of a deceased employee;
  18. In case of retirement, interest on employee’s contribution if provident fund is unrecognized;
  19. Income from undisclosed sources;
  20. Gratuity paid to a director who is not an employee of the company;
  21. Income from racing establishments;
  22. Compensation received for use of business assets;
  23. Annuity payable to the lender of a trademark.

6. (a) Mr. Chandan is an employee of an industrial unit at Guwahati. The particulars of his income from salary areas under:

(1) Basic Salary

(2) Dearness allowance

(3) Bonus

(4) Entertainment allowance

(5) House rent allowance

(6) He contribute 15% per month of his basic salary towards recognized provident fund

(7) His employer also contributes 15% of basic salary towards recognized provident fund

(8) Interest credited to recognized provident fund @ 12% p.a.

(9) A car of 1.8 litre capacity was provided by the employer for office and private use.

All expenses of the car are borne by the employer.

(10) He paid professional tax—

Rs. 40,000 per month

Rs. 30,000 per month

Rs. 30,000

Rs. 6,000 per month

Rs. 30,000 per month

 

 

Rs. 12,000

 

 

Rs.1,300

Compute income under the head salary for the Assessment Year 2020–21.          14

Ans: Computation of Salary Income of Mr. Chandan under the head salary for the assessment year 2020 – 21

Particulars Amount Amount  
a) Basic Salary (40,000 * 12)

b) Dearness Allowance (30,000*12)

c) Bonus

d) Entertainment Allowance

e) House Rent Allowance

f) Interest on RPF

Less: Exempted upto 9.5%

g) Employers Contribution to RPF (15% of Basic)

Less: Exempted upto 12% of salary

h) Perquisite of Car 1.8 ltrs CC (Rs. 2400 p.m.)

Gross Salary

Less: Deduction under section 16

ia) Standard Deduction

iii) Professional tax paid

 

 

 

 

 

12,000

9,500

4,80,000

3,60,000

30,000

72,000

3,60,000

 

2,500

 

14,400

28,800

72,000

57,600

 
13,47,700

 

50,000

1,300

Net Salary   12,96,400  

Note:

a) Since rent paid by the employee is nil, therefore it is assumed that employee is living in his own house. So full amount of HRA is taxable.

Or

(b) Define ‘income from house property’. Explain the various deductions allowable under Section 24 while determining income from house property.    2+12=14

Ans: Income earned by letting house property for residential or commercial purpose is called income from house property. Under section 22 of the income tax act, The annual value of a property, consisting of any buildings or lands appurtenant thereto, of which the assessee is the owner, is chargeable to tax under the head ‘Income from house property’. However, if a house property, or any portion thereof, is occupied by the assessee, for any business or profession, carried on by him, the profits of which are chargeable to income-tax, the value of such property is not chargeable to tax under this head.

Deductions allowable under section 24 of the income tax act

Following two deductions will be allowable from the net annual value to arrive at the taxable income under the head ‘income from house property’:-

(a)    Statutory deduction: 30 per cent of the net annual value will be allowed as a deduction towards repairs and collection of rent for the property, irrespective of the actual expenditure incurred.

(b)   Interest on borrowed capital: The interest on borrowed capital will be allowable as a deduction on an accrual basis if the money has been borrowed to buy or construct the house. It is immaterial whether the interest has actually been paid during the year or not. If money is borrowed for some other purpose, interest payable thereon cannot be claimed as a deduction.

Limit of deduction u/s 24(b)

1. In case of Let out/ deemed to be let out house property: Interest on Money borrowed is allowed as deduction without any limit. Here interest on money borrowed = interest of P/Y + 1/5 of Pre-construction period(PCP) interest. PCP started from the date of borrowing and ended on 31st Mar immediately preceding(Before) the year of completion.

2. In Case of Self Occupied House Property: Max. Rs. 2,00,000 is allowed as deduction if the following conditions are satisfied:

– A loan taken after 1 – 4 – 99

– For construction/purchase (Capital expenditure) of house

– Construction completed within 5 years from the end of the financial year in which loan is borrowed.

– Loan certificate is obtained

For all other cases, the maximum allowed deduction is Rs. 30000

7. (a) Mr. Rajesh, an advocate, furnishes the following Receipts & Payments A/c for the Previous Year 2019–20:

Receipts & Payments A/c

Receipts Rs. Payments Rs.
To Opening Balances

To Legal Fees

To Interest on Debentures

To Rent from Property

To Gifts from Clients

To Examiner’s Fees

To Special Commission Fees

7,000

1,24,000

18,000

24,000

30,000

24,000

15,000

By Rent

By Stationery

By Books (annual publications)

By Travelling Expenses

By Telephone

By Income Tax

By Office Expenses

By LIC Premium

By Donations

By Motor Car Expenses

By Purchase of Court Fees Stamps

By Balance c/d

18,000

4,800

6,000

18,000

16,600

12,400

19,200

3,200

6,000

12,800

9,000

1,16,000

  2,42,000   2,42,000

Additional Information:

  • Closing stock of stationery— 600.
  • Closing stock of court stamps— 1,800.
  • Gifts from clients include— 6,000 received from his mother.
  • Donation is given to National Children Fund.
  • 1/4th of motor car expenses are for personal use.

Compute the professional income of Mr. Rajesh.             14

Ans: Computation of Professional Income of Mr. Rajesh for the Assessment Year 2020 – 21

Particulars Amount Amount
Professional Receipts:

a) Legal fess

b) Examiner’s Fees

c) Special Commission Fees

d) Gifts from Clients (Rs. 30,000 – 6,000)

Total receipts

Less: Profession expenses:

a) Rent

b) Stationery

c) Books

d) Travelling Expenses

e) Telephone

f) Office Expenses

g) Motor Car Expenses (12,800*3/4)

h) Purchase of Court fees stamps

 

Total Profession Expenses

 

1,24,000

24,000

15,000

24,000

 

 

 

 

 

1,87,000

 

 

 

 

 

 

 

 

 

 

1,01,200

 

 

18,000

4,800

6,000

18,000

16,600

19,200

9,600

9,000

 
Professional Gain   85,800

Or

(b) What do you mean by capital assets? What are its different types? What rules are given for the determination of cost of acquisition of capital assets?      3+4+7=14

Ans:  Meaning of Capital Assets under Sec. 2(14): Capital asset means property of any kind held by assessee, whether or not connected with his business or profession. It includes all types of properties, whether movable or immovable, tangible or intangible, fixed or floating. Such asset may represent not only actual ownership but also any right in relation to any property which is capable of being transferred. Capital asset also includes any security held by a FII. But capital assets do not include the following:

  1. Stock-in-trade, consumable stores or raw materials held for the purpose of business or profession.
  2. Personal movable properties viz. furniture, motor vehicles, refrigerators, musical instruments etc. held for personal use of the assessee or his family. But personal property does not include the following:
  • Jewellery
  • Residential house property
  • Archaeological collections, drawings, paintings, sculptures, or any work of art.
  1. Rural Agricultural land:
  • Land within the jurisdiction of a municipality or cantonment board having population of 10,000 or more or
  • Land situated within 8 kilometers from the local limits.
  1. 6½ per cent Gold bonds, 1977 or 7 per cent Gold bonds, 1980 or National Defence Gold Bonds, 1980 issued by the Central Government.
  2. Gold Bonds issued by Government of India including gold deposit bonds issued under the gold deposit scheme, 1999 notified by the central Government.
  3. Special Bearer Bonds, 1991 issued by the Government of India.
  4. Deposit Certificates issued under the Gold Monetization Scheme, 2016.

Types of Capital Assets: Capital assets are of two types

  1. Short-term capital asset
  2. Long-term capital asset

1) Short-term capital asset [Section 2(42A)]: A capital asset held by an assessee for not more than 36 months immediately preceding the date of its transfer is known as a short term capital asset. However, the following assets shall be treated as short-term capital assets if they are held for not more than 12 months (instead of 36 months mentioned above) immediately preceding the date of its transfer:

(a) A security and shares of companies listed in a recognised stock exchange in India.

(b) A unit of an equity oriented fund.

(c) A zero coupon bonds.

The following assets shall be treated as short term capital assets if such assets are held by the owner (before transfer) for not more than 24 months:

(a) Unlisted shares of companies.

(b) An immovable property being land and building or both.

  • b) Long-term capital asset [Section 2(29A)]: It means a capital asset which is not a short-term capital asset i.e. the assets which are held by the assessee for a period exceeding 36 months/24months/12 months, as the case may be, immediately preceding the date of transfer, are called “long term capital assets”.

Cost of acquisition is the amount for which the capital asset was originally purchased by the assessee. Expenditure incurred in connection with such purchase, exchange or other transaction e.g. brokerage paid, registration charges and legal expense, is added to price or value of consideration for the acquisition of the asset. Interest paid on moneys borrowed for purchasing the asset is also part of its cost of acquisition. In case of depreciable asset of an undertaking engaged in generation or generation and distribution of power, its written down value shall be taken as its cost of acquisition.

Computation of cost of acquisition

In case of a transfer of a capital asset the cost of acquisition is taken as below:

  • Cost of acquisition in relation to goodwill of a business, tenancy rights, route permits, loom hours, right to carry on business, patents, copyright or trademark will be the amount of purchase price, if purchased and in any other case cost of acquisition will be nil.
  • If a capital asset is a share or shares in an amalgamated company which is an Indian company, the cost of acquisition of the shares shall be deemed to be the cost of acquisition to the buyer of the share or shares in the amalgamating company.
  • The cost of acquisition of the shares in a resulting company (i.e. after a demerger) shall be the amount same as the cost to old shareholders in the demerged company in the same proportion as the net book value of the assets transferred in a demerger bears to the net worth of the demerged company.
  • In case of gift, will, inheritance of an asset by an individual the cost to the previous owner would be the cost of acquisition for the current owner.
  • In case of assets received by a member on liquidation of the company, the cost of acquisition is the fair market value of such asset on the date of distribution
  • In case of conversion of shares into debentures, the cost of acquisition is that part of the cost of debentures in relation to which such shares are acquired by the individual.
  • In case of purchase of depreciable assets, the cost of acquisition is the opening written down value as on the first day of the financial year in which the asset is purchased.
  • In case of right shares, the cost of acquisition is the cost to purchase the right to own the shares.
  • In case of bonus shares, the cost of acquisition is NIL.
  • Cost of acquisition of assets acquired before 1-4-1981 will be either the actual cost of acquisition or  the fair market value of the asset as on 1-4-1981  which is completely at the option of the assessee.
  • Where the capital asset becomes the property of the assessee under the mode specified u/s 49(1) and the previous owner acquired the asset before 1-4-1981, then cost of acquisition shall be deemed to be the higher of the cost to the previous owner, or the fair market value of the asset as on 1-4-1981.

8. (a) Mr. D is employed as an accountant in an office in Guwahati. He furnishes the following particulars related to the Previous Year 2019–20:

(1) Salary

(2) Income from let-out house

(3) Income from cloth business

(4) Interest on savings Bank Account

(5) Dividend from Indian Company

(6) Dividend from foreign company

(7) Short-term capital gain

(8) Long-term capital gain

(9) Winning from lottery (net)

Rs. 41,000 p.m.

Rs. 9,000 p.m.

Rs. 55,000

Rs. 18,000

Rs. 10,000

Rs. 70,000

Rs. 9,000

Rs. 15,000

Rs. 35,000

During the previous year, Mr. D had contributed Rs.12,000 towards recognized provident fund. He has also made donations to a political party (by cheque) Rs.5, 000; Assam Govt. CM Relief FundRs.15,000 and PM’s National Relief FundRs.10,000. Compute total taxable income of Mr. D for the Assessment Year 2020–21.           14

Ans: Computation of Total Income of Mr. D for the Assessment Year 2020 – 21 (Previous Year 2019 – 20)

Particulars Amount Amount
1. Salary Income  (41,000*12)

2. Income from House Property (9,000*12)

3. Profits and Gains from Business and Profession: Income from cloth business

4. Capital Gains

– LTCG

– STCG

5. Income from other sources

– Interest on saving bank account

– Dividend from Indian company (Exempted till assessment year 2020 – 21)

– Dividend from foreign company

– Winning from lottery (net)

  4,92,000

1,08,000

55,000

 

9,000

15,000

 

18,000

 

70,000

35,000

Gross Total Income

Less: Deduction under Sec. 80

a) 80C

b) 80G

– Contribution to CM relief fund

– Contribution to PM’s relief fund

b) 80GGC

 

 

12,000

 

15,000

10,000

5,000

4,92,000

 

 

 

 

 

42,000

Total Income   4,50,000

Or

(b) What is gross total income? Write down the rules that govern deductions u/S 80of the Income-tax Act.4+10=14

Ans: Section 14: As per section 14, all income, for purposes of income-tax, will be classified under the following heads of income.

  • Salaries,
  • Income from House Property,
  • Profits and gains of business or profession
  • Capital gains
  • Income from other sources

Aggregate of incomes computed under the above 5 heads, after applying clubbing provisions and making adjustments of set off and carry forward of losses, is known, as gross total income (GTI) [Sec. 80B].

After calculating gross total income, total taxable income is to be calculated after certain deductions as mentioned under Secs 80C to 80U. The deductions to be allowed from the gross total income are to be distinguished from the deductions which are made while computing income under different heads. The deductions made from gross total income are either incentive to save for future or a kind of relief to the assessee. On the other hand, the deductions made while computing income under different heads are allowed to meet the expenses which are incurred in earning income under these heads of income.

Points to be taken into consideration while claiming deductions under Sec 80

  1. Deduction allowed to all types of tax payers: This deduction can be claimed by any tax payer -individuals, company, firm or any other person.
  2. Mode of Payment: This deduction can only be claimed when the contribution has been made via cheque or draft or in cash. But deduction is not allowed for donations made in cash exceeding Rs 10,000. In-kind contributions such as food material, clothes, medicines etc. do not qualify for deduction.
  3. Incomes which are not eligible for claiming deductions under Sec 80:
  4. STCG arising on transfer of equity share or units of equity oriented fund where transactions is covered under STT.
  5. LTCG
  6. Casual incomes such as winning from lotteries, races, card games, gambling etc.
  7. The aggregate amount of deductions under various sections does not exceed the gross total income of the assessee excluding the incomes mentioned under Sec 80.
  8. Claim for deduction must be made by the assessee by presenting the necessary documents.
  9. Claim for deduction under section 80 is only once.

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