Answer to MTP_Intermediate_Syllabus 2016_June 2020 & December 2020_Set 1

Paper 7- DIRECT TAXATION

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 Answer to MTP_Intermediate_Syllabus 2016_June 2020 & December 2020_Set 1

Paper 7 - Direct Taxation

Full Marks: 100 Time allowed: 3 hours

All questions relate to Income Tax Assessment Year 2020-21 and the provisions
stated relate to the Income-tax Act, 1961, unless otherwise stated in the question

Answer Question No. 1, which is compulsory and any five from Question No.2 to 8.

1. (A) Choose the most appropriate alternative for the following: [10x1=10]

(i) In case of loss, a partnership firm may claim deduction in respect of remuneration
to partner to the extent of:
(a) Rs. 1,50,000/-
(b) Rs. 1,50,000/- or remuneration paid, whichever is lower
(c) Rs. 1,50,000/- or 90% of book profit, whichever is lower
(d) Nil

(ii) Which of the following is taxable under the head ‘salaries’?

(a) Salary received by a Member of State Legislature.
(b) Commission received by an employee director of a company
(c) Family pension received
(d) Both (a) and (b) above

(iii) A Zero Coupon Bond shall be treated as Long term capital asset if it is held by the
transferor for __________:
(a) more than 12 months
(b) more than 36 months
(c) 12 months
(d) 36 months

(iv) Quoting ‘Permanent Account Number’ (PAN) is compulsory in the following

transaction –
(a) Payment to LIP exceeding Rs. 50,000 in a financial year
(b) Sale or purchase of any immovable property valued at Rs. 4,00,000
(c) Time deposit upto Rs. 35,000 with a bank
(d) None of the above

(v) An individual purchased a painting on 01-11-2019 for Rs. 5,00,000 though fair
market value of the asset is Rs.5,25,000. Income taxable u/s 56(2)(x) is:
(a) Rs. 25,000 i.e., difference between market value and actual consideration
(b) Nil as this is not gift
(c) Nil as difference between market value and actual consideration does not
exceed Rs. 50,000
(d) The provision of sec. 56(2)(x) is not applicable for any transaction entered
during P.Y. 2019-20.

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 Answer to MTP_Intermediate_Syllabus 2016_June 2020 & December 2020_Set 1

(vi) Interest relating to pre-construction period is allowable:

(a) In 5 equal installments from the year in which it was incurred.
(b) In the year in which it was incurred
(c) In the year in which house property was constructed
(d) None of the Above

(vii)The maximum amount of leave salary not chargeable to tax as specified by the
Government in case of a non-Government employee is
(a) Rs.75,600
(b) Rs.77,760
(c) Rs.2,40,000
(d) Rs.3,00,000

(viii) On donation to whom of the following a 50% deduction is allowable u/s 80G of the
Income Tax Act?
(a) National Defence Fund
(b) Prime Ministers National Relief Fund
(c) Rajiv Gandhi Foundation
(d) National foundation for Communal Harmony

(ix) Best Judgment assessment is covered u/s

(a) 143(3)
(b) 143(1)
(c) 144
(d) 147

(x) Unabsorbed business losses cannot be carried for more than

(a) 7 assessment years
(b) 8 assessment years
(c) 10 assessment years
(d) 12 assessment years

Answer:

(i) b
(ii) b
(iii) a
(iv) a
(v) c
(vi) d
(vii) d
(viii) c
(ix) c
(x) b

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 Answer to MTP_Intermediate_Syllabus 2016_June 2020 & December 2020_Set 1

(B) Match the following (sufficient to give the corresponding item in column 3 for column
1 reproducing columns 2 and 4 are not required): [5x1=5]

1 2 3 4
(i) Scrutiny Assessment a. Rate of TDS @5%
(ii) Sec. 194H b. Not Eligible for deduction u/s 80G
(iii) Deduction u/s 80EEB c. Deductible as business expenditure
(iv) Donation in Kind d. Sec. 143(3)
(v) Securities Transaction Tax e. Purchase of Electric Vehicle

Answer:

(i) d.
(ii) a.
(iii) e.
(iv) b.
(v) c.

(C) Say True or False for the following question: [5×1=5]

(i) No tax is required to be deducted from winning from race-horse, if such winning
does not exceed Rs. 10,000
(ii) Allowances payable to Central Government employees for serving outside India
is not exempted.
(iii) Short-term capital gains arising from sale of listed shares through a recognized
stock exchange, for which security transaction tax has been paid, will be
charged to tax at a concessional rate of 15%.
(iv) Income arising from the accretion of transferred property shall not be clubbed.
(v) Loss in speculation as well as non-speculation business can be carried forward to
a maximum of four consecutive assessment years immediately succeeding the
assessment year for which loss was first computed.

Answer:

(i) True
(ii) False
(iii) True
(iv) True
(v) False

(D) Fill in the blanks: [5×1=5]

(i) Interest on loan taken for certain House Property gets deduction U/s ________.
(ii) Assessee’s own contribution to the National Pension Scheme is eligible for a
maximum deduction of Rs. _____________.
(iii) In the case of a payee not having PAN for whom tax is to be deducted at source
u/s 194A, the rate applicable is ____________.
(iv) ICDS _________ deals with effects of changes in foreign exchange rates.
(v) Receipts from TV serial shooting in farm house is _________ (agricultural/non
agricultural) income.

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 Answer to MTP_Intermediate_Syllabus 2016_June 2020 & December 2020_Set 1

Answer:

(i) 80EEA
(ii) Rs. 50,000
(iii) 20%
(iv) ICDS VI
(v) non-agricultural

2. (a) (i) What is Tax Evasion? [2]

(ii) Lasith Malinga, a Sri Lankan cricketer has been coming to India for 100 days
every year since 2006-07:
1. Determine his residential status for the assessment year 2020-21.
2. Will your answer be different if he has been coming to India for 110 days
instead of 100 days every year? [4]

(b) Girish owns 3 identical houses in Mumbai, all of which are self-occupied. From the
particulars given below, suggest which two houses should be treated as self-
occupied.
House I House II House III
Rs. Rs. Rs.
Standard Rent under Mumbai Rent Control Act 3,35,000 3,35,000 3,35,000
Municipal Valuation 3,00,000 3,00,000 3,00,000
Fair Rent 3,60,000 3,60,000 3,60,000
Municipal Taxes (Paid) 35,000 15,000 25,000
Insurance Premium (Paid) 20,000 Nil 10,000

(i) Rs. 25,00,000 @ 9% p.a. for construction of House II (Date of borrowing 01.06.2015)
Date of repayment of loan 30.06.2019.
(ii) Rs. 30,00,000 @ 9% p.a. for construction of House III (Date of borrowing 01.06.2015)
Date of payment of loan 30.06.2019. [9]

Answer:

2. (a) (i) Tax evasion is the illegal way to reduce tax liability by deliberately suppressing
income or sale or by increasing expenses, etc., which results in reduction of total
income of the assessee. Tax evasion is illegal, both in script & moral. It is the
cancer of modern society and work as a clog in the development of the nation.

(ii) 1. Lasith Malinga satisfies the second condition of category A because he is in

India for more than 60 days during the relevant previous year and for 400 days
during four years preceding the relevant previous year. Therefore, he is a
resident.
Further, in this case, although he satisfies the first condition of Category B of
being resident for at least 2 out of 10 preceding previous years but he does
not satisfy the second condition of Category B as during 7 years preceding
the previous year, he is India for only 700 days. He shall, therefore, be a
resident but not ordinarily resident in India.

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 Answer to MTP_Intermediate_Syllabus 2016_June 2020 & December 2020_Set 1

2. Yes, He will, in this case, be resident of India. He satisfies both conditions of

category B as he was in India for 770 days in the last seven years and he was
resident for at least 2 previous years out of 10 previous years immediately
preceding the relevant previous year.

(b)
Determination of Income from House property
Rs.
Income from House I (Deemed to be let out) (working note) 2,10,000
Income from House II (self Occupied) (-) 93,750
Income from House III (self Occupied) (-) 1,12,500
But limited to Rs. 2,00,000 2,06,250 2,00,000
Income from House Property 10,000

Working Note:

Step I :

House-I House-II House-III

Rs. Rs. Rs. Rs. Rs. Rs.
Gross Annual Value 3,35,000 3,35,000 3,35,000
Less: Municipal Taxes 35,000 15,000 25,000
paid
Net Annual Value 3,00,000 3,20,000 3,10,000
Less: Deduction u/s 24
(a) Statutory 90,000 96,000 93,000
Deduction @ 30%
(b) Interest on loan for
house II for three
months Rs. 56,250 +
1/5 of pre-construction
period i.e. from — 93,750 —
01.06.2015 to
31.03.2016 Rs. 1,87,500
= Rs. 37,500
Interest on loan for
house III for three
months Rs.67,500 + 1/5
of pre construction 1,12,500
period i.e. from
01.06.2015 to
31.03.2016
--- 90,000 --- 1,89,750 2,05,500
2,10,000 1,30,250 1,04,500

Step II

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 Answer to MTP_Intermediate_Syllabus 2016_June 2020 & December 2020_Set 1

(i) Assume House I & II to be self-occupied and House-III deemed to be let out
Rs. Rs.
Income from house I (self occupied) Nil
Income from house II (self occupied) (-) 93,750 (-) 93,750
Income from house III (deemed to be let out) 1,04,500
Income from House Property 10,750

(ii) Assume House I & III to be self-occupied and House-II deemed to be let out
Rs. Rs.
Income from house I (self occupied) Nil
Income from house III (self occupied) (-) 1,12,500 (-) 1,12,500
Income from house II (deemed to be let out) 1,30,250
Income from House Property 17,750

(iii) Assume House II & III to be self-occupied and House-I deemed to be let out
Rs. Rs.
Income from house I (deemed to be let out) (see 2,10,000
Working note)
Income from house II (self occupied) (-) 93,750
Income from house III (self occupied) (-) 1,12,500
But limited to Rs. 2,00,000 2,06,250 2,00,000
Income from House Property 17,750

3. (a) Mr. Vasudev is an officer in a company in Jaipur. He furnished the following

particulars regarding his income for previous year 2019-20:
(i) Basic salary Rs.17,000 p.m.;
(ii) Bonus Rs.5,000;
(iii) Dearness Allowance Rs.3,000 p.m.;
(iv) Travelling allowance Rs.45,000. He spends Rs.30,000 for official purpose;
(v) Reimbursement of medical bills Rs.15,000 (treatment was done in Government
hospital in India);
(vi) He lived in a bungalow belonging to the company. Its fair rent is Rs.15,000 p.m.
The company has provided on this bungalow the facility of a watchman and a
cook each of whom is being paid a salary of Rs.250 p.m. The company paid in
respect of this bungalow Rs.4,500 for electric bills and Rs.3,500 for water bills.
(vii) He has been provided 1.5 ltr. engine capacity for official and personal use. The
maintenance and running expenses of the car (including driver) are borne by
the company.
(viii) The following amounts were deposited in his provident fund account;
(1) own contribution Rs.24,000,
(2) company’s contribution Rs.30,000, and
(3) interest @12% p.a. Rs.12,600
(ix) Rent of house recovered from Vasudev Rs.21,600.

Compute his taxable income from salary for the assessment year 2020-21. Assume
the population of Jaipur is 26 lakhs as per 2001 census. [9]

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 Answer to MTP_Intermediate_Syllabus 2016_June 2020 & December 2020_Set 1

(b) State with brief reasons whether the following are agricultural income either in whole
or in part:
(i) Purchase of standing sugar crop by Mr. Aman for Rs. 2 lakhs and after cutting
canes, selling them for Rs. 2,40,000.
(ii) Income from milk dairy runs by Mr. Rajesh in his agricultural lands Rs. 50,000.
(iii) Income from sale of plants Rs. 1,000,000 earned by Mr. Jain who maintains a
nursery by name Prakriti Nursery.
(iv) Conversion of Sugarcane into Gur.
(v) Income from sale of rubber Rs. 3,20,000 realised by Mr. Ram Nair who owns rubber
estate and cultivates rubber.
(vi) Income from gracing of cattles allowed in the land owned by Mr. Richard Rs.
70,000. [6]

Answer:

3. (a)

Rs. Rs.
Basic salary (Rs.17,000 × 12) 2,04,000
Bonus 5,000
Dearness Allowance 36,000
Travelling Allowance(Rs.45,000 - Rs.30,000) 15,000
Electricity bills paid by the employer 4,500
Water bills paid by the employer 3,500
Value of accommodation at concessional rate
(being 15% of salary i.e. of Rs.2,24,000)( Rs.2,04,000 + Rs.5,000 33,600
+ Rs.15,000)
Less: Rent Paid 21,600 12,000
Benefit of Cook 3,000
Benefit of watchman 3,000
Benefit of car (Rs.1,800 + Rs.900) = Rs. 2,700 x 12 32,400
Employer’s contribution to RPF in excess of 12% of salary 5,520
(Rs.30,000 - Rs.24,480)
Interest on PF @12% 12,600
Less: Exempt @9.5% 9,975 2,625
Gross Salary 3,26,545
Less: Standard deduction under section 16(ia) 50,000
Income from salary 2,76,545

Note: Medical reimbursement is exempt in full as treatment was done in a

Government Hospital.

(b) (i) To term an income as agricultural income, both basic operations and subsequent
operations must be present. A standing crop purchase will not lead to agricultural
activity and hence the profit earned cannot be termed as agricultural income.

(ii) Income from dairy means income generated by maintaining catties. Therefore
there is no activity connected to land. Hence it is not an agricultural income.

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 Answer to MTP_Intermediate_Syllabus 2016_June 2020 & December 2020_Set 1

(iii) Running a nursery with plants seeks both basic operations and subsequent
operations; furthers, as per definition, it is deemed to be agricultural income and
therefore the entire income would be agricultural income.

(iv) Conversion of sugarcane into Gur is non agricultural income as it involves

manufacturing activity which is of business nature.

(v) Income from rubber cultivation is partly agricultural income and partly non-
agricultural income. 65% of the income is agricultural income and 35% of the
income is non-agricultural income which is chargeable to income-tax.

(vi) Permitting gracing of catties in vacant land does not involve any basic or
subsequent operations and the grass so grown spontaneously is not income from
agriculture.

4. (a) Y submits you the following particulars:

Particulars Date of Cost Market value Date of sale Sales Price

acquisition Amount as on (Rs.)
(Rs.) 01.04.2001 (Rs.)
Urban Agricultural 03.05.1978 50,000 4,25,000 16.07.2019 15,00,000
land
Rural agricultural 05.04.1982 1,00,000 6,50,000 15.08.2019 12,00,000
land
Listed shares 05.07.2018 60,000 40,000 04.06.2019 80,000
Gold 05.08.2002 2,05,000 1,80,000 05.02.2020 7,00,000
Residential house 08.07.1964 30,000 25,00,000 25.02.2020 70,00,000
property

He deposited a sum of Rs.4,00,000 on 25.06.2020 in the capital gain scheme as he

intends to buy an agricultural land later. Out of the sale proceeds of gold, he has
invested Rs.1,96,000 on the purchase of residential house property on 15.05.2020. The
shares were sold through recognised stock exchange and therefore STT was paid. The
FMV of these shares as on 31.01.2018 was Rs.75,000.

Compute taxable capital gain for the assessment year 2020-21. CII for the previous
year 2001-02, 2002-03 and 2019-20 was 100,105, 289 respectively. [9]

(b) Compute deduction u/s 80EEA in the following cases: (Rs. in lakhs)

Case 1 Case 2 Case 3 Case 4 Case 5 Case 6

Assessee A B C D E F
Date of Sanction of loan 01.10.19 01.10.19 01.10.19 01.10.19 01.10.18 01.10.19
Amount of loan Rs.30 Rs.30 Rs.40 Rs.30 Rs.20 Rs.20
Stamp duty value of the Rs.40 Rs.55 Rs.45 Rs.35 Rs.35 Rs.35
property
Other residential property No No No Yes No No
owned by the Assessee on
the date of sanction
Interest for P.Y. 2019-20 Rs.2.20 Rs.1.20 Rs.1.20 Rs.1.20 Rs.1.00 Rs.1.20
[6]

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 Answer to MTP_Intermediate_Syllabus 2016_June 2020 & December 2020_Set 1

Answer:
4. (a)
Urban Rural Listed Gold House
Particulars Agricultural Agricultural Shares Property
Land Land (Not a
capital asset)
Full Value of 15,00,000 12,00,000 80,000 7,00,000 70,00,000
consideration
Less: Indexed cost of 12,28,250 N.A. 60,000 5,64,238 72,25,000
acquisition
Long term capital gain/ 2,71,750 Nil --- 1,35,762 (-)2,25,000
loss
Short-term capital gain --- --- 20,000 --- ---
Less: Capital gain
exempt:
u/s54B(limited Rs.2,71,750) 2,71,750 --- --- --- ---
u/s 54F --- --- --- 38,013 ---
Taxable LTCG/LTC Loss Nil N.A. --- 97,749 (-)2,25,000
Short term Capital gain --- --- 20,000 --- ---

289
Indexed cost of Urban Agricultural Land Rs. 4,25,000× =` 12,28,250
100
289
Indexed cost of gold Rs. 4, 25, 000 × =` 12, 28, 250
105
Indexed cost of house property (Rs. 2,50,0000 × 289) ÷ 100 = Rs.72,25,000
Long term Capital Loss Rs.2,25,000 - Rs.97,749 = Rs.1,27,251
Short term Capital gain Rs.20,000
Note: On the date of transfer of gold i.e. 05.02.2020, Y owns only one residential house
property. Therefore, he will be entitled to exemption of section 54F. The exempted
amount has been calculated as under:
196000
` 1,35,762× =` 38,013
700000
(b)
Case 1 Case 2 Case 3 Case 4 Case 5 Case 6
Assessee A B C D E F
Date of Sanction of loan 01.10.19 01.10.19 01.10.19 01.10.19 01.10.18 01.10.19
Amount of loan Rs.30 Rs.30 Rs.40 Rs.30 Rs.20 Rs.20
Stamp duty value of the Rs.40 Rs.55 Rs.45 Rs.35 Rs.35 Rs.35
property
Other residential property No No No Yes No No
owned by the Assessee on
the date of sanction
Interest for P.Y. 2018-19 Rs.2.20 Rs.1.20 Rs.1.20 Rs.1.20 Rs.1.00 Rs.1.20
Deduction u/s 80EEA Rs.1.50 Nil Rs.1.20 Nil Nil N il
Notes 1 2 3 4 5 6
Note -

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 Answer to MTP_Intermediate_Syllabus 2016_June 2020 & December 2020_Set 1

1. Assessee can claim Rs.70,000 being excess interest, as deduction u/s 24(b)
2. As value of the property exceeds Rs.45 lac hence, deduction u/s 80EEA is not
available. However, assessee can claim deduction u/s 24(b).
3. Deduction cannot exceed interest on loan
4. As assessee owns other residential house property on the date of sanction of loan,
hence, deduction u/s 80EEA is not available. However, assessee can claim
deduction u/s 24(b).
5. Loan was not sanctioned during the previous year 2019-20
6. The deduction u/s 80 EEA is not available to HUF, however, assessee can claim
deduction u/s 24(b).

5. (a) Find the gross total income of Mr. Inder Kumar Basu on the basis of the following
particulars-

Dr. Extract of Profit and Loss Account for the year ended 31.03.2020 Cr.

Particulars Rs. Particulars Rs.

Interest 1,800 Gross profit b/d 1,22,700
Repairs and Renewals 2,200 Interest on debenture of an
Insurance 4,200 Institution (Gross) 10,000
Depreciation 5,600 Rent from House Property 36,000
Compensation 10,200
Law charges 5,100
Labour welfare charges 3,800
Subscriptions 5,800
Net Profit 1,30,000
1,68,700 1,68,700

(1) i. Interest includes Rs.200 on loan taken for purchasing debentures of a

company and Rs.300 on loan taken for reconstruction of house property let
out.
ii. The expenses relating to house property let out are 40% of the repairs and
renewal expenses.
iii. Depreciation includes Rs.1,200 on house property let out.
iv. Compensation was paid to an employee whose dismissal was in business
interest.
v. Insurance includes 30% for fire insurance of the house property let out, 30% for
workers accident insurance and the balance for life insurance.
vi. Law charges include Rs.2,000 relating to a petition filed against breach of
contract and the balance regarding sales tax appeal.
vii. Subscriptions include Rs.2,000 given for election purpose to political parties.

(2) The amount not debited to profit and loss account are as follows-
i. Expenses incurred on the occasion of Festival Rs.800
ii. Theft of cash from locker Rs.1,200.
iii. Expenses for new telephone connection in the business Rs.2,000. [7]

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 Answer to MTP_Intermediate_Syllabus 2016_June 2020 & December 2020_Set 1

(b) Determine the Gross Total Income of Y and his wife from the following particulars for
the year ending 31.03.2020:
(i) Y and his wife are partners in a firm carrying on textile business, their respective
shares of profit being Rs.78,000 and Rs.60,000.
(ii) Their 16 year old son has been admitted to the benefits of another firm, from which
he received Rs.70,000 as his share of profit in the firm and Rs.90,000 as interest on
capital. The capital was invested out of minor’s own funds amounting to
Rs.9,00,000.
(iii) A house property in the name of Y was transferred to his wife on 01.12.2019 for
adequate consideration. The property has been let at a rent of Rs.30,000 p.m.
(iv) Debentures of a company of Rs.1,40,000 and Rs.1,12,000 purchased two years
ago are in the names of Y and his wife respectively, on which interest is
receivable at 10% p.a. His wife had in the past transferred Rs.70,000 out of her
income Y for the purchase of the debentures in Y’s name.
(v) Y had transferred Rs.50,000 to his wife in the year 2013 without any consideration
which was given as a loan by her to Z. She earned Rs.20,000 as interest during the
earlier previous years which was also given on loan to Z. During the financial year
2019-20, she received interest at 10% p.a. on Rs.70,000.
(vi) Y transferred Rs.65,000 to a trust, the income accruing from its investment as
interest amounted to Rs.6,500, out of which Rs.5,000 shall be utilized for the benefit
of his son’s wife and Rs.1,500 for the benefit of his son’s minor child. [8]

Answer:

5. (a)
Particulars Rs. Rs.
Income from House Property
Rent from house property 36,000
Less: Municipal taxes Nil
36,000
Less: (i) Standard deduction @30% 10,800
(ii) Interest 300 11,100
24,900

Profit and Gains of Business Profession:

Net Profit as per P&L A/c 1,30,000
Add: Inadmissible expenses
(i) Interest on loan for securities and house property (200+300) 500
(ii) Repairs and renewals of property (40%) 880
(iii) Depreciation on House Property 1,200
(iv) Fire insurance premium on House Property 1,260
(v) Life insurance premium 1,680
(vi) Subscription to political parties 2,000 7,520
1,37,520
Less: Income not taxable under this head
(i) Interest on Debentures 10,000
(ii) Rent from House Property 36,000 46,000
91,250

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 Answer to MTP_Intermediate_Syllabus 2016_June 2020 & December 2020_Set 1

Less: Expenses allowable but not debited to P&L a/c

(i) Festival Expenses 800
(ii) New telephone expenses 2,000
(iii) Loss of cash due to theft 1,500 4,000
Business Income 87,520

Income from other sources

Interest on debentures (10,000 - 200) 9,800
Computation of Gross Total Income
(i) Income from House Property 24,900
(ii) Profit and Gains of Business Profession 87,520
(iii) Income from other sources 9,800
1,22,220

Note –

1. Subscription Rs. 2,000 paid to political party shall be allowed as deduction u/s
80GGC.
2. LIP of Rs. 1,680 (40% of Rs. 4,200) shall be allowed as deduction u/s 80C.

(b)

Computation of Gross Total Income of Y for the assessment year 2020 – 21

Rs. Rs.
1. Income from House Property:
Rental value for 8 months (i.e. before transfer) (8 x 30,000) 2,40,000
Less: 30% as statutory deduction 72,000 1,68,000
2. Profits from Business
(i) Share from firm (Exempt) Nil
(ii) Minor’s share in another firm(Exempt) Nil
(iii) Interest on Minor’s capital with firm (Rs.90,000- Exemption
u/s 10(32) Rs.1,500) 88,500 88,500
3. Income from Other Sources:
(i) Interest @10% on Rs.70,000 Debentures (only one-half of 7,000
Rs.1,40,000 were bought by own funds)
(ii) Interest received by his wife @10% on Rs.50,000(being 5,000
transferred without any consideration)
(iii) Interest on Rs.50,000 from his trust(interest income utilized 5,000 17,000
for the benefit of son’s wife)
2,73,500

Computation of Gross Total Income of Mrs. Y for the assessment year 2020-21

Rs. Rs.

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 Answer to MTP_Intermediate_Syllabus 2016_June 2020 & December 2020_Set 1

1. Income from House Property:

Rental value for 4 months (i.e. after transfer) (4 x Rs.30,000) 1,20,000
Less: 30% as statutory deduction 36,000 84,000
2. Profits from Business
(i) Share from firm (Exempt) Nil
3. Income from Other Sources:
(i) Interest on Rs.1,12,000 10% Debentures 11,200
(i) Interest @10% on Rs.70,000 Debentures in husband’s 7,000
name but funds invested by her
(iii) Interest on Rs.20,000 @10% 2,000 20,200
Gross total Income 1,04,200

Notes:

1. Share of profit from a firm, which is assessed as such, is fully exempt u/s 10(2A) in
the hands of the partners; although husband and wife may be partners in the
same firm. Even in a case where one spouse gifts some amount to the other
spouse to be invested as capital in the firm. Even in a case where one spouse gifts
some amount to the other spouse to be invested as capital in the firm, the
clubbing provisions though applicable, it will not affect the Total income since the
share of profit is itself exempt. However, if interest on capital contribution is
received, it will be clubbed to the extent of the amount invested as capital
contribution out of transfer made without adequate consideration.
2. Similarly, minor son’s income though clubbed, but as the share of profit from the
firm is exempt, will not affect the Total Income. However, if interest on capital
contribution is received, it will be clubbed to the extent of the amount invested as
capital contribution out of transfer made without adequate consideration.
3. Where the asset is transferred to a trust for the benefit of son’s wife, the income
from such assets is taxable in the hands of the transferor. However, if interest
utilized for the benefit of son’s minor son shall be clubbed in the hands of that
parent of the son’s minor son, whose income is greater. It shall be therefore not be
clubbed in the hands of the transferor i.e. Y.

6. (a) Mrs. Priyanka Mehta is a Professor in the Department of Commerce, in Calcutta University.
Following are the particulars of her income for the assessment year 2020-21:
(i) Basic pay Rs.60,000 per month;
(ii) Dearness allowance 30% of salary
(iii) House rent allowance 30% of basic salary
(iv) Medical allowance Rs.6000 p.a. (amount actually spent on treatment Rs.2000);
(v) Warden ship allowance Rs.1000 p.m.
(vi) Rent from house property Rs.2000 p.m.
(vii) Interest received from Government securities Rs.5,000;
(viii) Dividend received from an Indian company Rs.1,500;
(ix) Interest on Saving Bank deposits Rs.62,000.
(x) Contribution to Recognized Provident Fund 10% of basic salary;

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(xi) Premium paid by cheque on medical insurance policy on health of dependent

mother Rs.5,000, Rs.2,000 for dependent mother in law and Rs.1,000 for
dependent brother;
(xii) Donation to an approved charitable institution Rs.1,00,000;
(xiii) House rent paid Rs.28,000 p.m.

Compute her total income for assessment year 2020-21. [8]

(b) X and Y, being members of an AOP with equal ratio, furnish the following details,
compute tax liability of AOP and members:

Profit and loss account for the year ended 31-3-2020

Particulars Amount Particulars Amount
Bonus to employee 5,000 Gross Profit 60,000
Other Expenses 14,000 Short term capital gain 6,000
Salary to -
X 5,000
Y 5,000
Interest on Capital @15%
X 5,000
Y 7,000
Depreciation u/s 32 10,000
Net Profit 15,000
66,000 66,000

Additional Information:
1. Other expenses include expenditure of Rs. 4000, which is disallowed u/s 37.
2. Other personal income of X & Y –
X Y
(Rs.) (Rs.)
Dividend received 5,000 20,000
Interest on loan 25,000 2,49,000
Brought forward loss from house property 25,000 10,000
[7]

Answer:

6. (a)

Computation of Gross Total Income of Mrs. Y for the assessment year 2020-21
1. Income from Salary Rs. Rs.
Salary @60,000 p.m. (60000 x 12) 7,20,000
D.A. @30% of salary 2,16,000
Warden ship allowance @ Rs.1,000 p.m. (1,000 x 12) 12,000
House Rent allowance (see note below) Nil
Medical Allowance (Rs.500 x 12) 6,000
9,54,000
Less: Deduction 50,000 9,04,000

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2. Income from House Property

Rent from house property 24,000
Less: Standard deduction @30% 7,200
3. Income from Other sources
Interest from Government Securities 5,000
Dividend from Indian Company Exempt
Interest on Savings Bank Deposits 62,000 67,000
Gross total Income 9,87,800
Less: Deductions:
U/s 80C (RPF) 72,000
U/s 80D for Medical Insurance 5,000
U/s 80G for Donation—50% of Rs.90,800 (see Below) 45,400
U/s 80TTA 10,000 1,32,400
Total Income 8,55,400

Note-

1. Qualifying limit for Section 80G shall be 10% of adjusted Gross Total Income i.e.
Rs.9,87,800 - Rs.72,000 - Rs.5,000 - Rs.10,000 = Rs.9,00,800

2. HRA is exempt to the extent of the minimum of following three limits:

(i) Actual amount received Rs. 18,000 x 12 = 2,16,000
(ii) Rent paid – 10% of salary (Rs.3,36,000 - Rs.72,000) = Rs. 2,64,000
(iii) 50% of salary = 3,60,000

(b) Computation of total income of AOP for the A.Y. 2020-21

Particulars Details Amount Amount

Profits and gains of business or profession:
Net profit as per profit and loss account 15,000
Add: Expenditure disallowed but debited in P/L
Account
Salary to member disallowed u/s 40(ba) 10,000
[Rs.5,000 + Rs.5,000]
Interest on capital disallowed u/s 40(ba) 12,000
[Rs.5,000 + 7,000]
Other expenses disallowed u/s 37 4,000 26,000
41,000
Less: Income credited but taxable under other head
Short term capital gain 6,000 35,000
Capital Gains
Short term capital gain 6,000
Total Income 41,000
Tax on above (using rates applicable on an NIL
individual)

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Computation of X & Y excluding share from AOP

Particulars X Y
Income from other sources
Dividend received [exempted u/s 10(34)] Nil Nil
Interest on loan 25,000 2,49,000
Total Income excluding share from AOP 25,000 2,49,000

Since total income of X & Y excluding share from AOP does not exceed maximum
exempted limit, hence AOP shall be taxable at the rate applicable to an individual.

Computation of total income of X & Y for the A.Y. 2020-21

Particulars X Y
Details Amount Details Amount
Profits and gains of business or profession
Salary from AOP 5,000 5,000
Interest on Capital 5,000 7,000
Balance income other than short term 6,500 16,500 6,500
capital gain in equal ratio
Capital Gains: Short term capital gain 3,000 3,000
Income from other sources
Dividend received [exempted u/s 10(34)] Nil Nil
Interest on loan 25,000 25,000 2,49,000 2,49,000
Total Income 44,500 2,70,500
Tax on above less rebate plus cess Nil Nil
(slab rate (R/off)

Since AOP is not charged to tax, hence rebate u/s 86 is not available.

7. (a) Compute gross interest/dividend and net interest/dividend on securities and shares in
the following cases:
(i) 10% Bonds of Industrial Development Bank of India of Rs.3,20,000.
(ii) 10% Debentures of PQR Ltd. listed on Kolkata Stock Exchange purchased at
Rs.96 (Face Value Rs.100) Rs.1,34,400.
(iii) Interest received from debentures issued by Y Ltd. listed on Stock Exchange-
Rs.29,700.
(iv) Interest received from debentures issued by a Ltd. Company not listed on Stock
Exchange- Rs.21,600
(v) Dividend received from A Ltd. on 19.05.2019- Rs.2,400
(vi) Dividend declared by the company on 05.06.2019 on shares of B Ltd. @ 50% on
1,000 shares of Rs.10 each purchased at Rs.60 per share.
(vii) 10% Dividend on preference shares of Rs.10 each amounting to Rs.2,25,000 paid
on 31.03.2020.

Also compute the income under the head other sources. [8]

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(b) Discuss the following in relation to TDS Provision: [3+4=7]

(i) Payment of certain sums by certain Individuals or Hindu Undivided Family [Sec.
194M]
(ii) Payment of certain amount in cash [Sec. 194N].

Answer:

7. (a)
Particulars Gross Interest/ Rate TDS Net Interest
Dividend of TDS Amount after TDS
1. 10% Bonds of IDBI 32,000 10% 3,200 28,800
2. 10% Debentures of PQR Ltd. 14,000 10% 1,400 12,600
(Listed)
3. Interest received on dentures of Y 33,000 10% 1,400 12,600
Ltd. (Listed) Rs. 29,700 x 100/90
4. Interest received on dentures ( not 24,000 10% 2,400 21,600
Listed) Rs. 21,600 x 100/90
5. Dividend received from A. Ltd 2,400 Nil 2,400
6. Dividend on shares of B Ltd. 5,000 Nil 5,000
7. Preference shares dividend 22,500 Nil 22,500

Computation of Income under the head Other Sources

Particulars Amount (Rs.)
1. 10% Bonds of Industrial Development Bank of India of Rs. 3,20,000. 32,000
2. 10% Debentures of PQR Ltd. listed on Kolkata Stock Exchange 14,000
purchased at Rs.96 (Face Value Rs.100) Rs.1,34,400
3. Gross Interest received from debentures issued by Y Ltd. listed on 33,000
Stock Exchange
4. Gross Interest received from debentures issued by a Ltd. 24,000
Company not listed on Stock Exchange.
5. Dividend received by A Ltd. Exempt
6. Dividend on shares of B Ltd. @50% on 1,000 shares of Rs.10 each Exempt
purchased at Rs.60 per share. (Net dividend Rs.5,000)
7. 10% Dividend on preference Shares of Rs. 2,25,000. Exempt
Income from Other Sources 1,03,000

Note:
TDS of Rs. 3,200 + Rs.1,400 + Rs.3,300 + Rs.2,400 totaling to Rs.10,300 deducted on the
above investments will be deducted from total tax due.

(b) (i) Payment of certain sums by certain Individuals or Hindu Undivided Family [Sec.
194M]-
 Person responsible to deduct tax: An individual or a Hindu undivided family
(other than those who are required to deduct income-tax as per the
provisions of sec. 194C, 194H or 194J) responsible for paying following sum
during the financial year:

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 Answer to MTP_Intermediate_Syllabus 2016_June 2020 & December 2020_Set 1

1. any sum to any resident for carrying out any work (including supply of
labour for carrying out any work) in pursuance of a contract,
2. any sum to any resident by way of commission (not being insurance
commission referred to in section 194D) or brokerage or
3. any sum to any resident by way of fees for professional services
Note:
Tax cannot be deducted if the aggregate amount of such sum credited or
paid to a resident during the financial year does not exceed Rs.50 lakhs.
 Tax shall be deducted at the time of payment or crediting the payee,
whichever is earlier.
 Rate of TDS: 5%
 The payer is not required to obtain TAN. He shall deposit the tax deducted
under this section by using his PAN.
 Exemption or relaxation from the provision: When the recipient applies to the
Assessing Officer in Form 13 and gets a certificate authorizing the payer to
deduct tax at lower rate or deduct no tax.

(ii) Payment of certain amount in cash [Sec. 194N]-

 Person responsible to deduct tax: Every person, being,—
1. a banking company to which the Banking Regulation Act, 1949 applies
(including any bank or banking institution referred to in section 51 of that
Act);
2. a co-operative society engaged in carrying on the business of banking; or
3. a post office, Who is responsible for paying cash (in aggregate) in excess
of Rs.1 crore during the previous year, to any person from one or more
accounts maintained by the recipient with it.
 Tax shall be deducted at the time of payment.
 Rate of TDS: 2% on payment in excess of Rs.1 crore.
 Exception: The provision is not applicable if payment is made to:
1. the Government;
2. any banking company or co-operative society engaged in carrying on
the business of banking or a post office;
3. any business correspondent of a banking company or co-operative
society engaged in carrying on the business of banking, in accordance
with the guidelines issued in this regard by the Reserve Bank of India under
the Reserve Bank of India Act, 1934;
4. any white label automated teller machine operator of a banking
company or co-operative society engaged in carrying on the business of
banking, in accordance with the authorisation issued by the Reserve Bank
of India under the Payment and Settlement Systems Act, 2007;
5. such other person or class of persons, which the Central Government may,
by notification in the Official Gazette, specify in consultation with the
Reserve Bank of India.
 Tax deducted u/s 194N is not considered as deemed receipt of income.

8. Short Note: (any three) [5x3=15]

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 Answer to MTP_Intermediate_Syllabus 2016_June 2020 & December 2020_Set 1

(a) Interchangeability of PAN and Aadhar [Sec. 139A(5E)]

(b) Provision regarding furnishing of return in case of high volume transaction.
(c) Scope and Disclosure requirement of ICDS III.
(d) Issue of notice to the assessee U/s 142 (1) .

Answer:

8. (a) Interchangeability of PAN and Aadhar [Sec. 139A(5E)]-

Every person who is required to furnish or intimate or quote his PAN, and who,––
(i) has not been allotted PAN but possesses the Aadhaar number, may furnish or
intimate or quote his Aadhaar number in lieu of the PAN, and such person shall be
allotted a PAN in such manner as may be prescribed;
(ii) has been allotted a PAN, and who has intimated his Aadhaar number in
accordance with provisions of sec. 139AA, may furnish or intimate or quote his
Aadhaar number in lieu of the PAN.

(b) Furnishing of return in case of high volume transaction: A person (other than firm and
company), who is not required to furnish a return as per provision, and who during the
previous year:
(1) has deposited an aggregate amount exceeding Rs.1 crore in one or more current
accounts maintained with a banking company or a co-operative bank; or
(2) has incurred expenditure of an aggregate amounts exceeding Rs.2 lakh for
himself or any other person for travel to a foreign country; or
(3) has incurred expenditure of an aggregate amount exceeding Rs.1 lakh towards
consumption of electricity; or
(4) fulfils such other conditions as may be prescribed, shall furnish a return of his
income on or before the due date in such form and verified in such manner and
setting forth such other particulars, as may be prescribed.

(c) ICDS III- Construction Contracts-

Scope:
1. The Standard should be applied in determination of income for a construction
contract of a contractor.
(i) Construction contract is a contract specifically negotiated for the
construction of an asset or a combination of assets that are closely
interrelated or interdependent in terms of their design, technology and
function or their ultimate purpose or use and includes:
(A) contract for the rendering of services which are directly related to the
construction of the asset, for example, those for the services of project
managers and architects;
(B) contract for destruction or restoration of assets, and the restoration of the
environment following the demolition of assets.
2. Construction contracts are formulated in a number of ways which are classified
as fixed price contracts and cost plus contracts.
(i) Fixed price contract is a construction contract in which the contractor agrees
to a fixed contract price, or a fixed rate per unit of output, which may be
subject to cost escalation clauses.

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(ii) Cost plus contract is a construction contract in which the contractor is

reimbursed for allowable or otherwise defined costs, plus a mark up on these
costs or a fixed fee.

Disclosure requirement -
1. A person shall disclose:
a. the amount of contract revenue recognised as revenue in the period; and
b. the methods used to determine the stage of completion of contracts in
progress.
2. A person shall disclose the following for contracts in progress at the reporting
date:
a. amount of costs incurred and recognised profits (less recognised losses)
upto the reporting date;
b. the amount of advances received; and
c. the amount of retentions.

(d) Issue of notice to the assessee U/s 142(1): For the purpose of making assessment, the
Assessing Officer may serve a notice on any person -
(i) who has submitted a return u/s 139; or
(ii) in whose case the time allowed u/s 139(1) for furnishing the return has expired.

Such notice may relate to any of the following matter -

1. Notice to submit a return [Sec. 142(1)(i)]: If the assessee has not submitted a return
of income within specified time, the Assessing Officer may require him to submit a
return in the prescribed form on or before the date specified in the notice.
2. Notice to produce accounts, documents etc. [Sec. 142(1)(ii)]: The Assessing
Officer may ask the assessee to produce such documents or accounts as he may
require.
Exception: Assessing Officer shall not require the production of any accounts
pertaining to a period more than 3 years prior to the previous year.
3. Notice to furnish information [Sec. 142(1)(iii)]: Assessing Officer may require the
assessee to furnish in writing information in such form and on such points or
matters as he may require (including a statement of all assets and liabilities of the
assessee, whether included in the accounts or not). However, prior approval of
the Joint Commissioner shall be obtained before requiring the assessee to furnish
a statement of all assets and liabilities not included in the accounts.

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