PAPER – 4 : TAXATION

SECTION A : INCOME TAX LAW

Part - II
Question No.1 is compulsory.
Candidates are also required to answer any two questions from the remaining three
questions.
Working notes should form part of the respective answers.
All questions relate to assessment year 2021-22, unless otherwise stated.
Question 1
Mr. Ashish, a resident individual, aged 43 years, provides professional services in the field of
interior decoration. His Income & Expenditure A/c for the year ended 31st March, 2021 is as
under:
Expenditure ` Income `
To Employees’ Remuneration & 13,66,000 By Consultancy Charges 58,80,000
Benefits By Interest on Public
To Office & Administrative Exp. 3,14,000 Provident Fund (PPF) 60,000
To General Expenses 75,000 Account
To Electricity Expenses 65,000 By Interest on Savings Bank 20,000
Account
To Medical Expenses 80,000 By Interest on National 21,000
To Purchase of Furniture 48,000 Savings Certificates VIII
To Depreciation 90,000 Issue (for 3rd year)
To Excess of income over exp. 39,43,000
59,81,000 59,81,000
The following other information relates to financial year 2020-21:
(i) The expenses on Employees' Remuneration & Benefits includes:
(a) Family Planning expenditure of ` 20,000 incurred for the employees which was
revenue in nature. The same was paid through account payee cheque.
(b) Payment of salary of ` 25,000 per month to sister-in-law of Mr. Ashish, who was in-
charge of the Accounts & Receivables department. However, in comparison to similar
work profile, the reasonable salary at market rates is ` 20,000 per month.
The Suggested Answers for Paper 4A: Income-tax Law are based on the provisions of Income-
tax Law as amended by the Finance Act, 2020 which are relevant for July, 2021 Examination.
The relevant assessment year is A.Y.2021-22.
2 INTERMEDIATE (NEW) EXAMINATION: JULY, 2021

(ii) Amount received by Mr. Ashish as Employees' Contribution to EPF for the month of
February, 2021 - ` 10,000 was deposited after the due date under the relevant Act
relating to EPF.
(iii) Medical Expenses of ` 80,000 as appearing in the Income & Expenditure was expensed
for the treatment of father of Mr. Ashish. His father was 72 years old and was not covered
by any health insurance policy. The said payment of ` 80,000 was made through account
payee cheque.
(iv) General expenses as appearing in the Income & Expenditure A/c, includes a sum of
` 25,000 paid to Ms. Anjaleen on 5th January, 2021 as commission for securing work
from new clients. This payment was made to her without deduction of tax at source.
(v) Written down value of the depreciable assets as on 1st April, 2020 were as follows:
Professional Books ` 90,000
Computers ` 35,000
(vi) The new Furniture as appearing in the Income & Expenditure A/c was purchased on
31st August, 2020 and was put to use on the same day. The payment was made as
under:
- ` 18,000 paid in cash at the time of purchase of new furniture on 31/08/20.
- ` 19,000 paid by account payee cheque on 05/09/2020 as balance cost of new
furniture and
- ` 11,000 paid in cash on 31/08/20 to the transporter as freight charges for the new
furniture.
(vii) Mr. Ashish purchased a car on 02/04/2019 for ` 3,35,000 for personal use. However, on
30/04/2020 he brought the said car for use in his profession. The fair market value of the
car as on 30/04/2020 was ` 2,50,000.
(viii) Mr. Ashish made a contribution of ` 1,00,000 in his PPF A/c on 31/01/2021.
(ix) The Gross Professional Receipts of Mr. Ashish for P.Y. 2019-20 was ` 52,00,000.
Compute the total income and tax liability of Mr. Ashish for A.Y. 2021-22, assuming that he
has not opted for payment of tax under section 115BAC.
Ignore provisions relating to AMT and under section 14A relating to disallowance of
expenditure incurred in relation to income not includible in total income. (14 Marks)
 PAPER – 4 : TAXATION 3

Answer
Computation of total income of Mr. Ashish for A.Y. 2021-22
18B Particulars ` ` `
20B I Income from business or profession
Excess of income over expenditure 39,43,000
Add: Items debited but not allowable while
computing business income
- Family planning expenditure incurred for 20,000
employees [not allowable as deduction since
expenditure on family planning for employees
is allowed only to a company assesse/not
allowed in case of individuals. Since the
amount is debited to Income and Expenditure
Account, the same has to be added back for
computing business income]
- Salary payment to sister-in-law in excess of Nil
market rate [Any expenditure incurred for
which payment is made to a relative, to the
extent it is considered unreasonable is
disallowed. However, sister-in-law is not
included in the definition of “relative” for the
purpose of section 40A(2).
Therefore, no adjustment is required for
excess salary paid to Mr. Ashish’s sister-in-
law]
- Employees’ Contribution to EPF [Sum 10,000
received by the assessee from his employees
as contribution to EPF is income of the
employer. Deduction in respect of such sum
is allowed only if such amount is credited to
the employee’s account on or before due date
under the relevant Act. Since, the employees
contribution to EPF for February 2021 is
deposited after the due date under the
relevant Act, deduction would not be
available]
- Medical expenses for the treatment of father 80,000
[Not allowed as deduction since it is a
personal expenditure / not an expenditure
incurred for the purpose of business of
4 INTERMEDIATE (NEW) EXAMINATION: JULY, 2021

Mr. Ashish. Since the amount is debited to

Income and Expenditure Account, the same
has to be added back for computing business
income]
- Commission to Ms. Anjaleen without deduction 7,500
of tax at source – [Mr. Ashish would be liable
to deduct tax at source on commission since
his gross receipts from profession exceeded `
50 lakhs during F.Y.2019-20. Since
commission has been paid without deduction
of tax at source, hence 30% of ` 25,000, being
commission paid without deducting tax at
source, would be disallowed under section
40(a)(ia) while computing the business income
of A.Y.2021-22]
- Depreciation as per books of account 90,000
- Purchase of Furniture [not allowable, since it 48,000
is a capital expenditure] 2,55,500
41,98,500
Less: Depreciation as per Income-tax Rules
- On Professional Books [` 90,000 x 40%] 36,000
- On Computers [` 35,000 x 40%] 14,000
- On Furniture [`19,000 x 10%, since it 1,900
has been put to use for more than 180
days during the year] [Any expenditure
for acquisition of any asset in respect of
which payment or aggregate of payment
made to a person, otherwise than by an
a/c payee cheque/ bank draft or use of
ECS or through prescribed electronic
mode, exceeds ` 10,000 in a day, such
expenditure would not form part of actual
cost of such asset. Hence, ` 18,000 and
` 11,000 paid on 31.8.2020 in cash
would not be included in the actual cost
of furniture]
- On Car [` 3,35,000 x 15%] [Actual cost 50,250
of car would be the purchase price of the
car to Mr. Ashish, i.e., ` 3,35,000] 1,02,150
40,96,350
 PAPER – 4 : TAXATION 5

Less: Items of income credited but not taxable

or taxable under any other head of
income
- Interest on Public Provident Fund 60,000
[Exempt]
- Interest on savings bank account 20,000
[Taxable under the head “Income from
other sources”]
- Interest on National Savings Certificates 21,000
VIII Issue (3 rd Year) [Taxable under the
head “Income from other sources”] 1,01,000
39,95,350
II Income from other sources
Interest on savings bank account 20,000
Interest on National Savings Certificates VIII Issue 21,000
(3rd Year) 41,000
Gross Total Income 40,36,350
Less: Deduction under Chapter VI-A
Deduction under section 80C
Contribution to PPF 1,00,000
Interest on NSC (3 rd Year) (Reinvested) 21,000 1,21,000
Deduction under section 80D
Medical expenses for the treatment of father
[Since Mr. Ashish’s father is a senior citizen
and not covered by any health insurance
policy, payment for medical expenditure by a
50,000
mode other than cash would be allowed as
deduction to the extent of ` 50,000]
Deduction under section 80TTA
Interest on savings bank account to the
extent of ` 10,000 10,000 1,81,000
Total income 38,55,350

Computation of tax liability of Mr. Ashish for A.Y.2021-22

Particulars ` `
Tax on total income of ` 38,55,350
Upto ` 2,50,000 Nil
` 2,50,001 – ` 5,00,000[@5% of ` 2.50 lakh] 12,500
` 5,00,001 – ` 10,00,000[@20% of ` 5 lakh] 1,00,000
6 INTERMEDIATE (NEW) EXAMINATION: JULY, 2021

` 10,00,001- ` 38,55,350 [@30% of ` 28,55,350] 8,56,605

9,69,105
Add: Health and education cess@4% 38,764
Tax liability 10,07,869
Tax liability (rounded off) 10,07,870
Question 2
(a) Mrs. Rohini, aged 62 years, was born and brought up in New Delhi. She got married in
Russia in 1996 and settled there since then. Since her marriage, she visits India for 60
days each year during her summer break. The following are the details of her income for
the previous year ended 31.03.2021:
S. Particulars Amount
No. (in ` )
1. Pension received from Russian Government 65,000
2. Long-term capital gain on sale of land at New Delhi (computed) 3,00,000
3. Short-term capital gain on sale of shares of Indian listed
companies in respect of which STT was paid both at the time of 60,000
acquisition as well as at the time of sale (computed)
4. Premium paid to Russian Life Insurance Corporation at Russia 75,000
5. Rent received (equivalent to Annual Value) in respect of house 90,000
property in New Delhi
You are required to ascertain the residential status of Mrs. Rohini and compute her total
income and tax liability in India for Assessment Year 2021-22. (6 Marks)
(b) Examine whether TDS provisions would be attracted in the following cases, and if so, under
which section. Also specify the rate of TDS and amount required to be deducted at source
as applicable in each case. Assume that all payments are made to residents.
S. Particulars of the payer Nature of payment Aggregate
No. of payments
made in the
F.Y. 2020-21
(Amt. in `)
(A) Mr. Kale, receiving pension Contractual payment made 52,50,000
from Central Government during April 2020 for
reconstruction of his residential
house in Arunachal Pradesh
(B) Mr. Rahul, a wholesale Contract payment for 50,00,000
trader of spices whose turn- construction of office godown
 PAPER – 4 : TAXATION 7

over was ` 5 crores F.Y. during January to March 2021 to

2019-20 Mr. Akhilesh, an individual
(C) Mr. Golu, an individual Payment of commission to 1,20,000
carrying garment trading Mr. Vinay for securing a contract
business with turnover of from a big business house in
` 95 lakhs in F.Y. 2019- November 2020
2020
(D) XYZ Urban Co-operative Payment by way of cash 1,20,00,000
bank withdrawal, by ABC & Co. a
partnership firm, amounting
` 1.2 crores during Financial
Year 2020-21. ABC & Co. has
filed its tax returns for the last 3
financial years with in time.
(2 x 4 = 8 Marks)
Answer
(a) An Indian citizen or a person of Indian origin who, being outside India, comes on a visit to
India (and whose total income, other than from foreign sources, does not exceed
` 15,00,000) would be resident in India only if he or she stays in India for a period of 182
days or more during the previous year.
Since Mrs. Rohini is a person of Indian origin who comes on a visit to India only for 60 days
in the P.Y.2020-21 and her income other than from foreign sources does not exceed
` 15,00,000, she is non-resident for the A.Y. 2021-221.
A non-resident is chargeable to tax in respect of income received or deemed to be received
in India and income which accrues or arises or is deemed to accrue or arise to her in India.
Accordingly, her total income and tax liability would be determined in the following manner:
Computation of total income and tax liability of Mrs. Rohini for A.Y. 2021-22
Particulars Amt (`)
Salaries
Pension received from Russian Government [Not taxable, since it neither Nil
accrues or arises in India nor is it received in India]
Income from House Property
Annual Value [Rental Income from house property in New 90,000
Delhi is taxable, since it is deemed to accrue or arise in India,
as it accrues or arises from a property situated in India]

1 Even if her total income exceeds ` 15 lakh, still, she would be non-resident since the minimum period of stay
required in the current year for being a resident is 120 days.
8 INTERMEDIATE (NEW) EXAMINATION: JULY, 2021

Less: Deduction u/s 24(a) @ 30% 27,000 63,000

Capital Gains
Long-term capital gains on sale of land at New Delhi [Taxable, since it is 3,00,000
deemed to accrue or arise in India as it is arising from transfer of land
situated in India]
Short-term capital gains on sale of shares of Indian listed companies in 60,000
respect of which STT was paid [Taxable, since it is deemed to accrue or
arise in India, as such income arises on transfer of shares of Indian listed
companies]
Gross Total Income 4,23,000
Less: Deduction under Chapter VI-A
Deduction under section 80C 63,000
- Life insurance premium 2 of ` 75,000 [Premium paid to Russian
Life Insurance Corporation allowable as deduction. However,
the same has to be restricted to gross total income excluding
LTCG and STCG, as Chapter VI-A deductions are not allowable
against such income chargeable to tax u/s 112 and 111A,
respectively]
Total Income 3,60,000
Computation of Tax Liability
Long-term capital gains taxable @20% u/s 112 [3,00,000 x 20%] 60,000
Short-term capital gains taxable @15% u/s 111A [60,000 x 15%] 9,000
69,000
Add: Health and Education Cess @4% 2,760
Tax Liability 71,760
Note - The benefit of adjustment of unexhausted basic exemption limit against long -term
capital gains taxable u/s 112 and short-term capital gains taxable u/s 111A is not available
in case of non-resident. Further, rebate u/s 87A is not allowable to a non-resident, even if
his income does not exceed ` 5 lakh.
(b) (i) Mr. Kale, being a pensioner, would not be liable to deduct tax at source under section
194C. However, he has to deduct tax at source @ 5% u/s 194M, since the aggregate
amount of payment to the contractor for his personal purposes i.e., for reconstruction
of his residential house in Arunachal Pradesh, exceeds the threshold limit of
` 50,00,000.
Therefore, TDS u/s 194M would be = ` 52,50,000 x 5% = ` 2,62,500.
(ii) Mr. Rahul is required to deduct tax at source u/s 194C, since his turnover from
business in the financial year 2019-20, being the financial year immediately

2 It is assumed that such premium is paid for self or spouse or any child of Mrs. Rohini
 PAPER – 4 : TAXATION 9

preceding F.Y.2020-21 in which such sum is paid, exceeds ` 1 crore. Tax is to

be deducted at source at the rate 1% as the payment is made to an Individual.
However, since payment is made during the period 14.05.2020 and 31.3.2021,
tax is to be deducted at the reduced rate of 0.75%.
Therefore, TDS u/s 194C would be = ` 50,00,000 x 0.75% = ` 37,500
(iii) Tax is required to be deducted u/s 194H, if the payer is an individual whose
turnover from business carried on by him in the financial year immediately
preceding the financial year in which commission is paid, exceeds ` 1 crore.
However, where TDS u/s 194H is not applicable, tax is required to be deducted
u/s 194M where payment of commission during the relevant previous year
exceeds ` 50 lakhs
In the present case, Mr. Golu is not required to deduct tax at source u/s 194H on
the commission paid to Mr. Vinay in the P.Y.2020-21 since his turnover from his
business does not exceed ` 1 crore during the P.Y. 2019-20.
Further, Mr. Golu is also not required to deduct tax at source u/s 194M on th e
said commission paid to Mr. Vinay since the commission paid does not exceed
` 50 lakhs during the P.Y. 2020-21.
(iv) A co-operative bank which is responsible for paying any sum, being the amount
or aggregate of amounts, as the case may be, in cash exceeding ` 1 crore during
the previous year, to any person from an account maintained by such person with
it, has to deduct an amount equal to 2% of such sum, as income -tax at the time
of payment. Accordingly, since XYZ Urban Co-operative is responsible for paying
a sum exceeding ` 1 crore (` 1.2 crore, in this case) in cash to ABC & Co., a
partnership firm, during the F.Y.2020-21, the bank is required deduct tax at source
@ 2% of such sum.
Therefore, TDS u/s 194N would be = ` 20,00,000 x 2% = ` 40,000.
Question 3
(a) Mr. Ramesh constructed a big house (construction completed in Previous Year 2008 -09)
with 3 independent units. Unit - 1 (50% of floor area) is let out for residential purpose at
monthly rent of ` 15,000. A sum of ` 3,000 could not be collected from the tenant and a
notice to vacate the unit was given to the tenant. No other property of Mr. Ramesh is
occupied by the tenant. Unit - 1 remains vacant for 2 months when it is not put to any use.
Unit - 2 (25% of the floor area) is used by Mr. Ramesh for the purpose of his business,
while Unit - 3 (the remaining 25%) is utilized for the purpose of his residence. Other
particulars of the house are as follows:
Municipal valuation - ` 1,88,000
Fair rent - ` 2,48,000
Standard rent under the Rent Control Act - ` 2,28,000
10 INTERMEDIATE (NEW) EXAMINATION: JULY, 2021

Municipal taxes - ` 20,000

Repairs - ` 5,000
Interest on capital borrowed for the construction of the property - ` 60,000, ground rent
` 6,000 and fire insurance premium paid - ` 60,000.
Income of Ramesh from the business is ` 1,40,000 (without debiting house rent and other
incidental expenditure).
Determine the taxable income of Mr. Ramesh for the assessment year 2021-22 if he does
not opt to be taxed under section 115BAC. (6 Marks)
(b) Examine the taxability of capital gains in the following scenarios for the Assessment Year
2021-22, determine the taxable amount and rate of tax applicable:
(i) On 28th February, 2021 10,000 shares of XY Ltd., a listed company are sold by Mr. B
@ 550 per share and STT was paid at the time of sale of shares. These shares were
acquired by him on 5th April, 2017 @ ` 395 per share by paying STT at the time of
purchase. On 31 st January, 2018, the shares of XY Ltd. were traded on a recognized
stock exchange at the Fair Market Value of ` 390 per Share.
(ii) Mr. A is the owner of residential house which was purchased on 1st September, 2016
for ` 9,00,000. He sold the said house on 4th September, 2020 for
` 19,00,000. Valuation as per stamp valuation authorities was ` 45,00,000. He
invested ` 19,00,000 in NHAI Bonds on 21 st March, 2021.
The Cost Inflation index for-
F.Y. 2016-17 264
F.Y. 2020-21 301
(2 x 2 = 4 Marks)
(c) Mr. Patel is a proprietor of Star Stores since 20-05-2018. He has transferred his shop by
way of slump sale for a total consideration of ` 40 Lakh. The professional fees & brokerage
paid for this sale are ` 80,000. His Balance Sheet as on 31-03-2021 is as under :
Liabilities ` Assets `
Own Capital 10,50,000 Building· 5,00,000
Bank Loan 5,00,000 Furniture 5,00,000
Trade Creditors 2,50,000 Debtors 2,00,000
Unsecured Loan 2,00,000 Other Assets 8,00,000
20,00,000 20,00,000
Other Information:
1. No individual value of any asset is considered in the transfer deed.
 PAPER – 4 : TAXATION 11

2. Other assets include trademarks valuing ` 2,00,000 as on 01-04-2020 on which no

depreciation has been provided.
3. Furniture of ` 1,50,000 purchased on 05-11-2020 on which no depreciation has been
provided.
4. Unsecured loan includes ` 50,000 as advance received from his wife, which she has
agreed to waive off.
Compute the capital gain for A.Y. 2021-22. (4 Marks)
Answer
(a) Computation of Taxable Income of Mr. Ramesh for A.Y. 2021-22 under
the regular provisions of the Act
Particulars Amount Amount
(`) (`)
Income from house property
Unit - 1 [50% of floor area - Let out]
Gross Annual Value, higher of
- Expected rent ` 1,14,000 [Higher of Municipal Value
of ` 94,000 p.a. and Fair Rent of ` 1,24,000 p.a., but
restricted to Standard Rent of ` 1,14,000 p.a.]
- Actual rent ` 1,47,000 [` 15,000 x 10] less unrealized
rent3 of ` 3,000
Gross Annual Value 1,47,000
(Alternatively, ` 1,50,000 can be shown as actual rent and
gross annual value, and thereafter, deduct ` 3,000
unrealized rent therefrom)
Less: Municipal taxes [50% of `20,0004] 10,000
Net annual value 1,37,000
Less: Deductions from Net Annual Value
(a) 30% of Net Annual Value 41,100
(b) Interest on loan [50% of ` 60,000] 30,000 65,900
Unit – 3 [25% of floor area – Self occupied]
Net Annual Value -
Less: Interest on loan [ 25% of ` 60,000] 15,000 (15,000)
Income from house property 50,900

3 Since the conditions laid down under Rule 4 of Income-tax Rules, 1962, are satisfied
4 Assumed to have been paid during the year by Mr. Ramesh
12 INTERMEDIATE (NEW) EXAMINATION: JULY, 2021

Profits and gains from business or profession

Business Income [without deducting expenditure on Unit - 1,40,000
2 25% floor area used for business purposes]
Less: Expenditure in respect of Unit -2
- Municipal taxes [25% of ` 20,0005] 5,000
- Repairs [25% of ` 5,000] 1,250
- Interest on loan [25% of ` 60,000] 15,000
- Ground rent [ 25% of ` 6,000] 1,500
- Fire Insurance premium [25% of ` 60,000] 15,000
37,750 1,02,250
Taxable Income 1,53,150
(b)
Particulars Amount
`
(i) Long-term capital gain on transfer of 10,000 shares of XY Ltd.
[taxable u/s 112A @10% on amount exceeding ` 1,00,000]
Full value of consideration [10,000 x ` 550] 55,00,000
Less: Cost of acquisition
Higher of
Cost of acquisition [10,000 x ` 395] 39,50,000
Lower of fair market value per share as on 39,00,000
31.1.2018 i.e., ` 390 per share and sale
consideration i.e., ` 550 per share [10,000 x 39,50,000
` 390]
Long term capital gain taxable u/s 112A 15,50,000
Long-term capital gain exceeding ` 1 lakh i.e., ` 14,50,000 would
be taxable @10%
(ii) Sale of residential house [long-term capital asset, since held for more than
24 months]
Full value of consideration [stamp duty value, since it exceeds 45,00,000
110% of actual sale consideration]
Less: Indexed cost of acquisition [` 9,00,000 x 301/264] 10,26,136
34,73,864

5 Assumed to have been paid on or before the due date u/s 139(1)
 PAPER – 4 : TAXATION 13

Less: Deduction under section 54EC Nil

No deduction under section 54EC would be allowed on investment
of ` 19,00,000 in NHAI bonds, since such investment is made on
21st March 2021 i.e., after six months from the date of transfer i.e.,
4th September, 2021
Long-term capital gain taxable u/s 112 @ 20% 34,73,864
(c) Computation of capital gains on slump sale of shop
Particulars `
Sale value 40,00,000
Less: Expenses on sale [professional fees & brokerage] 80,000
Net sale consideration 39,20,000
Less: Net worth (See Working Note below) 10,42,500
Short-term capital gain [Since shop is held for not more than 36 28,77,500
months immediately preceding the date of transfer]
Working Note:
Computation of net worth of shop
Building 5,00,000
Furniture 5,00,000
Less: Deprecation on `1,50,000 @ 5%, being 50% of 10%
since furniture is put to use for less than 180 days during
the previous year 7,500 4,92,500
Debtors 2,00,000
Other assets 8,00,000
Less: Deprecation on ` 2,00,000, being intangible asset
@ 25% 50,000 7,50,000
Total assets 19,42,500
Less: Bank loan 5,00,000
Trade creditors 2,50,000
Unsecured loan ` 2,00,000 less ` 50,000, being the
amount waived off by his wife 1,50,000
9,00,000
Net worth 10,42,500
Question 4
(a) Mr. Dharmesh who is 45 years old and his wife Mrs. Anandi who is 42 years old furnished
the following information:
14 INTERMEDIATE (NEW) EXAMINATION: JULY, 2021

S. No. Particulars Amount (`)

(i) Salary income (computed) of Mrs. Anandi 9,60,000
(ii) Income of minor son "A" who suffers from disability specified 3,08,000
in section 80U
(iii) Income of minor daughter "C" from script writing for Television 1,86,000
Serials
(iv) Income from garment trading business of Mr. Dharmesh 17,50,000
(v) Cash gift received by minor daughter "C" on 02-10-2020 from 45,000
friend of Mrs. Anandi, on winning of a story writing competition
(vi) Income of minor son "B" form scholarship received from his 1,00,000
school
(vii) Income of minor son "B" from fixed deposit with Punjab 5,000
National Bank, made out of income earned from scholarship
Compute the total income of Mr. Dharmesh and his wife Mrs. Anandi for Assessment Year
2021-22 assuming that they have not opted to be taxed under section 115BAC. (5 Marks)
(b) Mr. X a resident individual submits the following information, relevant to the previous year
ending March 31, 2021:
S. No. Particulars Amount (`)
(i) Income from Salary (Computed) 2,22,000
(ii) Income from House Property
- House in Delhi 22,000
- House in Chennai (-) 2,60,000
- House in Mumbai (self-occupied) (-) 20,000
(iii) Profit and gains from business or profession
- Textile business 18,000
- Cosmetics business (-) 22,000
- Speculative business- 1 (-) 74,000
- Speculative business-2 46,000
(iv) Capital gains
Short term capital loss from sale of property (-) 16,000
Long term capital gains from sale of property 15,400
(v) Income from other sources (Computed)
- Income from betting 34,000
- Income from card games 46,000
- Loss on maintenance of race horses (-)14,600
 PAPER – 4 : TAXATION 15

Determine the gross total income of Mr. X for the assessment year 2021-22 and the losses
to be carried forward assuming that he does not opt to be taxed under section 115BAC.
(5 Marks)
(c) Enumerate the cases where a return of loss has to be filed on or before the due date
specified u/s 139(1) for carry forward of the losses. Also enumerate the cases where losses
can be carried forward even though the return of loss has not been filed on or before the
due date. (4 Marks)
OR
In the following cases relating to P.Y.2020-21, the total income of the assessee or the total
income of any other person in respect of which he/she is assessable under Income-tax Act
does not exceed the basic exemption limit. You are required to state with reasons, whether
the assessee is still required to file the return of income or loss for A.Y.2021-22 in each of
the following independent situations:
(i) Manish & Sons (HUF) sold a residential house on which there arose a long term
capital gain of ` 12 lakhs which was invested in Capital Gain Bonds u/s 54EC so that
no long term capital gain was taxable. (1½ Marks)
(ii) Mrs. Archana was born in Germany and married in India. Her residential status under
section 6(6) of the Income-tax Act, 1961 is 'resident and ordinarily resident'. She owns
a car in Germany which she uses for her personal purposes during her visit to her
parents' place in that country. (1½ Marks)
(iii) Sudhakar has incurred an expenditure of ` 1,20,000 towards consumption of
electricity, the entire payment of which was made through banking channels.
(1 Mark)
Answer
(a) Computation of Total Income of Mr. Dharmesh and Mrs. Anandi for A.Y. 2021-22
Particulars Mr. Dharmesh Mrs. Anandi
Amount (`)
Salary income (computed) 9,60,000
Income from garment trading business 17,50,000
Total Income before including income of minor 17,50,000 9,60,000
children
Income of minor son “A”
Income of ` 3,08,000 of minor son A who suffers
from disability specified in section 80U [Since
minor child A is suffering from disability specified
under section 80U, hence, his income would not
16 INTERMEDIATE (NEW) EXAMINATION: JULY, 2021

be included in the income of the parent but would

be taxable in the hands of the minor child]
Income of minor son “B”
Income of ` 1,00,000 from scholarship [Exempt -
u/s 10(16)]
Income from fixed deposit with PNB 5,000
[Since Mr. Dharmesh’s income is greater
than that of Mrs. Anandi, income of minor
son B from fixed deposit would be
included in the hands of Mr. Dharmesh.
Interest from bank deposit has to be
included in Mr. Dharmesh’s income,
even if deposit is made out of income
earned from scholarship]
Less: Exemption under section 10(32) 1,500 3,500
Income of minor daughter “C”
Income of ` 1,86,000 from script writing for
television serials [Income derived by a minor child
from any activity involving application of his/her
skill, talent, specialized knowledge and
Nil
experience is not to be included in the hands of
the parent]
Hence, clubbing provisions will not apply in this
case/no adjustment is required.
Cash gifts of ` 45,000 received from friend of
Mrs. Anandi [Gift not exceeding ` 50,000 received
from a non-relative is not taxable under section
56(2)(x)]
Hence, clubbing provisions will not apply in this
Nil
case / no adjustment is required.
Gross Total Income/ Total Income 17,53,500 9,60,000
Note - As per section 10(16), scholarships granted to meet the cost of education is exempt
from tax. The purpose of scholarship received by minor son B is explicitly not mentioned
in the question. However, scholarships given by schools are generally in the form of
financial assistance for meeting the cost of education. Hence, it is logical to assume that
the scholarship to B has been granted to him to meet his cost of education. Based on this
assumption, the same has been treated as exempt from tax u/s 10(16).
Alternate view - However, in absence of specific information, it is possible to assume that
such scholarship has been granted on account of B’s exceptional academic achievements
 PAPER – 4 : TAXATION 17

i.e., involving application of his skill, talent, specialised knowledge and experience and
hence would be covered under the proviso to section 64(1A) and thus should not be
included in the income of parent.
(b) Computation of Gross Total Income of Mr. X for A.Y. 2021-22
Particulars Amount Amount
Salaries
Income from salary (computed) 2,22,000
Less: Set-off of loss from house property of ` 2,58,000
to the extent of ` 2 lakhs by virtue of section 71(3A) 2,00,000 22,000
Income from house property
- House in Delhi 22,000
- House in Chennai (2,60,000)
- House in Mumbai (self-occupied) (20,000)
(2,58,000)
Loss upto ` 2 lakhs can be set off against income from
salary.
Balance loss of ` 58,000 from house property has to be
carried forward to A.Y.2022-23.
Profits and gains from business or profession
Profits from Speculative business – 2 46,000
Less: Loss of ` 74,000 from speculation business - 1 set (46,000)
off to the extent of profits of ` 46,000 as per section 73(1)
from another speculation business. Loss from speculation
business cannot be set-off against any income other than
profit and gains of another speculation business. -
Hence, the balance loss of ` 28,000 from speculative
business has to be carried forward to A.Y.2022-23.
Profits from textile business 18,000
Less: Loss from cosmetic business of ` 22,000 set off
against profits from textile business to the extent of
` 18,000 as per section 70(1). (18,000) -
Balance loss of ` 4,000 from cosmetic business has to be
carried forward to A.Y.2022-23, since the same cannot be
set-off against salary income.
Capital Gains
Long term capital gain from sale of property 15,400
18 INTERMEDIATE (NEW) EXAMINATION: JULY, 2021

Less: Short-term capital loss can be set-off against both

short-term capital gains and long-term capital gains.
Short term capital loss of ` 16,000 set off against long-
term capital gains to the extent of ` 15,400 as per section (15,400) -
74(1).
Balance short term capital loss of ` 600 has to be carry
forward to A.Y.2022-23
Income from Other Sources
Income from betting [No loss is allowed to be set off 34,000
against such income]
Income from card games [No loss is allowed to be set off 46,000
against such income]
Loss on activity of owning and maintenance of race Nil
horses [Loss incurred on activity of owning and
maintenance of race horses cannot be set-off against
income from any source other than the activity of owning
and maintaining race horses. Hence, such loss of
` 14,600 has to be carried forward to A.Y.2022-23]
80,000
Gross Total Income 1,02000
(c) [First Alternative]
As per section 139(3), an assessee is required to file a return of loss within the due date
specified u/s 139(1) for filing return of income.
As per section 80, certain losses which have not been determined in pursuance of a return
filed under section 139(3) on or before the due date specified under section 139(1) cannot
be carried forward and set-off. Thus, the assessee has to file a return of loss under section
139(3) within the time allowed u/s 139(1) in order to carry forward and set off of following
losses:
- loss under the head “Capital Gains”,
- loss from activity of owning and maintaining race horses.
- business loss,
- speculation business loss and
- loss from specified business.
However, following can be carried forward for set-off even if the return of loss has not been
filed before the due date:
- Loss under the head “Income from house property” and
- Unabsorbed depreciation.
 PAPER – 4 : TAXATION 19

(c) [Second Alternative]

(i) A HUF whose total income without giving effect to, inter alia, section 54EC,
exceeds the basic exemption limit of ` 2,50,000, is required to file a return of its
income on or before the due date under section 139(1). In this case, since the
total income without giving effect to exemption under section 54EC is ` 12 lakhs,
exceeds the basic exemption limit, the HUF is required to file its return of income
for A.Y. 2021-22 on or before the due date under section 139(1).
(ii) Every person, being a resident other than not ordinarily resident in India would
be required to file a return of income or loss for the previous year on or before
the due date, even if his or her total income does not exceed the basic exemption
limit, if such person, at any time during the previous year, inter alia, holds any
asset located outside India.
In this case, though Mrs. Archana owns a car in Germany, the same does not fall
within the ambit of “capital asset” as it is a personal effect. Hence,
Mrs. Archana is not required to file her return of income for A.Y. 2021-22 on
account of owning a car for personal purposes in Germany.
Note – “Asset” for the purpose of the fourth proviso to section 139(1) has not
been specifically defined in the said section or elsewhere in the Act. Schedule
FA of the income-tax return forms, however, requires details of foreign assets for
the purpose of filing of return of income under this provision. The foreign assets
listed in the said Schedule does not include car. It, however, includes “any other
capital assets outside India”. Car used for personal purposes is not a capital asset
as it is a “personal effect”. Hence, it is not included in the meaning of “asset” for
the purpose of the fourth proviso to section 139(1). The above answer is based
on the view taken regarding the ambit of the term “asset”, based on the list of
assets detailed in the relevant schedule of the income-tax return forms.
Alternative view - On the plain reading of the fourth proviso to section 139(1)
and the general meaning attributable to the word “asset”, it is possible to take a
view that Mrs. Archana is required to file her return of income as she owns an
asset, i.e., a car in Germany. Accordingly, due credit may also be given to the
candidates who have answered on this basis.
(iii) If an individual has incurred expenditure exceeding ` 1 lakh towards consumption
of electricity during the previous year, he would be required to file a return of
income, even if his total income does not exceed the basic exemption limit. Since
Mr. Sudhakar has incurred expenditure of ` 1,20,000 in the P.Y.2020-21 towards
consumption of electricity, he has to file his return of income for A.Y. 2021-22 on
or before the due date under section 139(1).
20 INTERMEDIATE (NEW) EXAMINATION: JULY, 2021

SECTION B: INDIRECT TAXES

Question No. 5 is compulsory.
Candidates are also required to answer any two questions from the remaining three
questions.
All questions should be answered on the basis of position of position of GST law as
amended by significant notifications/circulars issued upto 31st October,2020.
Working notes should form part of the answer.
Wherever necessary, suitable assumptions may be made by the candidates and disclosed by
way of note.
Question 5
X Electronics is a registered manufacturer of electrical appliances.
It made contract with dealers, that purchase of air conditioners of capacity 1.5 ton in the
month of October, 2020 of quantity of more than 50 units will entitle them for 10% discount.
Inter-State supply made during the month of October 2020 is ` 50,00,000
Details of Intra-State supply:
Particulars Amount (`)
Supply of Microwave Oven 15,00,000
Supply of Refrigerators with Stabilizers being a mixed supply, rate of GST 40,00,000
on Refrigerator is 28% (14% CGST & 14% SGST), rate of GST on
Stabilizer is 18% (9% CGST & 9% SGST)
Supply of Air Conditioners of capacity 1.5 Ton @ ` 50,000 per Air 50,00,000
Conditioner

Intra-State inward supplies are :

Particulars Amount (`)
Raw material 20,00,000
Paid Gym membership for employees 50,000
Truck purchased for transportation of goods 30,00,000

X Electronics made supply of Air Conditioners (capacity 1.5 ton) to only one dealer named
Mr. L.
Gym membership for employees is not obligatory for X Electronics under any law.
 PAPER – 4 : TAXATION 21

Opening Balance of ITC is as under:

CGST: ` 58,000
SGST: ` 70,000
IGST: ` 10,00,000
Note:
(i) Rate of CGST, SGST and IGST are 9%, 9% and 18% respectively for both inward and
outward supplies except where specifically provided.
(ii) Both inward and outward supplies are exclusive of taxes.
(iii) All the conditions for availing the ITC have been fulfilled.
Compute the Net GST payable in cash by X Electronics for the month of October, 2020.
(8 Marks)
Answer
Computation of net GST payable in cash by X Electronics for October 2020
Particulars Amount CGST SGST IGST
(`) (`) (`) (`)
I. Intra-State supply
Supply of microwave oven 15,00,000 1,35,000 1,35,000
Supply of refrigerators with 40,00,000 5,60,000 5,60,000
stabilizers
[Being mixed supply, the supply
shall be treated as a supply of
that particular supply which
attracts the highest rate of tax
and taxed accordingly. Thus, it
will be taxed @ 14% CGST and
14% SGST.]
Supply of 100 (` 50 lakh/ 45,00,000 4,05,000 4,05,000
` 50,000) air conditioners [` 50,00,000
[Since 100 air conditioners x 90%]
have been supplied, discount
@ 10% will be available.]1

1
It has been presumed that there is one supply transaction for 100 ACs and thus, the discount has been given
in the invoice itself. Alternatively, even if there have been multiple supply transactions for the ACs during the
month and the discount has been given vide credit note, it has been presumed that the credit note has been
issued in October 2020 and all other conditions prescribed in section 15(3)(b) of the CGST Act, 2017 have been
complied with. Thus, the effect of the discount has been adjusted in the month of October 2020 itself.
22 INTERMEDIATE (NEW) EXAMINATION: JULY, 2021

II. Inter-State supply @ 18% 50,00,000 9,00,000

Total outward tax liability 11,00,000 11,00,000 9,00,000
Less: Input Tax Credit (Refer Working Note below)
IGST credit first utilized towards payment of IGST. 1,00,000 9,00,000
Remaining amount can be utilized towards CGST (IGST) (IGST)
and SGST in any order and in any proportion
CGST credit set off against CGST liability and 5,08,000 5,20,000
SGST credit set off against SGST liability as CGST (CGST) (SGST)
credit cannot be utilized towards payment of SGST
and vice versa.
Net GST liability payable in cash 4,92,000 5,80,000 Nil
Working Note
Computation of ITC available with X Electronics
Particulars CGST SGST IGST
(`) (`) (`)
Opening balance of ITC 58,000 70,000 10,00,000
Intra-State inward supplies
Raw material 20,00,000 1,80,000 1,80,000
Gym membership for employees 50,000 Nil Nil
[ITC on membership of a health and
fitness centre is blocked if there is no
statutory obligation for the employer to
provide the same.]
Truck purchased for transportation of 30,00,000 2,70,000 2,70,000
goods
[ITC on motor vehicles used for
transportation of goods is not blocked2.]
Total ITC 5,08,000 5,20,000 10,00,000

Note : In the above answer, tax payable in cash has been computed by setting off the IGST credi t
against CGST liability. However, since IGST credit can be set off against CGST and SGST
liability in any order and in any proportion, the same can be set off against CGST and/or SGST
liabilities in different other ways as well. In all such cases, net CGST and net SGST payable in
cash will differ though the total amount of net GST payable ( ` 10,72,000) in cash will remain the
same.

2
It has been assumed that depreciation has not been claimed on tax component.
 PAPER – 4 : TAXATION 23

Question 6
(a) A Ltd. procured the following goods in the month of December, 2020.
Inward Supplies GST (`)
(1) Goods used in constructing an additional floor of office building 18,450
(2) Goods given as free sample to prospective customers 15,000
(3) Trucks used for transportation of inputs in the factory 11,000
(4) Inputs used in trial runs 9,850
(5) Confectionery items for consumption of employees working in the 3,250
factory
(6) Cement used for making foundation and structural support to plant 8,050
and machinery
Compute the amount of ITC available with A Ltd. for the month of December 2020 by
giving necessary explanations. Assume that all the other conditions necessary for
availing ITC have been fulfilled. (6 Marks)
(b) Explain the composite supply and mixed supply. If a trader launches a package sales for
marriage containing double bed, refrigerator, washing machine, wooden wardrobe at a
single rate. He is issuing invoice showing value of each goods separately. Whether this is
case of mixed supply or composite supply. Explain. (4 Marks)
Answer
(a) Computation of amount of ITC available for the month of December 2020
S. No. Particulars GST (`)
(1) Goods used in construction of additional floor of office building Nil
[ITC on goods received by a taxable person for construction of an
immovable property on his own account is blocked even if the
same is used in the course or furtherance of business. It has
been assumed that cost of construction of additional floor has
been capitalized.]
(2) Goods given as free samples to prospective customers Nil
[ITC on goods disposed of by way of free samples is blocked.]
(3) Trucks used for transportation of inputs in the factory 11,000
[ITC on motor vehicles used for transportation of goods is not
blocked3.]

3
It has been assumed that depreciation has not been claimed on tax component.
24 INTERMEDIATE (NEW) EXAMINATION: JULY, 2021

(4) Inputs used in trial runs 9,850

[Being used in trial runs, inputs are used in the course or
furtherance of business and hence ITC thereon is allowed.]
(5) Confectionary items for consumption of employees working in the Nil
factory
[ITC on food or beverages is blocked unless the same is used in
same line of business or as an element of the taxable composite
or mixed supply. Further, ITC on goods and/or service used for
personal consumption is blocked.]
(6) Cement used for making foundation and structural support to 8,050
plant and machinery
[ITC on goods used for construction of plant and machinery is not
blocked. Plant and machinery includes foundation and structural
supports through which the same is fixed to earth.]
Total eligible ITC 28,900
(b) Composite supply comprises of two or more taxable supplies of goods or services or
both, or any combination thereof, which are naturally bundled and supplied in conjunction
with each other in the ordinary course of business, one of which is a principal supply.
Mixed supply means two or more individual supplies of goods or services, or any
combination thereof, made in conjunction with each other by a taxable person for a single
price
where such supply does not constitute a composite supply.
Items such as double bed, refrigerator, washing machine and wooden wardrobe are not
naturally bundled and also the invoice for the supply shows separate values for each item
i.e., the package is not supplied for a single price.
Therefore, supply of such items as a package will neither constitute a composite supply
nor a mixed supply. Thus, the various items of the package will be treated as being
supplied individually.
Note: The question specifies that the various items are supplied at a ‘single rate’. The “single
rate” expression is construed as single rate of tax in the above answer. Further, the “single
rate” may also be construed as single price as given in the below mentioned answer.
Items such as double bed, refrigerator, washing machine and wooden wardrobe are not
naturally bundled. Therefore, supply of such items as a package will not constitute
composite supply. Further, a single price has been charged for the package.
Consequently, supply of such items as a package will be treated as mixed supply.
 PAPER – 4 : TAXATION 25

Question 7
(a) P Ltd, a registered person provided following information for the month of October, 2020:
Particulars Amount (`)
Intra-State outward supply 8,00,000
Inter-State exempt outward supply 4,00,000
Turnover of exported goods 20,00,000
Payment of IGST 1,20,000
Payment of CGST and SGST 45,000 each
Payment of custom duty on export 40,000
Payment made for availing GTA services 3,00,000
GST is payable on Reverse Charge for GTA services.
Explain the meaning of aggregate turnover u/s 2(6) of the CGST Act and compute the
aggregate turnover of P Ltd. for the month of October, 2020. All amounts are exclusive of
GST. (5 Marks)
(b) XYZ Pvt. Ltd. manufactures beauty soap with the brand name 'Forever beauty'. XYZ Pvt.
Ltd. has organized a concert to promote its brand. Ms. Mahima, its brand ambassador,
who is a leading film actress, has given a classical dance performance in the said
concert.
The proceeds of the concert is ` 1,25,000.
(i) Explain with relevant provisions of GST, whether Ms. Mahima will be required to pay
any GST.
(ii) What will be the answer if the proceeds of the concert is donated to a charitable
organization? (5 Marks)
Answer
(a) The term aggregate turnover means the aggregate value of:
(i) all taxable supplies
(ii) exempt supplies,
(iii) exports of goods or services or both and
(iv) inter-State supplies of persons having the same Permanent Account Number, to
be computed on all India basis but excluding
(i) central tax, State tax, Union territory tax, integrated tax and cess.
(ii) the value of inward supplies on which tax is payable by a person on reverse
charge basis
26 INTERMEDIATE (NEW) EXAMINATION: JULY, 2021

Computation of aggregate turnover of P Ltd. for the month of

October, 2020
Particulars Amount
(`)
In terms of the definition of the aggregate turnover given above, the
aggregate turnover of P Ltd. has been computed as follows:
Intra-State outward supply 8,00,000
Inter-State exempt outward supply 4,00,000
Turnover of exported goods 20,00,000
Payment of IGST Nil
Payment of CGST and SGST Nil
Payment of customs duty on export 40,000
Payment made under reverse charge for availing GTA services Nil
Aggregate turnover 32,40,000
(b) (i) Services by an artist by way of a performance in classical art forms of, inter alia, dance,
are exempt from GST,
if the consideration charged for such performance is not more than ` 1,50,000.
However, such exemption is not available in respect of service provided by such
artist as a brand ambassador.
Since Ms. Mahima is the brand ambassador of ‘Forever Beauty’ soap
manufactured by XYZ Pvt. Ltd., the services rendered by her by way of a
classical dance performance in the concert organized by XYZ Pvt. Ltd. to
promote its brand will not be eligible for the above-mentioned exemption and
thus, be liable to GST.
(ii) Even if the proceeds of the concert will be donated to a charitable organization,
she will be liable to GST.
Question 8
(a) Explain who is required to furnish final return, time limit for filing of final return and late
fee for delay in filing final return. (5 Marks)
(b) Examine the following cases and explain with reasons whether the supplier of goods is
liable to get registered in GST:
(i) Krishna of Himachal Pradesh is exclusively engaged in intra-State taxable supply of
readymade suits. His turnover in the current financial year from Himachal Pradesh
showroom is ` 25 lakh. He has two more showrooms one in Manipur & another in
 PAPER – 4 : TAXATION 27

Sikkim with a turnover of ` 15 lakh and ` 18 lakh respectively in the current

financial year.
(ii) Ankit of Telangana is exclusively engaged in intra-State taxable supply of
footwears. His aggregate turnover in the current financial year is ` 25 lakh:
(iii) Aakash of Uttar Pradesh is exclusively engaged in intra-State supply of pan masala.
His aggregate turnover in the current financial year is ` 30 lakh. (5 Marks)
OR
Who can be registered as Goods and Service Tax Practitioners under Section 48 of the
CGST Act? (5 Marks)
Answer
(a) Every registered person who is required to furnish a return and
whose registration has been surrendered or cancelled
is required to file a final return.
The final return has to be filed within 3 months of the:
(i) date of cancellation
or
(ii) date of order of cancellation
whichever is later.
Quantum of late fee for not filing the final return is as follows:
(i) ` 100 for every day during which such failure continues
or
(ii) ` 5,000
whichever is lower.
An equal amount of late fee is payable under the respective SGST/UTGST Act as well.
(b) Every person engaged in making a taxable supply is required to obtain registration if his
aggregate turnover exceeds ` 20 lakh in a financial year. An enhanced threshold limit
for registration of ` 40 lakh is available to persons engaged exclusively in intra-State
supply of goods in specified States.
(i) The applicable threshold limit for registration gets reduced to ` 10 lakh in case a
person is engaged in making taxable supply from a Special Category State.
Since Krishna is making taxable supply from Manipur – a Special Category State,
the applicable threshold limit will get reduced to ` 10 lakh. Thus, it is liable to be
registered under GST as its aggregate turnover exceeds the said threshold limit.
28 INTERMEDIATE (NEW) EXAMINATION: JULY, 2021

(ii) Since Ankit is exclusively engaged in intra-State supply of goods in Telangana,

which is not a specified State for enhanced threshold limit, the applicable threshold
limit for registration is ` 20 lakh.
Thus, Ankit is liable to be registered under GST as its aggregate turnover exceeds
the said threshold limit.
(iii) Though the enhanced threshold limit for registration of ` 40 lakh is available to Uttar
Pradesh, the same will not be applicable if the person is engaged in supply of pan
masala.
In view of the same, the applicable threshold limit for Aakash is ` 20 lakh. Thus, it
is liable to be registered under GST as its aggregate turnover exceeds the said
threshold limit.
Alternative
(b) Following persons can be registered as Goods and Service Tax Practitioners:
Any person who, (i) is a citizen of India; (ii) is a person of sound mind; (iii) is not
adjudicated as insolvent; (iv) has not been convicted by a competent court;
and satisfies any of the following conditions, namely that he:
1. is a retired officer of Commercial Tax Department of any State Govt./CBIC who, during
service under Government had worked in a post not lower than the rank of a Group-B
gazetted officer for a period ≥ 2 years, or
2. is enrolled as a Sales Tax Practitioner or Tax Return Preparer under the erstwhile
indirect tax laws for a period of not less than 5 years, or
3. acquired any of the prescribed qualifications
4. has passed Graduate/postgraduate degree or its equivalent examination having a
degree in specified disciplines, from any Indian University or a degree examination of
any Foreign University recognised by any Indian University as equivalent to degree
examination
5. has passed any other notified examination
6. has passed final examination of ICAI/ ICSI/ Institute of Cost Accountants of India
Note: Any 3 points may be mentioned.