Question Paper

Economic Legislation - II (162) – July 2004

• • Answer all questions.

• • Marks are indicated against each question.
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1. Which of following is an exception to the rule that the income of the previous year is chargeable to tax Ans
in the immediately following assessment year? wer
>
(a) Income from the shipping business of a non resident
(b) Income of persons leaving India either permanently or for a long period of time
(c) Income of bodies formed for a short duration of time
(d) Both (a) and (b) above
(e) (a), (b) and (c) above.
(1 mark)
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2. Which of the following assessees cannot avail basic exemption limit of Rs.50,000 and slab rate of Ans
income tax? wer
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(a) An artificial juridical person (b) A partnership firm
(c) An association of persons (d) A Hindu Undivided Family
(e) (a), (b) and (c) above.
(1 mark)
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3. Which of the following statements is false in respect of the gratuity? Ans
wer
(a) Any gratuity received by an employee while in service is not exempt from tax >
(b) The gratuity which became due after the death of the employee (while in service) is treated as
income in the hands of the legal heirs
(c) Gratuity received by the government employees is totally exempt from tax
(d) The ceiling for the exemption of the gratuity fixed by the government is Rs.3,50,000
(e) Under the Payment of the Gratuity Act, the maximum number of the working days is 26.
(1 mark)
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4. The value of the perquisite in respect of the accommodation provided in a hotel to an employee by the Ans
employer is wer
>
(a) 24% of the salary of the employee
(b) Actual expenses incurred in respect of such accommodation
(c) 20% of the salary
(d) Either (a) or (b) whichever is lower
(e) Either (b) or (c) whichever is lower.
(1 mark)
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5. The residential status of a HUF can be Ans
wer
(a) Resident and ordinarily resident (b) Resident but not ordinarily resident >
(c) Non resident (d) Both (a) and (b) above
(e) (a), (b) and (c) above.
(1 mark)
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6. The excise duty is leviable under the Central Excise Act, 1944 on the samples also even if they are not Ans
meant for sale. Which of the following samples are exempt from the duty? wer
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(a) Trade samples sent to customers for trial / approval
(b) Samples for market enquires
(c) Samples drawn by the Central Excise authorities in respect of procedures relating to assessment
(d) Samples preserved in the factory for investigation of complaints
(e) (a), (b) and (c) above.
(1 mark)
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7. Income from farm buildings is treated as agricultural income only if Ans
wer
 (a) The farm is situated on or within the vicinity of the land used for the agricultural operations and >
has been assessed to land revenue
(b) It is occupied for dwelling purpose by the cultivator or the receiver of rent-in-kind
(c) It is used as a store house by the cultivator or a receiver of rent-in-kind
(d) Both (a) and (c) above
(e) Either (a), (b) or (c) above.
(1 mark)
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8. Which of the following losses is not deductible from the business income? Ans
wer
(a) Loss incurred on realization of amount advanced in connection with the business >
(b) Depreciation in funds kept in the foreign country for the purchase of stock-in-trade
(c) Depreciation of funds kept in foreign currency for capital purposes
(d) Loss incurred by a holding company which has guaranteed a loan taken by its subsidiary company
(e) Loss of precious stones or watches of a dealer while bringing them from the business premises to
his residence.
(1 mark)
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9. Which of the following statements is false in respect of the salary income as per the Income Tax Act, Ans
1961? wer
>
(a) Salary is taxable on the due or the receipt basis which ever is earlier
(b) Advance salary and the arrears of salary are taxed in the year in which they are received
(c) Relief is allowed under section 89(1) in respect of the salary received in advance
(d) Accounting method followed by the employee is irrelevant
(e) Only the public sector employees can avail the benefit of tax exemption in respect of the salary
surrendered to the government voluntarily.
(1 mark)
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10. The Central Government can prohibit import or export of goods of specified description under section Ans
11 of the Customs Act, 1962 for the purposes of wer
>
(a) Maintenance of security of India (b) The protection of deceptive practices
(c) The conservation of exhaustible natural resources
(d) The prevention of smuggling (e) All of the above.
(1 mark)
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11. The scholarships given by the employer-company to the children of its employees at its discretion, over Ans
and above the terms of the employment is wer
>
(a) Taxable in the hands of all the employees
(b) Taxable in the hands of specified employees only
(c) Taxable in the hands of non-specified employees only
(d) Not assessed as the perquisite
(e) Taxable at a specific percentage.
(1 mark)
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12. The act by which a vessel or cargo is abandoned in the sea without any hope or intention of recovering Ans
it is called wer
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(a) Wreck (b) Jetsam (c) Floatsam (d) Derelict (e) None of the above.
(1 mark)
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13. Which of the following charges shall be excluded from the assessable value as per the provisions of the Ans
Customs Act, 1962? wer
>
(a) Commission and brokerage (b) Packing Cost
(c) Cost of transport after importation (d) Royalties and license fees
(e) Landing charges.
(1 mark)
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14. Which of the following is treated as transfer in relation to a capital asset? Ans
(a) Sale, exchange or relinquishment of a capital asset wer
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(b) Transfer of a capital asset by way of a gift or will
(c) Transfer of a capital asset to Government, University or a National Museum
(d) Transfer of foreign currency convertible bonds by one non- resident to another non-resident
 (e) Distribution of the capital assets on a partial partition of a Hindu undivided family.
(1 mark)
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15. As per the provisions of the Customs Act, 1962, the unloading of any goods imported into the country Ans
cannot be permitted until wer
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(a) Import manifest has been delivered to the proper officer
(b) Import manifest has been delivered to the proper officer or the proper officer is satisfied about the
reasons for the non submission of the import manifest
(c) Proper officer has granted the entry inwards to such a vessel
(d) Both (a) and (c) above
(e) Both (b) and (c) above.
(1 mark)
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16. Income from which of the following properties is not taxable under the head income from house Ans
property? wer
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(a) Income from the house property in a foreign country held by a resident
(b) Income from the disputed house property
(c) Income from the property held as stock in trade
(d) Income from the letting of the property where the letting is only incidental and subservient to the
main business of the assessee
(e) (a), (b) and (c) above.
(1 mark)
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17. The excise duty is leviable at the rate prevailing Ans
wer
(a) At the time of manufacture of the goods >
(b) After the manufacture of the goods
(c) Before the manufacture of the goods
(d) At the time of removal of the goods from the factory
(e) On the day the goods reach the market.
(1 mark)
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18. If imported goods are used in India for 5 months and then exported, the percentage of the customs duty Ans
paid as duty drawback to the importer is wer
>
(a) 40% (b) 60% (c) 85% (d) 98% (e) 100%.
(1 mark)
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19. Which of the following perquisites given by an employer is taxable? Ans
wer
(a) Laptop hired by the employer and given to an employee for both official and the personal use >
(b) Transport facility to the employees of the railways and airlines
(c) Transfer without any consideration of any movable asset (excluding car, computer, electronic
items) after using it for a period of 10 years
(d) Transport facility provided to the employees of transport undertaking other than airlines and
railways
(e) Tax on the perquisite-in-kind paid by the employer.
(1 mark)
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20. Which of the following activities is considered as manufacture under section 2(f) of the Central Excise Ans
Act, 1944? wer
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(a) Making of Vanaspati from Groundnut oil (b) Galvanizing of Steel
(c) Recharging of battery (d) Making of Ice from Water
(e) Cutting and polishing of diamond.
(1 mark)
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21. The capital gains arising out of sale of the house property is allowed as an exemption, if the property is Ans
used or held by the assessee for a period of wer
>
(a) More than 36 months (b) Less than or equal to 24 months
(c) More than 54 months (d) Less than or equal to 12 months
(e) 60 months.
(1 mark)
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22. Which of the following expenses is not deductible from the business income under section 37(1) of the Ans
 wer
Income tax Act, 1961? >

(a) Litigation expenditure incurred for curing any defect in the title of the assets
(b) Fees paid for the increase in the authorised capital
(c) Payments made for the acquisition of the goodwill
(d) Amount expended for acquiring a business or a right of a permanent character
(e) All of the above.
(1 mark)
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23. ‘Salary’ as defined by the provisions of section 17(1) includes Ans
wer
(a) Gratuity and pension (b) Advance salary and leave salary >
(c) Fees and commission (d) Both (a) and (b) above
(e) (a), (b) and (c) above.
(1 mark)
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24. Which of the following statements is true as per the definition of ‘Indian Customs Waters’ as per the Ans
Indian Customs Act? wer
>
(a) The Indian Customs Waters extend upto 10 nautical miles beyond the territorial waters
(b) The Indian Customs Waters extend upto 14 nautical miles beyond the territorial waters
(c) The Indian Customs Waters extend upto 12 nautical miles beyond the territorial waters
(d) The Indian Customs Waters extend upto 16 nautical miles beyond the territorial waters
(e) The Indian Customs Waters extend upto 9 nautical miles beyond the territorial waters.
(1 mark)
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25. Income of a religious trust is chargeable to tax as income of Ans
wer
(a) An individual (b) A company (c) A firm >
(d) Hindu undivided family (e) An association of persons.
(1
mark)
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26. An employee, can avail the benefit of the leave travel concession for Ans
wer
(a) Two journeys in a block of four calendar years >
(b) Three journeys in a block of four calendar years
(c) Four journeys in a block of four calendar years
(d) Two journeys in a block of two calendar years
(e) Two journeys in a block of three calendar years.
(1 mark)
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27. The amendment of the registration certificate issued under CST Act cannot be done Ans
wer
(a) Where the dealer changes his place of business >
(b) Where there is a change in the goods dealt by the dealer
(c) Where there is a change in the constitution of the firm
(d) Where there is a change in the business
(e) Where the dealer discontinues his business.
(1 mark)
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28. As per the provisions of the Central Sales Tax Act the form G relates to Ans
wer
(a) Sales covered in the course of export >
(b) Indemnity furnished by dealer in matters of security deposit
(c) Stock transfers from one state to another
(d) Supply to government concerns by the dealers
(e) Interstate sales.
(1 mark)
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29. Which of the following is not a related person as per the Central Excise Act? Ans
wer
(a) Inter connected undertakings (b) Relative and distributor >
(c) Persons interested in the business of one another (d) Sub distributor
(e) Self reliant ancillary units.
(1 mark)
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30. The basic exemption under the Wealth Tax Act is Ans
 (a) Rupees fifteen lakhs (b) Rupees twenty five lakhs wer
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(c) Rupees ten lakhs (d) Rupees twenty lakhs
(e) Rupees thirty lakhs.
(1 mark)
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31. The payment in respect of the premium on the LIC policies is Ans
wer
(a) Restricted to 15% of the assured value >
(b) Restricted to 20% of the assured value
(c) Restricted to 25% of the assured value
(d) Allowed in full
(e) Restricted to Rs.20,000 per annum.
(1 mark)
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32. Which of the following statements is false in respect of the rebate that an assessee can claim under Ans
section 88 of the Income Tax Act, 1961? wer
>
(a) The rebate is allowed at 20% of the net qualifying amount if the gross total income does not exceed
Rs.1,50,000
(b) The rebate is allowed at 25% of the net qualifying amount if the gross total income does not exceed
Rs.1,50,000
(c) The rebate is allowed at 30% of the net qualifying amount if the income under the head salaries
does not exceed Rs.1,00,000 before the standard deduction and salary forms 90% of the gross total
income
(d) The rebate is allowed at 15% of the net qualifying amount if the gross total income exceeds
Rs.1,50,000 but does not exceed Rs.5,00,000
(e) The rebate is not allowed if the gross total income exceeds Rs.5,00,000.
(1 mark)
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33. As per the provisions of the Wealth Tax Act, which of the following is/are treated as an asset? Ans
wer
(a) An urban land on which the construction of a building is not permissible under any law for the >
time being in force
(b) Any land held by an assessee as stock in trade for a period of 10 years from the date of acquisition
(c) Any unused land held by the assessee for industrial purposes for a period of 2 years from the date
of acquisition
(d) Any land which is comprised within the jurisdiction of a municipality or a cantonment board and
having a population of more than 10,000
(e) Both (c) and (d) above.
(1 mark)
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34. Mrs. Lavanya, who is an employee of a private company, was born on October 20, 1938 and attains the Ans
age of 65 years in 2003. State which of the following statements is true with regard to the rebate that wer
she can claim in respect of the tax liability for the assessment year 2004-05? >

(a) She can claim rebate under section 88 and 88B as she has attained the age of 65 years during the
previous year
(b) She can claim rebate under section 88 and 88C as she was below the age of 65 years during a part
of the previous year
(c) She can avail the rebate under sections 88, 88B and 88C as she qualifies under all the three
sections
(d) She cannot avail the rebate under section 88B as she was not 65 years and above all through the
previous year
(e) She cannot avail the rebate under section 88C as she was not below 65 years all through the
previous year.
(1 mark)
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35. Which of the following are excluded from the definition of ‘goods’ as per the Central Sales Tax Act? Ans
wer
(a) Immovable property including Plant and machinery assembled at site which is not >
marketable
(b) Stocks and actionable claims (c) Lottery tickets
(d) Both (a) and (b) above (e) (a), (b) and (c) above.
(1 mark)
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36. Which of the following documents is/are required to be filed along with the import bill of entry? Ans
 (a) Invoice wer
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(b) Indent and acceptance correspondence pertaining to the imported goods
(c) Bill of lading in respect of sea-consignment/airway bill in respect of air consignments
(d) Both (a) and (c) above
(e) (a), (b) and (c) above.
(1 mark)
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37. Ms.Ranjana receives an amount of Rs.1,00,000 towards the scholarship from the Book Syndicate Pvt. Ans
Ltd. for pursuing a course though it does not lead to any formal degree. In the given case which of the wer
following statements is true? >

(a) It is fully taxable as the scholarship is not given for the purpose of an educational degree
(b) Scholarship given for the purpose of the education is totally exempt irrespective of whether it is
for the purpose of getting a formal degree or not
(c) Scholarship to the extent of 50% is exempt as the same is not given for the acquiring of a degree
(d) It is not taxable as Ms.Ranjana is still a student and not an assessee
(e) Scholarships over and above Rs.50,000 are taxable.
(1 mark)
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38. Under which of the following circumstances, transfer of unutilized CENVAT credit is given to a Ans
manufacturer of final product? wer
>
(a) Shift of factory (b) Sale of factory (c) Lease of factory
(d) Merger of factory (e) All of the above.
(1 mark)
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39. The sale in course of exports is exempt from the central sales tax. Which of the following is/are treated Ans
as ‘sale in course of export’? wer
>
(a) Sale or purchase that occasions the export
(b) Sale is effected by a transfer of the documents of title to goods after the goods have crossed the
customs frontiers of India
(c) Exports through the agents
(d) Both (a) and (b) above
(e) (a), (b) and (c) above.
(1 mark)
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40. Which of the following mediclaim policies is not qualified for deduction under section 80D of the Ans
Income Tax Act, 1961? wer
>
(a) Mediclaim policy taken by an individual on his own health
(b) Mediclaim policy taken by an individual on the health of his dependent parents
(c) Mediclaim policy taken by a Hindu Undivided Family on the health of a member of HUF
(d) Mediclaim policy taken by a company on the health of its employees
(e) Mediclaim policy taken by an individual on the health of his dependent children.
(1 mark)
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41. Mr. Joseph who is a non-resident in India, for the assessment year 2004-05 furnishes the following Ans
information in respect of his income from various sources.: wer
>
Particulars Amount (Rs.)
Royalty received by him from the Indian government outside India 67,000
Technical fees received from an Indian company set up outside India in respect 1,25,000
of a project in Japan
Income from a business connection in India received in London 2,65,000
Professional fees received from a firm set up outside India 1,15,000
What is the taxable income of Mr. Joseph for the assessment year 2004-05?
(a) Rs.4,57,000 (b) Rs.1,82,000 (c) Rs.3,32,000 (d) Rs.5,72,000 (e) 3,90,000.
(2 marks)
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42. Veerendra is a non-specified employee of High-fi Ltd. who was provided one credit card by his Ans
employer. During the previous year 2003-04, the annual fees of the credit card amounting to Rs.800 was wer
paid by the employer. The value of taxable perquisite in the hands of Veerendra for the assessment year >
 2004-05 is
(a) Rs.800 (b) Rs.1,600 (c) Rs.1,000 (d) Rs.1,400 (e) Rs. Nil.
(2 marks)
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43. Mr.Susan retired from service on May 31, 2003 from a private company. He draws an amount of Ans
Rs.1,200 as pension till the end of October 2003 and thereafter commutes his pension to the extent of wer
60% and receives an amount of Rs.54,000. He also receives an amount of Rs.7,500 towards gratuity. >
What is the taxable portion of the pension for the assessment year 2004-05?
(a) Rs.8,400 (b) Rs.24,000 (c) Rs.32,400 (d) Rs.62,400 (e) Rs.60,000.
(2 marks)
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44. Mrs. Vijaya is an employee of a private company in the city of Ahmedabad. She draws an amount of Ans
Rs.75,000 as basic salary. Besides her employer also pays an amount of Rs.18,000 as HRA. As she stays wer
as a guest in her friend’s house, she takes a house on rent only from the month of October, 2003 @ >
Rs.1,250 per month. What is the exemption that she can claim in respect of the HRA received for the
assessment year 2004-05?
(a) Rs.3,750 (b) Rs.7,200 (c) Rs.14,250 (d) Rs.10,800 (e) Rs.18,000.
(2 marks)
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45. Ramdas Transports, a transport company grants the allowances to its drivers to meet their personal Ans
expenditure in the course of their duty. Mr. Ramesh is working as a driver from June 2003 and gets an wer
amount of Rs.1,05,000 as the allowance for the previous year 2003-04 and he is not in receipt of the >
daily allowance. What is the taxable portion of the allowance in the hands of Mr.Ramesh for the
assessment year 2004-05?
(a) Rs.33,000 (b) Rs.31,500 (c) Rs.27,600 (d) Rs.45,000 (e) Rs.15,750.
(2 marks)
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46. Mr.Irvin is an employee of a private company and draws an amount of Rs.1,25,000 as salary for the Ans
previous year 2003-04. His 3 children study in the school maintained by the employer the cost of which wer
to the employer is Rs.42,000. What is the taxable perquisite in respect of the education facility provided >
by the employer?
(a) Rs.24,000 (b) Rs.36,000 (c) Rs.21,000 (d) Rs.42,000 (e) Rs.6,000.
(2 marks)
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47. Mr.Vinay owns a house property that has been let out as per the details given below: Ans
wer
Municipal valuation Rs.1,76,000 >
Fair rent Rs.1,65,000
Standard rent Rs.1,70,000 The property has been let out at Rs.11,000 per
month upto October, 2003 with an increase of 15% thereafter. What is the net income from the property
for the assessment year 2004-05 in the hands of Mr.Vinay?
(a) Rs.1,76,000 (b) Rs.1,70,000 (c) Rs.1,40,250 (d) Rs.1,19,000 (e) Rs.1,65,000.
(2 marks)
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48. Ms.Megha is an employee of ABC Ltd. drawing a salary of Rs.20,000 per month. In addition to the Ans
employment in the company, she also holds 400 equity shares. ABC Ltd. offered right shares to the wer
existing shareholders on February 10, 2004, in the ratio of 1:1 at the rate of Rs.100 whereas the market >
price on that date is Rs.175. What is the taxable value of the perquisite in the form of right shares in the
hands of Ms.Megha for the assessment year 2004-05?
(a) Rs.30,000 (b) Rs.Nil (c) Rs.40,000 (d) Rs.70,000 (e) Rs.55,000.
(2 marks)
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49. Ms.Kavya works in a private company and her emoluments for the previous year 2003-04 are as under: Ans
wer
>
 Basic salary Rs.1,75,000
Dearness allowance (forming part of retirement benefits) Rs. 35,000
Bonus Rs. 25,000
Commission @ 5% on the turnover of Rs.6,00,000 Rs. 30,000
Contribution to the recognised provident fund Rs. 36,000 What is the
gross taxable income of Ms.Kavya for the assessment year 2004-05?
(a) Rs.2,29,000 (b) Rs.2,74,800 (c) Rs.2,65,000 (d) Rs.2,40,000 (e) Rs.1,82,400.
(2 marks)
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50. Mrs.Vani has a gross salary income of Rs.1,20,000 for the previous year 2003-04. Besides she also Ans
receives an amount of Rs.46,000 as family pension. What is the total standard deduction that she can wer
claim for the assessment year 2004-05? >

(a) Rs.30,000 (b) Rs.45,000 (c) Rs.15,000 (d) Rs.66,400 (e) Rs.40,000.
(1 mark)
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51. The standard rent of the property owned by Mr.Raghav is Rs.1,15,000. Its fair rent is Rs.1,00,000, Ans
municipal value is Rs.1,20,000 and the actual rent received for the previous year 2003-04 is Rs.1,12,500. wer
What is the gross annual value of the property to be considered for the assessment year 2004-05? >

(a) Rs.1,00,000 (b) Rs.1,20,000 (c) Rs.1,15,000 (d) Rs.1,12,500 (e) Rs.1,13,750.
(1 mark)
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52. Mrs. Ahalya is an employee of a private company and her salary details for the previous year 2003-04 are Ans
as under: wer
>
Basic salary Rs.3,00,000
Dearness allowance (not forming part of the salary) Rs. 30,000
Bonus Rs. 26,000
Commission Rs. 4,000
Leased/ furnished accommodation at a lease rent Rs. 50,000
Cost of the cane furniture (WDV as on April 1, 2003 Rs.8,000) Rs. 25,000
Rent of the other furniture (yet to be paid by the employer) Rs. 15,000
What is the gross salary of Mrs.Ahalya for the assessment year 2004-05?
(a) Rs.4,10,500 (b) Rs.3,95,500 (c) Rs.3,93,800 (d) Rs.4,13,500 (e) Rs.3,98,500.
(2 marks)
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53. Mr.Varun a government employee was drawing a salary of Rs.11,500 on April 01, 2003. On December Ans
31, 2003 his salary has been revised to Rs.12,750 with retrospective effect from September 01, 2002 and wer
the arrears were paid on March 01, 2004. The gross salary of Mr. Varun (before standard deduction) for >
the assessment year 2004-05 is
(a) Rs.1,41,750 (b) Rs.1,25,000 (c) Rs.1,61,750 (d) Rs.1,18,500 (e) Rs.1,23,000.
(2 marks)
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54. Consider the following particulars furnished by Mr. Jaisimha as on March 31, 2004: Ans
wer
Particulars Rs. >
Self occupied residential house property 12,00,000
Residential house let out for the entire previous year 18,00,000
Gold 4,00,000
Cars 2,00,000
Loan (taken to purchase cars) 1,00,000 The gross assessable
wealth of Mr. Jaisimha for the assessment year 2004-05 is
(a) Rs.4,00,000 (b) Rs.37,00,000 (c) Rs.2,00,000 (d) Rs.17,00,000 (e) Rs.3,00,000.
(2 marks)
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55. The written down value of a block of assets of Saturn Ltd. as on April 01, 2003 was Rs.2,75,000. The Ans
rate of depreciation for this block of assets is 30%. An asset which falls in this block of assets was wer
purchased for Rs.75,000 on June 15, 2003 and was put to use with effect from November 1, 2003. One of >
 the assets in the block was sold for Rs.2,80,000 on January 15, 2004. The amount of depreciation that
can be claimed by the company for the assessment year 2004-05 is
(a) Rs.21,000 (b) Rs.1,05,000 (c) Rs.76,000 (d) Rs.93,750 (e) Rs.10,500.
(2 marks)
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56. Ms.Shailaja purchased a house property for Rs.1,16,000 on June 7, 1977. The following expenses were Ans
incurred by her for making additions/alterations to the house property wer
>
1. Alteration/reconstruction of the property during the year 1994-95 Rs.1,25,000
2. Addition of two rooms in the second floor during the year 1995-96 Rs.1,00,000
The house property is sold by Ms.Shailaja on November16, 2003 for Rs.20,00,000. Brokerage and
expenses paid on transfer was at 1.5% of the sale proceeds. The fair market value of the property on
April 01, 1981 is Rs.3,00,000.
Cost inflation index:
1981-1982 100 2001-2002 426
1994-1995 259 2002-2003 447
1995-1996 281 2003-2004 463
The capital
gains taxable in the hands of Ms.Shailaja for the assessment year 2004-05 is
(a) Rs.1,64,769 (b) Rs.5,02,986 (c) Rs.1,92,776 (d) Rs.2,23,455 (e) Rs.3,88,224.
(2 marks)
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57. Mr. Zuber is the owner of a property which has been let out at Rs.12,000 per month. During the month Ans
July, 2003 the rent has been increased to Rs.16,000 with retrospective effect from October, 2002 and the wer
arrears of rent were received in January, 2004. The standard rent of the property is Rs.1,50,000, >
municipal value Rs.1,56,000 and the fair rent Rs.1,48,000 for both the years. An amount of Rs.22,000
was paid as the municipal taxes for both the years. What is the income from house property in the hands
of Mr.Zuber for the assessment year 2004-05?
(a) Rs.1,31,600 (b) Rs.1,19,000 (c) Rs.1,37,000 (d) Rs.1,24,400 (e) Rs.1,88,000.
(3 marks)
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58. Mr.Bhanu manufactures and sells designer dresses. The Profit and loss account of Mr.Bhanu for the year Ans
ended March 31, 2004 is as under: wer
>
Particulars Rs. Particulars Rs.
Salaries 1,80,000 Gross profit 5,75,000
Printing and stationery 42,000 Interest on fixed deposits 7,500
Traveling expenses 96,000
Administrative expenses 45,000
Depreciation 28,000
Other expenses 86,000
Provision for Income Tax 20,000
Net profit 85,500
5,82,500 5,82,500
Additional information:
i. Depreciation allowable under Income Tax Act, 1961 is Rs. 35,000.
ii. Salaries include Rs.57,000 paid to Mrs.Bhanu who is a diploma holder in fashion technology. She
was earlier working with M/s. Samay Textiles at a salary of Rs.6,500 per month.
iii. During the previous year 2003-04, Mr.Bhanu paid Rs.9,000 towards the mediclaim insurance
premium on the health of his wife.
What is the taxable income of Mr.Bhanu for the assessment year 2004-05?
(a) Rs.89,500 (b) Rs.82,000 (c) Rs.62,000 (d) Rs.91,000 (e) Rs.1,39,000.
(2 marks)
<
59. Mr.Neeraj who works as an officer in a private company uses his own car (of 1250 c.c.) for both official Ans
and the private purposes and the running and maintenance expenses are borne by the employer. His wer
employer incurs an amount of Rs.60,000 on the car. He recovered an amount of Rs.15,000 from >
 Mr.Neeraj towards the car expenses. What is the taxable value of the perquisite in respect of the car for
the assessment year 2004-05in the hands of Mr.Neeraj?
(a) Rs.45,000 (b) Rs.14,400 (c) Rs.60,000 (d) Rs.30,600 (e) Rs.45,600.
(2 marks)
<
60. Mr. Johnny is a farmer and his agricultural income is Rs.80,000 for the assessment year 2004-05. He also Ans
has a business, the income from which is Rs.1,15,000 during the previous year 2003-04. The tax liability wer
of Mr. Johnny for the assessment year 2004-05 is >

(a) Rs.32,500 (b) Rs.12,000 (c) Rs.17,500 (d) Rs.27,500 (e) Rs.26,500.
(2 marks)
<
61. Mr.Yash an importer presented a bill of entry to the Customs Authorities on January 10, 2004, though the Ans
expected date of arrival of the vessel containing his cargo was only January 31, 2004. The duty to be wer
charged by the assessing officer in respect of this cargo is >

(a) The rate prevailing on January 10, 2004, the date on which the bill of entry is submitted
(b) The rate prevailing on January 31, 2004, the expected date of the arrival of the cargo
(c) Average rate prevailing between the date of submission of the bill of entry and the actual arrival of
the cargo
(d) Rate prevailing on the date on which the entry inward is granted to the importer
(e) At 15% on the value of the cargo imported.
(2 marks)
<
62. Mr. Manohar has furnished his income/loss details for the assessment year 2004-05 as under: Ans
wer
Particulars Rs. >
Income from salaries (net) 1,70,000
Income from speculation business 30,000
Loss from non-speculation business (25,000)
Short term capital gain 90,000
Long term capital loss (70,000) The total
taxable income of Mr. Manohar for the assessment year 2004-05 is
(a) Rs.2,35,000 (b) Rs.2,65,000 (c) Rs.2,80,000 (d) Rs.3,10,000 (e) Rs.2,60,000.
(2 marks)
<
63. X is an employee of a private company and draws the following emoluments: Ans
wer
Basic Rs.1,25,000 >
Bonus Rs. 12,000
Commission Rs. 10,000 Besides the employer also
reimburses the telephone expenses of Rs.16,000.
What is the taxable salary (gross) for the assessment year 2004-05?
(a) Rs.1,63,000 (b) Rs.1,47,000 (c) Rs.1,33,000 (d) Rs.1,38,000 (e) Rs.1,17,000.
(2 marks)
<
64. Mr.Santhanam is in receipt of the following incomes for the assessment year 2004-05: Ans
wer
Particulars Rs. >
Profits and gains from business or profession 3,35,000
Long-term capital gains 2,00,000
Total income 5,35,000 Mr. Santhanam
does not own any house and stays in a rented house and pays a rent of Rs.6,250 per month. The amount
of deduction Mr. Santhanam can claim under section 80GG of the Income Tax Act, 1961 for the
assessment year 2004-05 is
(a) Rs.33,000 (b) Rs.42,000 (c) Rs.24,000 (d) Rs.83,750 (e) Rs.41,500.
(2 marks)
 <
65. The gross maintainable rent of a house according to Part B of Schedule III of the Wealth Tax Act, 1957 is Ans
Rs.2,75,000. If the tenant pays the municipal taxes of Rs.17,000 for the previous year 2003-04 the net wer
maintainable rent of the house for wealth tax purpose as on March 31, 2004 is >

(a) Rs.2,25,000 (b) Rs.2,03,000 (c) Rs.2,30,500 (d) Rs.2,33,750 (e) Rs.2,16,750.
(2 marks)
<
66. M/s.Godwyn, a manufacturer in Chennai, appointed Daffodils of Hyderabad as its consignment agent. Ans
The total transfers to Daffodils for the previous year 2003-04 were Rs.150 lakhs and the total sales of wer
M/s Godwyn to other states were Rs.395 lakhs (including the transfers to Daffodils). What is the amount >
of the sales to be assessed as inter state sales of M/s Godwyn for the assessment year 2004-05?
(a) Rs.395 lakhs (b) Rs.245 lakhs (c) Rs.410 lakhs (d) Rs.434 lakhs (e) Rs. Rs.168 lakhs.
(2 marks)
<
67. Mr.Sam receives an amount of Rs.1,200 per month towards the domestic servant allowance. He pays an Ans
amount of Rs.400 for the gardener and Rs.350 for the sweeper per month. What is the taxable value of wer
the perquisite in the hands of Mr.Sam for the assessment year 2004-05? >

(a) Rs.750 per month (b) Rs.450 per month (c) Rs. 400 per month (d)
Rs.1,200 per month (e) Rs.350 per month.
(1 mark)
<
68. Mrs. Rama has invested an amount of Rs.30,000 in the shares of a public company engaged in the Ans
infrastructure activities together with an amount of Rs.50,000 in the public provident fund for the wer
previous year 2003-04. What is the maximum amount that qualifies for the purpose of rebate under >
section 88?
(a) Rs.80,000 (b) Rs.70,000 (c) Rs.50,000 (d) Rs.60,000 (e) Rs.40,000.
(1 mark)
<
69. Mr.Bharat gifts Rs.1,50,000 to his wife, who invests it in a partnership firm. Mrs. Bharat received an Ans
amount of Rs.47,000 as her share in the profit of the firm. The salary of Mr.Bharat (after deducting wer
standard deduction) is Rs.3,75,000 for the previous year 2003-04. The amount of taxable income of Mr. >
Bharat for the assessment year 2004-05 is
(a) Rs.3,75,000 (b) Rs.4,15,000 (c) Rs.3,50,000 (d) Rs.4,22,000 (e) Rs.4,78,000.
(2 marks)
<
70. Consider the following data pertaining to Mrs.Syamala for the previous year 2003-04: Ans
wer
Particulars Rs. >
Salary from a private company 5,20,000
Professional Tax paid 2,000 The standard deduction that Mrs.Syamala can
claim under the head salaries for the assessment year 2004-05 is
(a) Rs.20,000 (b) Rs.30,000 (c) Rs.25,000 (d) Rs.40,000 (e) Rs.Nil.
(3 marks)
<
71. Mrs. Tanuja, a distributor of newspapers in the city of Hyderabad receives Times of India from Bombay Ans
for sale in Hyderabad. This transaction results in a sale of Rs.75,000 for the year 2003-04. The total sales wer
are >

(a) Taxable under the Central Sales Tax Act

(b) Taxable under the Maharashtra Sales Tax Act
(c) Taxable under the A P General Sales Tax Act
(d) Not liable to tax
(e) Both (b) and (c) above.
(2 marks)

END OF QUESTION PAPER

 Suggested Answers
Economic Legislation II (162) – July 2004
1. Answer : (e) < TOP >

Reason : Income of the previous year is taxable in the immediately following assessment year. But there
are certain exceptions to this rule.
(a) Income from the shipping business of a non resident
(b) Income of persons leaving India either permanently or for a long period time
(c) Income of bodies formed for a short duration of time
In all the above cases, the income is chargeable to tax in the year in which it is earned.
2. Answer : (b) < TOP >

Reason : As per the Income Tax Act, 1961, individuals, HUF, AOP, BOI and every artificial juridical
person can avail basic exemption limit of Rs.50,000 and slab rates. However the income of firms
and companies is chargeable at a flat rate and there is no basic exemption limit.
3. Answer : (b) < TOP >

Reason : The gratuity received by the legal heirs of a deceased employee (while in service), cannot be
treated as income if the same had not accrued before the death of the employee. The gratuity only
becomes due after retirement either on superannuation or VRS. As the salary is taxable on the
due or the receipt basis whichever is earlier and in this case it has neither become due nor
received before the death of the employee, it cannot be treated as income either in the hands of
the deceased employee or his legal heirs. Arvind Bhogilal v. CIT (1976) 105 ITR 764(Bom.).
Hence the option (b) that the same is treated as income in the hands of the legal heirs is false.

4. Answer : (d) < TOP >

Reason : Incase of an accommodation provided to an employee in a hotel, the perquisite value will be the
lower of 24% of the salary paid or payable for the previous year or the actual expenses incurred
for the period during which such accommodation is provided.
5. Answer : (e) < TOP >

Reason : The HUF can be either a resident and ordinarily resident, resident but not ordinarily resident or a
non resident as per the provisions of the Income tax Act
6. Answer : (d) < TOP >

Reason : Duty is payable on samples even if they are not sold except in the cases where they are preserved
in the factory for investigation of complaints(d). Trade samples sent to customers for trial,
samples for market enquiries, samples drawn by Central Excise officers in respect of procedure
relating to assessment, are subject to levy of excise duty.
7. Answer : (e) < TOP >

Reason : (a) The farm is situated on or within the vicinity of the land used for the agricultural operations
and has been assessed to land revenue
(b) It is occupied for dwelling purpose by the cultivator or the receiver of rent-in-kind
(c) It is used as a store house by the cultivator or a receiver of rent-in-kind
In all the above cases, the income is treated as the agricultural income.
8. Answer : (c) < TOP >

Reason : The loss on account of the depreciation of funds kept in foreign currency for the capital purposes
is not deductible from the income under the head business or profession. All other losses are
deductible.
9. Answer : (e) < TOP >

Reason : Both the public and the private sector employees can avail the benefit of the tax exemption in
respect of the salary surrendered to the government, if the same is done under section 2 of the
Voluntary surrender of salaries (Exemption from Taxation) Act, 1961. Hence the option
 (e) that the private sector employees cannot avail the benefit is false. All the other alternatives are
true statements.
10 Answer : (e) < TOP >
. Reason : Section 11 of the Customs Act 1962 gives power to the Central Government to prohibit import or
export of goods of specified description, by notification in the official Gazette, for certain
purposes. The purposes are provided in subsection (2) of Section 11 of the Act and include all the
purposes given in options (a), (b), (c) & (d).
11. Answer : (d) < TOP >

Reason : The amount of the scholarship given by the employer to the children of its employees solely at its
discretion without reference to the terms of the employment is not assessed as a perquisite in the
hands of the employees. CIT v. M.N.Nadkarni (1986) 161 ITR 544 (Bom.)
12 Answer : (d) < TOP >
. Reason : Derelict means a vessel or cargo which is abandoned in sea without any hope or intention of
recovering it. In Jetsam and Floatsam, though the goods are thrown into the sea, the owner has no
intention to abandon it without any hope of recovery. Wreck means the property cast ashore after
the ship wreck. Hence the option (d) is correct.
13 Answer : (c) < TOP >
. Reason : Options (a), (b), (d) and (c) are to be included in the assessable value, the value of the imported
goods shall not include the following charges or costs if they can be distinguished from the price
actually paid or payable for the imported goods.
– Charges for the construction, erection, assembly maintenance or technical assistance
– The cost of transport after importation
– Duties and taxes in India.
Hence the option (c) is the answer.
14 Answer : (a) < TOP >
. Reason : For the purposes of the capital gains only a sale, exchange or relinquishment is treated as a
transfer and all the other options are not transfers for the above purpose.
15 Answer : (e) < TOP >
. Reason : As per the provisions of the section 31 of the Customs Act, the master of the vessel should not
permit the unloading of any imported goods until an order has been given by the proper officer
granting the entry inwards to such vessel. This grant of entry inwards is issued subject to the
furnishing of the import manifest by the importer or satisfying the proper officer about the
reasons for the non-submission of the same. Hence the option (e) is the answer.
16 Answer : (d) < TOP >
. Reason : The rule that the income from the ownership of the house property is taxable under the head
income from house property has the following exceptions:
If letting is only incidental and subservient to the main business of the assessee
Where the income received is not from the bare letting of the tenement or from the letting
accompanied by incidental services, but the subject hired out is a complex one.
Hence the option (d) is the correct answer. The income under the options (a), (b) and (c) is
taxable under the head income from the house property.
17 Answer : (d) < TOP >
. Reason : The rate of the excise duty is the rate prevailing at the time of removing the goods from the
factory.
18 Answer : (c) < TOP >
. Reason : Where the imported goods have been put to use for a period of less than 6 months. The duty draw
back as specified by the govt. is 85%.
19 Answer : (d) < TOP >
. Reason : The following are the exempted perquisites:
(a) Laptop hired by the employer and given to an employee for both official and personal use
 (b) Transport facility to the employees of the railways and airlines
(c) Transfer without any consideration of any movable asset (excluding car, computer,
electronic items) after using it for a period of 10 years
(e) Tax on the perquisite-in-kind paid by the employer.
The option (d) i.e the transport facility provided to the employees of transport undertaking other
than airlines and railways is taxable to the extent of the cost of such benefit to the employer as
reduced by any amount recovered from the employee.
20 Answer : (d) < TOP >
. Reason : As per the definition of the manufacture as per the Act, a new and different article must emerge
having a distinct name and character or use.
(a) Making of vanaspati, (b)galvanizing of steel, (c) recharging of battery (e) cutting and
polishing of diamond are not considered as manufactureunder section 2 (f) of the Central Excise
Act,1944 as they do not result in the making or the emerging of a new product. Option (d)
Making of ice from water is a manufacture as it results in the emerging of a new product ice
from the source water.
21 Answer : (a) < TOP >
. Reason: Any capital gain arising from the transfer of the house property by an individual or a HUF, is
exempted from the tax only if it has been held for a period of more than 36 months before the
sale or the transfer of the same.
< TOP >
22 Answer : (e)
. Reason : (a) Litigation expenditure incurred for curing any defect in the title of the assets
(b) Fees paid for the increase in the authorised capital
(c) Payments made for the acquisition of the goodwill
(d) Amount expended for acquiring a business or a right of a permanent character
All the above expenses are not deductible under the provisions of section 37(1). Hence the option
(e) is correct.
< TOP >
23 Answer : (e)
. Reason : The salary as defined by the provisions of the section 17(1) of the income tax act includes
(b) Gratuity and pension (b) Advance salary and leave salary (c) Fees and commission.
Hence the option (e) is the correct answer.
24 Answer : (c) < TOP >
. Reason : As per the section 2(28) of the Customs Act, the Indian Customs Waters is defined as the waters
that extend upto 12 nautical miles in the sea. This definition is important as the Customs officers
have the powers to arrest any person, stop and search any vessel in India or within the Indian
Customs Waters. Hence the option (c) is correct.
25 Answer : (e) < TOP >
. Reason : According to Section 11 and 12 of the Income Tax Act, the income of charitable/religious trust is
chargeable to tax as if it is the income of an association of persons. The other alternatives are
being defined under Section 2(31) of the Act as
(a) (a) Individual means only a natural person i.e. a human being.
(b) (b) Hindu undivided family consists of all person legally descended from a common
ancestor and includes their wives and unmarried daughters.
(c) A company means and includes any Indian company, or a company incorporated under the
laws of foreign country or any institution or a body, or association incorporated under the
Companies Act, 1956,
(d) A firm is a taxable entity separate and distinct from its partners.
Thus, the alternatives (a), (b), (c) and (d) cannot be called as religious trust
26 Answer : (a) < TOP >
. Reason : As per the provisions of the section 10(5), an assessee can avail the benefit of the leave travel
concession for two journeys in a block of 4 calendar years.
27 Answer : (e)
. Reason : A certificate of registration may be amended under CST Act 1956, • <
(a) Where the dealer changes his place of business T
O
(b) Where there is a change in the goods dealt with by the dealer P
(c) Where there is a change in the constitution of the firm >
(d) Where there is a change in business.
If an assessee discontinues his business, he may voluntarily apply for cancellation of the
certificate and as such the registration cannot be amended in case of discontinuance of business.
28 Answer : (b) < TOP >
. Reason : Form G under CST Act relates to the indemnity that is required to be furnished by the dealer in
matters of security deposit (7A).
29 Answer : (e) < TOP >
. Reason : As per the provisions of the Central Excise Act, the following persons shall be deemed to be
related if
• • They are inter-connected undertakings
• • They are relatives
• • Amongst them the buyer is a relative and the distributor of the assessee or a sub-
distributor
• • They are associated in such a manner that they are interested directly or indirectly in
the business of each other.
Ancillary units, which have come up on their own finance and function independently, are not
related undertakings. Hence the above provisions do not cover the sale by a parent to a self-
reliant ancillary unit.
30 Answer : (a) < TOP >
. Reason : The basic exemption under the wealth tax is Rs.15,00,000.
31 Answer : (b) < TOP >
. Reason: From the assessment year 2004-05, the payments made in respect of the premia on the life
insurance policies are restricted to 20% of the assured value of the policy.
32 Answer : (b) < TOP >
. Reason : The following statements are true.
(a) The rebate is allowed at 20% of the net qualifying amount if the gross total income does not
exceed Rs.1,50,000
(b) The rebate is allowed at 30% of the net qualifying amount if the income under the head
salaries does not exceed Rs.1,00,000 before the standard deduction and salary forms 90%
of the gross total income
(c) The rebate is allowed at 15% of the net qualifying amount if the gross total income exceeds
Rs.1,50,000 but does not exceed Rs.5,00,000.
(d) The rebate is not allowed if the gross total income exceeds Rs.5,00,000.
The rebate is allowed at 25% of the net qualifying amount if the gross total income does not
exceed Rs.1,50,000 is not correct. Hence the option (b) is the answer.
33 Answer : (d) < TOP >
. Reason : As per the provisions of the Wealth Tax Act, the urban land situated within the limits of a
municipality or a cantonment board and having a population of more than 10,000 is treated as an
asset and all the other option (a) to ( c) are incorrect. Hence the correct answer is option (d).
34 Answer : (c) < TOP >
. Reason : An assessee in order to avail the rebate under sections 88B/88C need not be of 65 years and
above or below 65 years respectively for the entire previous year. Hence in the given case as she
was below 65 years till October, 2003, and above 65 years as at the end of the previous year, she
can avail the rebate under all the three sections 88, 88B and 88C.
< TOP >
35 Answer : (d)
. Reason : As per the provisions of the section 2(d) of the Central Sales tax Act, the goods include all
material, articles, commodities and all kinds of movable property but does not include the
actionable claims, stocks, shares and securities. It excludes the plant and machinery assembled at
site if it is not marketable, from the definition of the goods. But the goods of intangible nature
like the lottery tickets, sale of the copyright, advance license etc. are treated as goods.
Hence the option (d) is correct.
36 Answer : (e) < TOP >
. Reason : All the documents mentioned in (a), (b) and (c) are required to be filed along with the import bill
of entry.
37 Answer : (b) < TOP >
. Reason : As per the provisions of section 10(16) of the Income Tax Act, 1961, scholarship, once proved,
will be fully exempt from the tax irrespective of the terms of the award. .i.e. even if the
scholarship is received for pursuing a course of education not leading to a degree. A Ratnakar
Rao v.CIT (1981) 6 Taxman 144 (Kar.)
38 Answer : (e) < TOP >
. Reason : Rule 8 of the CENVAT Credit rules 2001 enables, a manufacturer of the final product to transfer
the CENVAT credit lying unutilized in his account, in the event of shift of his factory to another
site, change in ownership on account of sale, merger, lease, amalgamation, transfer to a joint
venture, with the specific provision for transfer of liabilities of such factory.
39 Answer : (e) < TOP >
. Reason : As per the section 5 of the Central Sales Tax Act, a sale or purchase is said to be in the course of
export if :
• • The sale or purchase occasions such export
• • The sale is effected by a transfer of the documents of title to goods after the goods
have crossed the customs frontiers of India.
• • Exports arranged through the agents are also a part of the sale in the course of exports.
Hence the option(e) is correct.
40 Answer : (d) < TOP >
. Reason : Only an individual and a Hindu Undivided Family can claim deduction under section 80D. Hence
Mediclaim policy taken by a company on its employees is not eligible for deduction under
section 80D.
41 Answer : (c) < TOP >
. Reason : Calculation of the taxable income of Mr.Joseph for the assessment year 2004-05
Rs.
Royalty received from the Indian government 67,000
Technical fees received from an Indian company setup outside India in respect of
a project set up in Japan( It is a foreign income and hence not taxable in the hands –
of a non-resident)
Income from a business connection in India received in London 2,65,000
Professional fees received from a firm set up outside India (not taxable in the –
hands of a non-resident as the profession is set up outside India and hence it is
foreign income)
Total taxable income 3,32,000
42 Answer : (a) < TOP >
. Reason : The amount of expenses including membership fees and annual fees incurred by the employee or
any member of his household, which is charged to a credit card provided by the employer (or
otherwise paid or reimbursed by the employer) shall be taken to be the value of perquisite
chargeable to tax. It is taxable in the hands of all employees whether specified or not. Hence the
value of taxable perquisite is Rs.800.
43 Answer : (c) < TOP >
. Reason : Calculation of the taxable pension of Mr.Susan for the assessment year 2004-05:
 Calculation of the uncommuted pension:

Rs.
June to October, 2003 (Rs.1,200 x 5) 6,000
November, 2003 to March, 2004 (Rs.1,200x40%x5) 2,400
Total uncommuted pension 8,400 Calculation of
the commuted pension:
Rs.
Commuted value of the 60% of the normal pension 54,000
Commuted value of the full pension (Rs.54,000x100/60) 90,000
As Mr.Susan receives gratuity, only 1/3 is of the commuted pension is exempt (90,000/3) 30,000
Taxable portion of the commuted value of the pension (54,000-30,000) 24,000
The taxable pension in the hands of Mr.Susan for the assessment year 2004-05 is
Rs.32,400. (8,400 + 24,000)
44 Answer : (a) < TOP >
. Reason : Calculation of the taxable portion of the HRA in the hands of Mrs. Vijaya.
As she had taken the house on rent only for a part of the year, the exemption is calculated in
respect of that period only. For the rest of the period, HRA is fully taxable.
Monthly salary Rs.75,000/12 Rs.6,250
Monthly HRA Rs.18,000/12 Rs.1,500
Rent paid per month Rs.1,250
As the house is situated in the city of Ahmedabad, the least of the following is exempt from tax;
(monthly bsis)
40% of the salary (Rs.6250x40%) Rs.2,500
Actual HRA received Rs.1,500
Excess of rent paid over 10% of salary
(Rs.1,250-Rs.625 (Rs.6,250x10%) Rs.625
Rs.625 per month being the least of the above is exempt and the balance HRA is taxable.
Therefore the total taxable portion of the HRA in the hands of Mrs. Vijaya for the assessment
year 2004-05 is
HRA received (Rs.1,500x12) Rs.18,000
Exempted HRA ( Rs.625 x 6) Rs.3,750
Taxable HRA Rs.14,250
(The exemption is calculated only for 6 months as she has taken the house on rent only from
October, 2003).
45 Answer : (d) < TOP >
. Reason : The exemption in respect of the allowances received by the transport employees during the
course of their duties is taken as the least of the following two:
70% of the allowance received Rs.1,05,000x70% 73,500
Rs.6,000 per month Rs.6,000x10 60,000
Rs.60,000 being the lower of the above, is exempted and the balance is taxable.
Therefore the taxable portion of the allowance is Rs.1,05,000-Rs.60,000= Rs.45,000.
It is calculated only for 10 months as Mr.Ramesh is employed only from June 2003.
46 Answer : (e) < TOP >
. Reason : As per the provisions of the section 17(2) dealing with the perquisites, the free educational
 facility provided by the employer in an institute maintained by him, to the employees children is
exempted to the extent of Rs.1,000 per child. There is no restriction on the number of children. In
the given case the exemption is calculated as under:
Rs.1,000x3x12 =Rs.36,000
Taxable perquisite = Rs.42,000-R.36,000=Rs.6,000.
47 Answer : (d) < TOP >
. Reason : Computation of the annual value of the property of Mr.Vinay for the assessment year 2004-05:

Rs.
Municipal value 1,76,000
Fair rent 1,65,000
Standard rent 1,70,000
Step I : Municipal value or the fair rent whichever is higher subject to a maximum of 1,70,000
the standard rent (i.e Rs.1,65,000 orRs.1,76,000 subject to a max.of Rs.1,70,000)
Step II Actual rent received ((Rs.11,000x7) + (Rs.12,650x 5) 1,40,250
The standard rent as per the step I being higher than the rent actually received, the same 1,70,000
is treated as the annual value
Less: Standard deduction @ 30% 51,000
Net income from house property 1,19,000
48 Answer : (b) < TOP >
. Reason : The benefit arising out of an offer of shares at a price lower than the market price, on further
issue of capital under section 81(1)of the Companies Act, made to the existing shareholders is not
taxable in the hands of the employee who is a shareholder and receives the benefit qua
shareholder. Hence in the given case the benefit arising to Ms. Megha (400 shares x (175-100)
Rs.30,000 is not a taxable perquisite.
49 Answer : (c) < TOP >
. Reason : Taxable income of Mrs.Kavya for the assessment year 2004-05
Rs
Basic salary 1,75,000
Dearness allowance (forming part of retirement benefits) 35,000
Bonus 25,000
Commission @ 5% on the turnover of Rs.6,00,000 30,000
Gross taxable salary 2,65,000
50 Answer : (b) < TOP >
. Reason : The standard deduction under section 16(i) is Rs.30,000 and the standard deduction under section
57(iii) in respect of the family pension is Rs.15,000. Hence the total standard deduction for the
year is Rs.45,000.
51 Answer : (c) < TOP >
. Reason : The gross annual value is considered as under:
Step I : The municipal value or the fair rent whichever is higher subject to the maximum of the
standard rent. In the given case, the municipal value is Rs.1,20,000, fair rent is
Rs.1,10,000 and the standard rent is Rs.1,15,000. Hence the standard rent of
Rs.1,15,000 is considered.
Step II: The actual rent received or the value as per step I which ever is higher is considered for
the purpose of the gross annual value.
The value as per step I is Rs.1,15,000
Actual rent received is Rs.1,12,500.
Hence the value as per step I being the higher of the above two, it is considered as the gross
annual value.
52 Answer : (a) < TOP >
.
 Reason : Calculation of the taxable salary of Mrs.Ahalya for the assessment year 2004-05:

Rs.
Basic salary 3,00,000
Dearness allowance (not forming part of the retirement benefits) 30,000
Bonus 26,000
Commission 4,000
Perquisite- Rent free furnished accommodation
10% of salary or the lease rent whichever is lower
10%(Rs.3,00,000+Rs.26,000+Rs.4,000) or Rs.50,000 whichever is less Rs.33,000
Cost of furnishing
10% of the original cost Rs.2,500
Hire charges (paid or payable) Rs.15,000 Rs.17,500 50,500
Total taxable salary 4,10,500
53 Answer : (c) < TOP >
. Reason : Salary for 9 months April 2003 –December 2003 = Rs.11500x 9 = Rs.1,03,500
Salary for 3 months January 2004 – March 2004 = Rs.12,750x 3 = Rs.38,250
Arrears from September 2002 to December 2003 = 16 x 1,250 = Rs.20,000
Total salary = Rs.1,61,750
54 Answer : (d) < TOP >
. Reason :
Self occupied residential house property 12,00,000
Residential house (let out for more than 300 days during the previous year) ––
Gold 4,00,000
Cars 2,00,000
Less: Loan (taken to purchase cars) (1,00,000)
Gross wealth 17,00,000
55 Answer : (e) < TOP >
. Reason : The value of block of assets as on April 01, 2003 = Rs.2,75,000
The value of asset purchased = Rs.,75,000
Total value of the block = Rs.2,75,000 + Rs.75,000 = Rs.3,50,000
Sale of an asset = Rs.2,80,000
Value of block of assets after the sale = Rs.3,50,000 – Rs.2,80,00 = Rs.70,000
Depreciation rate of the new asset is half of 30% = 15% (since the asset is put to use for less than
180 days)
Hence, depreciation for the assessment year 2004-05 is Rs.70,000x 15% = Rs.10,500
56 Answer : (c) < TOP >
. Reason : Computation of capital gains in the hands of Mrs. Shailajafor the Assessment year 2004-05
 Particulars Rs. Rs.
Sale consideration 20,00,000
Less: Indexed cost of acquisition
13,89,000
(working note i)
Indexed cost of improvement
3,88,224
(working note ii)
17,77,224
Expenditure on transfer(1.5%
30,000 18,07,224
on Rs.20,00,000)
Long term capital gain 1,92,776

Working Notes:
Rs.
Indexed cost of acquisition
Cost of acquisition (June 7, 1977) 1,16,000
Fair market value as on April 1, 1981 3,00,000
Cost of a acquisition or fair market value as on April 1, 1981, higher of the two 3,00,000
Amount to be considered for Indexation 3,00,000
Indexed cost of acquisition = Rs.3,00,000 x 463/100 13,89,000
Indexed cost of improvement:
Expenditure incurred for improvement:
1994-95 – Alteration/Reconstruction (Rs.1,25,000 ×463/259) 2,23,455
1995-96 – Construction of 2nd Floor (Rs.1,00,000x463/281) 1,64,769
∴ Indexed cost of improvement 3,88,224
57 Answer : (a) < TOP >
. Reason : Calculation of the income from the property of Mr.Zuber:
Asst. year Asst. year
2003-04 2004-05
(Rs.) (Rs.)
Step I (Municipal value or the fair rent whichever is higher 1,50,000 1,50,000
subject to a maximum of the standard rent)
Actual rent received (Rs.12000 x 12) (Rs.16,000 x 12) 1,44,000 1,92,000
Annual value (Value as per step I or the actual rent whichever 1,50,000 1,92,000
is higher)
Less Municipal taxes paid 22,000 22,000
Net annual value 1,28,000 1,70,000
Less the standard deduction under section24 (30% of the NAV) 38,400 51,000
Income from the house property 89,600 1,19,000

Arrears of the rent received during the previous year 2003-04: (for the year 2002-03)
 Rs.
Gross annual value of the pervious year 2002-03 if rent is 1,68,000
increased from October, 2002 (Rs.12,000 x 6)+(Rs.16,000 x 6)
Less the gross annual value considered earlier 1,50,000
Arrears of rent received 18,000
Less 30% standard deduction 5,400
Amount taxable in the year of receipt 12,600
Hence
the income from the house property in the assessment year 2004-05 is
Income from the property for the previous year 2003-04 Rs.1,19,000
Arrears of rent for the previous year 2002-03 Rs.12,600
Total Rs.1,31,600
58 Answer : (b) < TOP >
. Reason : Computation of taxable income of Mr. Bhanu for the assessment year 2003-2004:

Particulars Rs. Rs.

Net profit as per Profit and loss account 85,500
Add Provision for Income tax 20,000

1,05,500
Less: Excessive depreciation (allowed by IT authorities) 7,000
Interest on fixed deposits is not a business income 7,500
14,500

Business income 91,000

Income from other sources:
Interest on fixed deposits 7,500
Gross total income 98,500
Less: Deductions:
Under section 80D for Mediclaim insurance premium 9,000
Under section 80L – interest on deposits 7,500 16,500
Net Income 82,000
Note: Section 40A(2) will not be attracted in respect of salary paid to Mrs.Bhanu as she was
earlier employed with M/s. Samay Textiles and she is a diploma holder in fashion technology.
Also clubbing provisions will not be applicable.
59 Answer : (d) < TOP >
. Reason : Where the car is owned by the employee and the expenses are borne by the employer and the car
is used both for official and the private purposes, the value of the perquisite is calculated as
under:
Rs.
Step I Actual expenditure incurred by the employer Rs.60,000
Less the standard amount allowed to be deducted in respect Rs.14,400
of
the use of the car for the official purposes (Rs.1,200 per month)
Less the amount recovered from Mr.Neeraj Rs.15,000
Amount taxable as a perquisite Rs.30,600
60 Answer : (c) < TOP >
. Reason : Aggregate of non-agricultural income and agricultural income is Rs.1,15,000 + Rs.80,000 =
 Rs.1,95,000
Tax on Rs.1,95,000 = Rs.32,500
Aggregate of agricultural income and basic exemption limit is
Rs.80,000 + Rs.50,000 = Rs.1,30,000
Tax on Rs.1,30,000 = Rs.15,000
The difference between tax on Rs.1,95,000 and tax on Rs.1,30,000 is Rs.17,500
Tax liability of Mr.Johnny is Rs.17,500
61 Answer : (d) < TOP >
. Reason : Section 46(3) of the Customs Act, allows the importer to present the bill of entry upto 30 days
before the expected date of the arrival of the vessel to facilitate the quick clearance of the cargo.
The duty will be payable at the rate applicable on the date on which the entry inward is granted to
the vessel and not the date of presentation of the shipping bill.
62 Answer : (b) < TOP >
. Reason : Taxable income of Mr. Manohar for the assessment year 2004-05:

Particulars Rs. Rs.

Income from salaries(net) 1,70,000
Income from speculation business 30,000
Less: loss from non-speculation business (25,000) 5,000
Short term capital gain 90,000

Taxable income(gross) 2,65,000

Loss
from non-speculation business can be set off against income from speculation business. Long-
term capital loss can be set off against only long-term capital gain with effect from assessment
year 2003-04.
63 Answer : (b) < TOP >
. Reason : The taxable salary (gross) is calculated as under:
Basic Rs.1,25,000
Bonus Rs.12,000
Commission Rs.10,000
Total Rs.1,47,000
The reimbursement or the payment of the tel bills by the employer is not taxable perquisite.
64 Answer : (c) < TOP >
. Reason : Deduction under section 80GG is least of the following:
Rs.2,000 per month = Rs.24,000 per annum.
25% of total income (excluding long term capital gains) i.e. Rs.3,35,000 x 25% = Rs.83,750
Excess of rent paid over 10% of total income (excluding long term capital gains) = (Rs6,250 x
12) – (Rs.3,35,000 x 10%) = Rs.41,500
Hence deduction under section 80GG is Rs.24,000
65 Answer : (e) < TOP >
. Reason :
 Rs. Rs.
Gross maintainable rent 2,75,000
Less:Municipal taxes 17,000
15% of gross maintainable rent 41,250 58,250
Net maintainable rent 2,16,750
66 Answer : (b) < TOP >
. Reason : A consignment agent sells the goods on behalf of the principal. He collects sale proceeds and
remits the same to the principal and gets a commission for the same. It cannot be treated as the
interestate sale though the principal and the agent are in different states. Hence in the given case,
the transfer of the goods to the agents cannot be included as interstate sale.
(395 – 150 = 245 laks)
67 Answer : (d) < TOP >
. Reason : The perquisite value in respect of the domestic servants is the actual expenditure incurred by the
employer and this calculation will not consider the amount recovered from or actually spent by
the employee. Hence in the given case, the entire amount of Rs.1,200 per month is the taxable
value
68 Answer : (a) < TOP >
. Reason : The maximum amount that qualifies for the deduction under section 88 of the Income Tax Act,
1961 is Rs.70,000 + Rs.30,000 (Rss.1,00,000) i.e Rs.70,000 by way of investments, contribution
etc. to the specified schemes like PPF, NSC, LIC etc. and an additional amount of Rs.30,000 by
way of the deposit in the companies engaged in the infrastructure development. Hence the total
amount that qualifies for deduction is Rs.80,000 (Rs.50,000 + Rs.30,000).
69 Answer : (a) < TOP >
. Reason : The income from the gifted property is to be included in the income of the transferor. However,
in the given case, the income received is in the form of share of profit from the firm, which is
exempt from tax under section 10(2A). Hence the taxable income of Mr. Bharat is Rs.3,75,000
70 Answer : (a) < TOP >
. Reason : The standard deduction is calculated as under:
Gross salary from the company Rs.5,20,000
Less Profession tax Rs. 2,000
Less the standard deduction Rs. 20,000
Standard deduction is given at the rate of Rs.20,000 if the gross salary after the deduction in
respect of the profession tax and the entertainment allowance is more than Rs.5,00,000.
71 Answer : (d) < TOP >
. Reason : Transactions involving the distribution of the newspapers is not liable to sales tax. Newspapers
though treated as goods are specifically exempt from the purview of the tax on the inter state
sales of the goods. A H Wheeler and Co. (P) Ltd. v State of Bihar.
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