CS Inter Group I : Tax Laws - December 2004

CS Inter - Group I • Tax Laws • December 2004

This Paper has 26 answerable questions with 0 answered.

Roll No………………
Time allowed : 3 hours	Maximum marks : 100
Total number of questions : 8	Total number of printed pages : 5

PART — A
(Answer Question No. 1 which is COMPULSORY and any three of the rest from this part)
Marks

PART — A

(Answer Question No. 1 which is COMPULSORY and
any three of the rest from this part)

Marks

(a)

Prudent Ltd. intends to take a ‘key man insurance policy’ in the name of its CEO and mentor. The company seeks your advice as to tax implications of such policy in the hands of company and the CEO. Explain.

(0)

(b)

“Every assesses is a person, but every person need not be an assesses.” Critically examine the statement with reference to the relevant definitions under the provisions of the Income-tax Act, 1961.

(0)

(c)

Who is responsible to collect tax at source? When tax has to be collected at source?

(0)

(d)

Telefast Ltd., a company providing telecommunication services, obtains a telecom license on 20th April, 2003 for a period of 10 years which ends on 31^st March, 2013 (license fee being Rs.18,00,000). Find out the amount of deduction under section 35ABB of the Income–tax Act, 1961, if–

(i)	The entire amount is paid on 6th May, 2003;
(ii)	The entire amount is paid on 1^st April, 2004; and
(iii)	The entire amount is paid in equal installments on 30^th April, 2003; 30^th April, 2004; and 30^th April, 2005.

(0)

(e)

Who are the persons not liable to pay wealth–tax in respect of their net wealth under the Wealth–tax Act, 1957?

(0)

(a)

Discuss the provisions regarding tax on income from bonds or global depository receipts purchased in foreign currency or capital gains arising from their transfer under section 115AC of the Income–tax Act, 1961.

(0)

(b)

Hitesh was holding 3,000 shares in Jay Ltd., purchased by him on 8th August, 1997 @ Rs.60 per share. He gifted these shares to his girlfriend Mona on 10th February, 1998. Hitesh married Mona on 1^st March, 1998. Mona was allotted bonus shares by the company at the rate of one share for every three shares held on 10th September, 2003. Mona sold all the shares including the bonus shares on 31^st March, 2004 @ Rs.150 per share.

State in whose hands capital gains on sale of shares is taxable. Also compute the capital gains.

Cost Inflation Index for the year 1997 – 98	:	331
Cost Inflation Index for the year 2003 – 04	:	463

(0)

(c)

Teji, a citizen of India, is an export manager of Arjun Overseas Ltd., an Indian company since 1^st May, 1999. He has been regularly visiting USA for export promotion. He spent the following days in USA during the last five years :

Previous year ended	Number of days spent in USA
31.3.2000	319 days
31.3.2001	150 days
31.3.2002	270 days
31.3.2003	310 days
31.3.2004	295 days

Determine his residential status for assessment year 2004–05 assuming that prior to 1^st May, 1999 he had never travelled abroad.

(0)

(a)

Mrs. Kalyani, a retired central government employee, furnished the following particulars :

Pension from employer: Rs.14, 000 per month upto 30^th September, 2003 and Rs.16, 000 per month from 1^st October, 2003 onwards.

Rent from House: Rs.5, 000 per month.

Winnings from lottery (gross): Rs.40, 000

Contribution to public provident fund: Rs.10, 000

Medical insurance premium	— Paid by cheque: Rs.6, 000
	— Paid in cash: Rs.4, 500

Expenditure incurred on medical treatment of her son being a person with disability: Rs.32, 000.

Compute the taxable income and tax liability for the assessment year 2004-05 assuming that – (i) she is aged about 66 years; and (ii) she is aged about 63 years.

(0)

(b)

Bhaskar owns two houses and both are used by him for his own residence. He intends to treat one such house as self–occupied and the other as deemed to be let–out. Your advice is sought as to the beneficial option based on the following information for the assessment year 2004–05 :

Particulars	House — I (Rs.)	House — I (Rs.)
Fair rent (rent which similar property would fetch)	72,000	68,000
Municipal valuation	84,000	52,000
Standard rent	90,000	60,000
Municipal taxes levied	20,000	14,000
Municipal taxes paid	10,000	7,000
Repairs	14,000	12,000
Insurance premium	3,000	2,200
Interest on loans (borrowed during August, 1998)	62,000	18,000

(0)

(a)

An analysis of the profit and loss account and the balance sheet of kapil as at 31^st March, 2004 reveals that the following expenses which were due, were though debited to the profit and loss account, but have been paid after 31^st March, 2004 :

(i)	Sales–tax: Rs.50,000 (Rs.20,000 paid on 14th October, 2004; and Rs.30,000 paid on 15th December, 2004).
(ii)	Excise duty: Rs.1,20,000 (Rs.40,000 paid on 14th October, 2004; Rs.40,000 paid on 15th December, 2004; and Rs.40,000 paid on 24th December, 2004).
(iii)	Bonus to staff : Rs.60,000 (Rs.58,000 paid on 10th October, 2004; and Rs.2,000 paid on 15th December, 2004).
(iv)	Employer’s contribution to provident fund : Rs.55,000 (Rs.25,000 paid on 15th July, 2004; Rs.10,000 paid on 31^st October, 2004; and Rs.20,000 paid on 15th December, 2004).

The due date for filing of return is 31^st October, 2004. In which previous years can the above payments be claimed as a deduction ?

(0)

(b)

What is ‘defective return’ ? What are the consequences and remedies available where such return is a defective return ?

(0)

(c)

With reference to the provisions of the Income–tax Act, 1961, critically examine the proposition that ‘the Commissioner (Appeals) has no power to decide a matter that was not raised before him’.

(0)

(a)

Rakshit and Co., a partnership firm, is engaged in the business of textile trading at Pune. Their minor son, Vivek has been admitted to the benefits of partnership. The abridged balance sheet of the firm as on 31^st March, 2004 is as under :

Capital and Liabilities	Rs.	Assets	Rs.
Capitals:		Fixed assets	5,20,000
Rakshit	5,00,000	Housing complex	10,30,000
Mrs. Rakshit	4,00,000	Jewellery	2,00,000
Vivek	3,00,000	Stock–in–trade	1,50,000
ICICI loan	2,20,000	Receivables	1,30,000
Loan creditors	6,00,000	Cash in hand	60,000
Trade creditors	1,25,000	Cash at bank	90,000
Income–tax payable	35,000
	21,80,000		21,80,000

The following further information are made available :

(i)	The sharing ratio of partners is 60:40 among Rakshit and his wife in the event of loss, and profit is shared among partners in the ratio of 40:30:30 respectively.
(ii)	Fixed assets include one urban plot of 350 square meters, the market value of which being Rs.8,000 per square meter and an agricultural land of 1,000 square meters located beyond 8 kms. to Pune municipal limits.

(iii)	Housing complex consists of three flats, one flat being used by firm for its business, one flat is on the lease since 1^st January, 2003 and other flat is also on lease with effect from 10th June, 2003. The net maintainable rent of flats under lease stood at Rs.1,03,750 and Rs.60,000 respectively. The capitalisation factor may be assumed at 12.5.
(iv)	The market value of jewellery is Rs.7,35,000.
(v)	ICICI loan relate to acquisition of urban land (Rs.1,85,000) and agricultural land (Rs.35,000).
(vi)	Loan creditors of Rs.6,00,000 relate to the housing complex.

On the basis of above information, find out the interest of all partners in the firm as on 31^st March, 2004 for the purpose of computation of net wealth in their respective hands. In whose hands the net wealth of minor son will be assessed ?

1^st; plq; A textile company is contemplating to diversify into cement business. It has decided to set up a cement plant at a total cost of Rs.200 crore. The project cost is to be financed as below:

Equity
12% Debt

Rs.75 crore
Rs. 125 crore

The managing director of the company has asked the Director (Finance) to estimate the net present value of the cement business using Discounted Cash Flow (DCF) method. The Director (Finance ) was facing problem in estimating cost if equity for the cement business. He collected the following information with respect to a comparable cement company:

Long term debt
Paid up Share Capital
Reserves & surplus
Equity beta

Rs. 115crore
Rs. 85 crore
Rs.116 crore
0.90

Help the Director (Finance) to estimate the cost of equity and hence the weighted average cost of capital for the cement business. The tax rate for the companies is 35%. Use a risk–free rate of 7.5% and expected risk premium of 8%.

(0)

(b)

Explain the taxation aspects when a capital asset is converted into stock–in–trade.

(0)

PART — B
(Answer ANY TWO questions from this part)

PART — B

(Answer ANY TWO questions from this part)

(a)

Define the concept of ‘deemed manufacture’ under the Central Excise Act, 1944. Give at least six examples of the concept.

(0)

(b)

Discuss the special provisions relating to goods imported or exported by post under the Customs Act, 1962.

(0)

(c)

With reference to the provisions of the Central Sales Tax Act, 1956, answer the following :

(i)

Lakshmi Comptech, a dealer of computer software and hardware, is located in special economic zone. Your advice is sought by the management as to the benefits or concessions available to the firm.

(0)

(ii)

Mahavir Trading Co. transferred its goods from its factory in Haryana to its branch at Chennai. Comment on the procedure to be followed for branch transfer.

(0)

(iii)

Calculate the tax liability under the Central Sales Tax Act, 1956 based on the following details :

—	Turnover reported for the year ended 31^st March, 2004 : Rs.68,50,000.
—	Goods sold during February, 2004 returned by customers during June, 2004 : Rs.6,62,000.
—	Goods despatched during March, 2004 valued Rs.10,25,000 returned by customers during October, 2004.
—	Invoices raised are inclusive of the central sales tax at 4%

(0)

(a)

How is customs duty levied in case imported goods are pilfered before the clearance ?

(0)

(b)

Shiva and Co., an assessee, transferred a consignment of 10 tons paper to the depot from Delhi to Chandigarh on 10th July, 2003 for value of Rs.12,500 per ton. The transport cost was Rs.500 per ton. The same variety and quality of paper normally being sold at Chandigarh depot on 10th July, 2003 was at a transaction value of Rs.15,000 per ton to unrelated buyers.

(i)	Which transaction value should be considered for assessment to excise duty ?
(ii)	In case there were no sales of that variety and quality of paper on 10th July, 2003, but sales were effected on 1^st July, 2003 previously for Rs.14,000 per ton, what would be the position

(0)

(c)

Is registration under the central excise mandatory ? Who shall get registered under the central excise law ? State the procedure for obtaining registration.

(0)

(a)

From the following information, compute the taxable turnover and tax liability of four products, namely, A, B, C and D. The State sales tax rate of Product–A is 12%, it is 8% for Product–B, Product–C is the declared good for which tax rate is 3%. The local sales tax on Product–D has been declared by the State Government generally to be 2%. Total sales value including central sales tax applicable against Form–C :

Year
2003–04

Product–A
Rs.10,40,000

Product–B
Rs.15,60,000

Product–C
Rs.10,30,000

Product–D
Rs.15,30,000

Additional information :

(i)	A buyer of Product–A to whom goods worth Rs.1,04,000 were sold on 14th August, 2003, returned goods worth Rs.20,800 (including CST) on 15th January, 2004.
(ii)	Another buyer of Product–A could not provide Form–C for goods worth Rs.15,600.
(iii)	A buyer of Product–B to whom goods worth Rs.20,800 were sold did not send the Form–C as the Product–B was not covered in his registration certificate.
(iv)	A buyer of Product–C to whom goods worth Rs.10,300 was sold on 5th April, 2003 returned the goods on 17th November, 2003.
(v)	Another buyer of Product–C to whom goods worth Rs.15,450 were sold could not provide Form–C.
(vi)	There was only one buyer of Product–D and he did not provide any Form–C.

(0)

(b)

When are the goods said to be in transit within the meaning of the Customs Act, 1962 ?

(0)

(c)

Is there any difference between ‘baggage’ and ‘bonafide baggage’ ? Explain.

(0)

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