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C. S. Executive assess rightfulness Dec. 09 at a lower discoverstand Ans. 1 Qn. 1. (A) Choose the most appropriate answer from the given options in respect of the avocation having regard to the provisos of the relevant direct, revenue laws (i) Income- task in India is charged at the identify(s) prescribed by (a) The Finance Act (b) The Income- measure Act (c) The Central Board of claim evaluatees (d) The Ministry of Finance vergeination (a)The Finance Act (ii) Under the Income- impose Act, 1961, depreciation on machinery is charged on (a) leveraging outlay of the machinery (b) Market price of the machinery (c) Written work through judge of the machinery d) All of the above. resolve (c) Written down Value of the machinery (iii) Income accruing in India in previous grade is n geniusxempt for (a) Resident (b) Not ordinarily stick away physician (c) Non-resident (d) All of the above. consequence (d) All of the above (iv) Sandeep purchased a house for his reside ntial purpose after taking a loan in January, 2007. During the previous grade 2008-09, he carrying engagement on loan Rs, 1,67,000. While computing income from house property, the deductive reasoning is allowable to the extent of (a) Rs. 30,000 (b) Rs, 1,00,000 (c) Rs. 1,67,000 (d) Rs. 1,50,000. Solution (d) Rs. ,50,000 (v) Which of the following is an asset at a lower place atom 2(ea) of the Wealth-tax Act, 1957 (a) Equity shargons in a comp both (b) Balance in provident fund (c) Motor car held as stock-in-trade (d) Jewellery for own(prenominal)ized use. Solution (d) Jewellary for personal use (B) Re-write the following sentences after Filling-in the blank spaces with appropriate word(s)/figure(s) (i) Deduction for bad debt is allowed to an assessee carrying on agate line in the class in which the debt is ________ as bad. (ii) Deduction purchasable at a lower place variance 80GG towards rent salaried shall non exceed Rs. ______ per calendar month. (iii) It is ob ligatory for an assessee to pay advance tax where the summation of tax payable is Rs. ________ or more. (iv) A belated elapse of income sens be filed at any time to begin with the expiry of ________ from the end of relevant estimation year. (v) Wealth-tax is levied on the net riches of a person as on 31 March, this date is known as _______ date. Solution (i) decl bed (ii) 2000 (iii) d0 (iv) 1 year (v) Valuation date. (C) Rajan is an employee of a buck private limited company and gets the following emoluments during the previous year ended on 31sl March, 2009 allowance Rs. 6,000 Salary in lieu of leave Rs. 6,000 Entertainment allowance Rs. 10,000 and cathexis Rs. 8,000. Rajans son studies in a school which is owned and maintained by the company. The cost of education in a similar school in the region is Rs. 22,000 per year, hardly the company charges Rs. 4,000 from Rajan. Salary of a domestic C. S. Executive Tax Law Dec. 09 puzzle out Ans. 2 servant provided to Rajan by t he company is Rs. 6,000 and the same is paid by the company. The company purchases a computer on 1st April, 2008 for Rs. 50,000 which is given to Rajan for arrive atice and private use.The company purchases a refrigerator for Rs. 20,000 on 30th June, 2008 for personal use of Rajan. Rajan and the company both contri howevere Rs. 1. 2,000 towards recognised provident fund. Rajan deposits Rs. 40,000 towards public provident fund. Rajan earns Rs. 1,00,000 by way of rent from a vacant plot, of land. Compute the rangeable income and tax obligation of Rajan for the assessment year 2009-10. Solution (I) Income from net income Salary Salary in lieu of leave Entertainment allowance Commission Perquisites internal servant Computer RefrigeratorBenefit to cost of education (22,000- 4,000) comp cardinalnt to PF (in exorbitance of 12%) Gross Salary (-) deduction U/S 16 Professional Tax Entertainment allowance Total Amount (II) Income from house Property Gross replete(p) Income (I + II) (- ) Deduction U/S 80 C 80 U U/S 80 C ( Contribution to PPF ) Total Income 96,000 6,000 10,000 8,000 6,000 NIL NIL 6,000 18,000 480 1,44,480 NIL NIL NIL 1,44,480 1,00,000 40000 2,04,480 deliberation of tax indebtedness Upto Rs. 1,50,000 undermentioned 54,480 10% + 3% education cess Total tax liability NIL 5,448 Total Tax liability 5,448 163 5611 = Rs. 5610 QN. 2. A) From the following profit and loss nib of Vinay for the year ended 31st March, 2009, compute his rack up income and tax liability for the assessment year speed of light9-10 Rs. Interest on pileus Insurance Bad debts Depreciation assign tax General expenses Advertisement Salary (including salary to Vinay Rs. 20,000) Interest on loan Net profit 12,000 2,000 30,000 34,000 25,000 12,000 5,000 Gross profit Brokerage Bad debts recovered(p) (earlier allowed as deduction) Sundry receipts Interest on debentures (gross) TDS Rs,4,120 85,000 8,000 4,00,000 6,13,000 Additional information i)The amount of depreciation allowab le as per income-tax rules is Rs. 42,000. Rs. 5,10,000 30,000 15,000 18,000 40,000 6,13,000 C. S. Executive Tax Law Dec. 09 Solved Ans. (ii) General expenses include Rs. 5,000 given as contribution to a political party. (iii) Vinay pays Rs. 5,200 as premium on his own life insurance policy of Rs. 50, 000. (iv) loan was obtained for pay of income-tax, 3 Solution (I) Income from demarcation Net profit for the year Add Expenses non allowed under Income tax act but debited to P & L A/C Intt. On capital Depreciation as per books of a/c Advance taxGeneral Expenses Salary to Vinay Intt on loan Less Income not allowed but Credited to P& L a/c Intt. On debentures Depreciation as per Income tax Act Total Income (II) Income from Salary (III) Income from oppositewise sources Interest on debenture Gross all-inclusive(a) income I + II + III Less Deduction U/S 80C 80U (i) Premium on life insurance policy (80C) (ii) Contribution to political party Sec (80 GGC ) Total Income Tax liability Upto Rs. 150,000 following 1,50,000 Next 1,71,800 Rate NIL 10% 20% Rs. 12,000 34,000 25,000 5,000 20,000 8,000 40,000 42,000 Rs. 4,00,000 1,04,000 82,000 4,22,000 20,000 40,000 ,82,000 5,200 5,000 4,71,800 enumeration of tax liability Less Advance tax Paid Less TDS Add 3 % education cess Total tax liability = 20850 NIL 15,000 34,360 49,360 25,000 4,120 20,240 607 20847 (B) Write short notes on any two of the following (i) Taxation of zero voucher bonds (ii) Share of profit from partnership firm (iii) Exemption of income of newly established units in specific economic zone. Solution (i) Transfer of zero coupon bond go away be way out to capital gain tax The profits arising on the modify of such(prenominal)(prenominal)(prenominal)(prenominal) zero coupon bond shall be chargeable under the head capital gains.Further, section 2(42A) has been amended to provide that if such zero coupon bonds are held for not more than 12 months, such capital asset shall be treated as short-term ca pital asset and hence shall be drug-addicted to short-term capital gain. On the other hand, where these bonds are held for more than 12 months, such capital gain shall be treated as long-run capital gain. Taxability of long-term capital gain from zero coupon bond Proviso to section 112 (1) The long-term capital gain on zero coupon bonds shall be chargeable to tax at minimum of the following two (a) 20% of long-term capital gain after indexation of cost of such bonds, or i) 10% of long-term capital gain before indexation of cost of such bonds, C. S. Executive Tax Law Dec. 09 Solved Ans. 4 Solution (ii) Share of profit member 10(2A) provides that in the case of a partner (including a minor admitted for the benefit of the firm) of a firm, his share in the total income of the firm shall be exempt from tax. allowance or spare-time activity- If condition of section 184 and section 40(6) are satisfied then interest, salary, bonus, commissioning or remuneration paid/ payable by the f irm to partners is taxable in the hands of partners (to the extent these are allowed as deduction in the hands of the firm).The following points one should note 1. Remuneration is not taxable under the head Salaries- Remuneration is not taxable in the hands of partners under section 15 under the head Salaries (Explanation 2 to section 15). It is taxable as business income. 2. Expenses are deductible under sections 30 to 37- Any expenditure incurred in order to earn salary/interest income can be claimed as a deduction under sections 30 to 37 from such income. For instance, if a artner borrows money to make his capital contribution to the firm and he has legitimate interest on his capital contribution, the amount of such interest will be taxed under the head Profits and gains of business or profession, but the interest paid by him on the borrowed money will take a shit to be allowed as a deduction. 3. Consequences when remuneration/interest is disallowed in firms hands-if salary/ i nterest is disallowed in the hands of firm under section 40(b) and/ or section 184, then the same is not taxable in the hands of the partners.Likewise, if a part of salary/interest is not allowed as deduction in the hands of the firm, that part of salary/interest is not taxable in the hands of the partners. The cumulative trespass of the aforesaid provision is that in the hands of partners the entire remuneration/ interest (excluding the amount disallowed in the assessment of partners ) is chargeable to tax. Solution (iii) The deduction under this section shall be allowed as under for a total halt of 15 relevant assessment years. 1.For the first 5 consecutive assessment years 100% of the profits and gains derived from the export beginning with the assessment year relevant to of such articles or things or from religious answers the previous year in which the unit begins to shape such articles or things or provide returns 2. Next 5 consecutive assessment years 50% of such profit s or gains 3. Next 5 consecutive assessment years So much of the amount not olympian 50% of the profits as is debited to profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to Special Economic ZoneReinvestment Reserve Account to be created and utilised for the purpose of the business of the assessee in the manner laid down in sub-section (2) below. (c) State, with reasons in brief, whether the following accedements are correct or incorrect (i) Unabsorbed depreciation of any year can be carried in advances for set- pip for an unlimited period of time. (ii) An individual is not liable to pay fringe benefit tax. ? (iii) The entire amount of winning from lotteries is taxable at a special rate of income-tax. (iv) Income of minor child is included in the income of his parents under the Income-tax Act, 1961 in all cases. v) When the prize is given partly in silver and partly in kind, income-tax will be deducted from cash only. Solution (i) True Unabsorbed depreciation of any year can be carried forward for set off for an unlimited period of time. (ii) True Individual is not liable to fringe benefit tax. (iii) True The entire amount of winning from lotteries is taxable at the rate of 30%. (iv) False Income of minor child is not included in the income of his parents in all cases. Any income of minor child U/S 80U, manual of arms work through with(p) and in case of activity invited special skills are not clubbed in the hands of parents. v) False When the prize is given partly in cash and partly in kind, Income tax is deducted from both cash and kind. Qn. 3. (A) Distinguish between any three of the following (i) Gross total income and total income. (ii) Recognised provident fund and statutory provident fund. (iii) Compulsory best judgment assessment and discretionary best judgment assessment, (iv) Exemptions and deductions. C. S. Executive Tax Law Dec. 09 Solved Ans. 5 Solution (i) Gross Total Income As pe r section 14, all income shall, for purposes of Income-tax and computation of total income, be classified under the following heads of income i) Salaries, (ii) Income from House Property, (iii) Profits and Gains of craft or Profession, (iv) Capital Gains, (v) Income from Other Sources. Aggregate of incomes computed under the above 5 heads, after applying clubbing provisions and making adjustments of set off and carry forward of losses, is known as Gross Total Income (GTI). Section 80B(5) Total Income The total income of an assessee is computed by deducting from the gross total income, all deductions permissible under Chapter VIA of the Income-tax Act i. e. , deductions under sections 80C to 8OU. Solution (ii)Particulars SPf RPF 1. Employees/ assessees Deduction u/s 80C is available from Deduction u/s 80C is available from contribution gross total income subject to the gross total income subject to the limit limit specified therein specified therein 2. Employers contribution Fully e xempt from tax Exempt upto12% of salary. Amount in excess of 12% is included in gross salary. 3. Interest on Provident Fully exempt from tax Fund Exempt u/s 10 upto 9. 5% p. a. Interest credited in excess of 9. 5% p. a. is included in gross salary 4. Repayment of lump sum Fully exempt u/s 10(11) mount on retirement/ resignation/ termination Exempt subject to certain conditions. See Note 2. Solution (iii) Best Judgment judging In a best judgment assessment the assessing officer should really base the assessment on his best judgement i. e. he must not act dishonestly or vindictively or capriciously. There are two types of judgement assessment 1. Compulsory best judgement assessment make by the assessing officer in cases of non-co-operation on the part of the Assessee or when the Assessee is in default as regards supplying informations. . Discretionary best judgement assessment is done even in cases where the assessing officer is not satisfied about the correctness or the completeness of the accounts of the Assessee or where no regularity of accounting has been regularly and consistently engaged by the Assessee. Solution(iv) Exemption All receipts which give rise to income, are taxable under the Income tax -Act unless it is specifically provided that it does not form part of total income such incomes which do not form party exempt from tax. As per sec. 0 to 13A, certain incomes are either totally exempt from tax or exempt upto a certain limit therefore, there incomes to the extent there are exempt, are not included in the total income of an assessee for computation of his total income. Deduction- The aggregate of income computed under each head, after giving issuance to the provisions for clubbing of income and set off of loss is Gross total Income . In computing the total income of an assessee certain deductions are permissible under sec. 80C to 80U from Gross total Income.But Deductions cannot exceed Gross total Income and to get deduction, It is Assessees duty to place relevant material before the said authority along with Return. QN. 3(B) What is the time-limit for deposit of tax deducted at source (TDS) to the credit of Central Government? Solution C. S. Executive Tax Law Dec. 09 Solved Ans. TIME LIMIT FOR DEPOSITE OF TDS TO THE CREDIT OF CG 6 Section under which deduction is made Person (1) Sum deducted under sections 193, 194A, 194C, 194D, 194E, 194G, 194H. 194-1, 194J. 195. 196A to 196D (A) Tax deducted by or on behalf of the Government (B) Tax deducted by or behalf of any ther person Same day of deduction (i) if the amount is credited to the account of the payee as on the date upto which the account of such persons are made (ii) in any other case in spite of appearance 2 months, of the expiration of the month in which that date falls. (2) Sum deducted under sections 192. 194, 194B, 194BB, 194EE, 194F and 194K Time limit of de Central Government (A) Tax deducted by or on behalf of Government (B) Tax deducted by or on behalf of other person within one week for the last day of the month in which the deduction is made Same day of deduction Within one week from the last day of the month in which eduction made, Qn. 4. (A) What are the special provisions for computing profits and gains of retail business ? Solution Section 44AF Special provisions for computing profits and gains of retail business (1) Notwithstanding anything to the contrary contained in Sections 28 to 43C, in the case of an assessee engaged in retail trade in any goods or merchandise, a sum equal to 5% of the total turnover in the previous year on account of such business or, as the case whitethorn be, a sum higher than the aforesaid sum as declared by the assessee in his return of income shall be deemed to be the profits and gains of such usiness chargeable to tax under the head Profits and gains of business or profession Provided that nothing contained in this sub-section shall apply in exceeds an amount of 40 lakhs rupees in the previous year. respect of an assessee whose total turnover (2) Any deduction allowable under the provisions of sections 30 to 38 shall be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.Provided that where the assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section(1) subject to the conditions and limits specified in Section 40(b). (3) The written down value of any asset used for the purposes of the business referred to in sub-section(1) shall be deemed to have been calculated as if the assessee had claimed and had been acutually allowed the deduction in respect of the depreciation for each of the relevant assessment years. 4) The provisions of sections 44AA and 44AB shall not apply in so far as they relate to the business referred to in sub-section (1) and in computing the monetary limits under those sections, the total turnover or the income from the said b usiness shall be excluded. (5) Notwithstanding anything contained in the foregoing provisions of this section, an assessee may claim lower profits and gains than the profits and gains specified in sub-section (1), if the keeps and maintains such books of accounts and other documents as required u/s 44AA and gets his accounts audited and furnishes a report of such audit as required u/s 44AB. B) What are the provisions relating to clubbing of income arising to cooperator from the assets directred ? Solution Income from assets transferred to the spouse Section 64(l)(iv) In computing the total income of an individual, all such income as arises directly or indirectly, subject to the provisions of section 27(i) (i. e. deemed owner), to the spouse of such individual from assets (other than house property) transferred directly or indirectly to the spouse of such individual otherwise than for nice consideration or in connection with an obligation to live apart shall be included. C. S. Ex ecutive Tax Law Dec. 9 Solved Ans. 7 As per this provision, if an individual transfers any asset other than house property to his/her spouse, the income from such an asset shall be included in the total income of the transferor. This provision is not applicable to house property because in that case transferor is deemed to be the owner of the house property and the annual value of the property is taxed in the hands of the transferor as per section. 27. The income from the transferred assets shall not be clubbed in the following cases (i) If the transfer is for adequate consideration (II) the transfer is under an agreement to live apart iii) if the relationship of husband and wife does not exist, either at the time of transfer of such asset or at the time of accrual of the income. (C) Alka is carrying on stuff business. Compute her net wealth from the following details of her assets and also determine her wealth-tax liability for the assessment year 2009-10 (i) Land in rural fir mament (it lies within 8 kms. from a municipality having a population of more than 10,000 land was purchased in 1990 mental synthesis is permissible. (ii) Land in urban area (held as stock-in-trade since 2001 ) (iii) Motor cars (iv) Aircraft for use of employees and auditors (v) Bank balance vi) Guest house situated in rural area (vii) Residential flats of identical size provided to employees near the factory (salary of employees does not exceed Us. 5. 00,000 in a year) (viii) Residential house given to general manager (whose annual salary is Rs. 15,00,000) (ix) Cash in hand as per cash book (x)Two residential houses let-out on rent (value of each being Rs. 22 lakh one is letout for 250 days during the financial year 2008-09). Market Value 48,00,000 35,50,000 8. 60,000 1,25,00,000 12. 00,000 10,50,000 30. 00,000 25,00,000 2,00,000 Alka has taken a loan of Rs. 24,00,000 for acquiring the aircraft Rs. 5,50. 000 for and and Rs. ,00,000 for residential house given to general manager So lution Computation of not wealth of Alka for the sagaciousness year 2009-10 i. Land in Rural Area (Lies within 8 Kms from a municipality) 48,00,000 ii. Land in urban Area (held as SIT) iii. Motor car 8,60,000 iv. Aircraft for use of employees and auditors 1,25,00,000 v. Bank Balance vi. Guest house situated in Rural Area 10,50,000 vii. Residential flats to employees (salary does not exceed Rs. 500000) -viii. Residential house given to general manager 25,00,000 ix. Cash in hand as per books x. Two residential house let out on rent but one house is let out for less than 300 days. 2,00,000 Gross wealth 2,39,10,000 Less Loan taken for eruditeness of air craft 24,00,000 Urban land Residential house to General Manager 4,00,000 28,00,000 Total Tax i. p. 1% on the amount in excess of Rs. 15,00,000 19610000 x 1% 2,11,10,000 1,96,100 Qn. 5. (A) Anurag sells a plot of land on eighth July, 2008 for Rs. 40 lakh and paid brokerage on its sale 1%. He purchased this plot on 19th December, 1986 for Rs. 4. 20,000. On 1st February, 2009, he purchased a residential house for Rs. 15 lakh. He owns one residential house an 8th July, 2008. The cost inflation index for 1986-87 was 140 and for 2008-09 is 582.Find out the amount of capital gains chargeable to tax for the assessment, year 2009-10. Suppose Anurag sells the new residential house before 1st February. 2012, what will be the taxable amount of capital gains and C. S. Executive Tax Law Dec. 09 Solved Ans. 8 in which year it will be charged to tax? If Anurag purchases any other residential house before 1st February, 2011, what will be the taxable amount of capital gains and in which year it will be charged to tax ? Solution (A) Computation of capital gains chargeable to tax for A/Y 2009-10 Sales Consideration Less Expenses an transfer brokerage 1%Less Indexed cost of acquision 420000 x 582 140 40,00,000 4,00,000 17,46,000 18,54,000 15,00,000 LTCG 3,54,000 If Anurag sells the new residential house before 1st Feb 2012 the tax able amount is whole sales consideration and it is taxable in A/Y 2013 -14 If Anurag purchase any other residential house before 1st Feb 2011, than taxability is not arise in A/Y 2012 -13. (-) Exemption U/S 54 (B) Danny has the following investments in the previous year ended 31st March, 2009 (i) Rs. 7,160 received as interest on securities of Karnataka government. (ii) Rs. 9,000 received as interest on securities of a listed paper manufacturing company. iii) Rs. 7,200 received as interest on the unlisted securities of a dinero company. (iv) Rs. 30,000. 11% securities (unlisted) of a textile company. (v) Rs. 20,000, 10% Tamil Nadu government loan, (vi) Rs. 50,000, 13. 5% listed debentures of Dolly Ltd. Interest on ail securities is payable on 30lh June, and, 31 December. The bank charges 1/5% commission on net realisation of interest as collection charges. Danny also received Its. 15, 000 as directors fee from a company. His other incomes are winnings from clam race Rs. 25,000 (g ross) and interest on post office savings bank account Rs. 6,000.Find out taxable income of Danny from other sources for the assessment year 2009-10. Solution Computation of Income from other sources for the A/Y 2009 -10 Director Fees Winning from horse race Interest from post office saving bank account 11% securities (unlisted ) of a textile company 10% Tamil nadu Govt. loan 13. 5% listed debentures of Dolly ltd. Intt. On securities of Karnataka Govt. Intt. On a listed paper mfg. Co. Intt. On the unlisted securities of a sugar company Less Deduction Bank Charges 1. 5% Total Income Amount 15,000 25,000 6,000 3,300 2,000 6,750 7,160 9,000 7,200 81410 1,221 80,189 C) Loss under any head of income for any assessment, year can be set-off against the income from other heads of income but when it has to be carried forward for being set-off, it can only be set-off from income under the same head. condone. Solution Where in respect of any Assessment year, if after setting off losses agai nst income under the same head the net result of the computation under any head of income, other than capital gains is a loss, the assess shall be entitled to have the amount of such a loss set off against his income, if any, available, for that assessment year under any other head.But If the losses could not be set off under the same head or under different heads in the same assessment year, such losses are allowed to be carried forward to be claimed as set off from the income of the subsequent Assessment Year for eg- A loss under the head house property, if could not be set off or was not wholly set off in the same assessment year, will be allowed for be carry forward and set off only under the head Income from house property similarly Business losses other speculation business can be carry forward and set off under the head PGBP. C. S. Executive Tax Law Dec. 9 Solved Ans. 9 Where in respect of any assessment year, the net result of the computation under the head Capital Gains is a loss to asseessee, whether short term or long term. Such loss shall be separately carried forward, further such carried forward short term capital loss can be set off in subsequent assessment year from income under the head capital gains, whether short term or long term, but brought forward long term capital loss shall be allowed to be set off only from long term capital gain. QN. 6 (A) Rohit is the owner of a house property, its municipal valuation. s Rs. 80,000. It has been let-out for Rs. 1,20,000 per annum. The local taxes payable by the owner amount to Rs. 16,000, but as per agreement between the tenant and the landlord, the tenant has paid the amount direct to the municipality. The landlord, however, bears the following expenses on tenants amenities Rs. Extension of water connection Water charges Lift maintenance Salary of gardener Lighting of steps Maintenance of swimming pool The landlord claims the following deductions Repairs and collection charges Land revenue paid 3, 000 1,500 1,500 1,800 1,200 750 7,500 1,500Compute the taxable income of Rohit from the house property for the assessment year 2009-10. Solution Computation of Income from House Property of Rohit. Actual Rent Value Less Expenses net by Rohit an amenities provided to the tenants Water charges Lift Maintenance Salary of gardener Lighting of stairs Maintenance of Swimming pool Extension of water connection Annual Rent Net Annual value ( Municipal rent value Rs. 80,000 or Rs. 1,10,250 which ever is higher ) Less Statutory deduction 30% Taxable income from House Property 1,20,000 1,500 1,500 1,800 1,200 750 3,000 9,750 1,10,250 1,10,250 33,075 77,175 B) What are capital assets ? What items are not included in capital assets ? Solution Capital asset means property of any kind held by the assessee, whether or not attached with his business or profession, but does not include (i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession as these will be taxed under the head profits and gains of business or profession (ii) personal effects, that is to say, movable property (including wearing apparel and furniture), held for personal use by the assessee or any member of his family dependent on him.However, the following assets shall not be treated as personal effects though these assets are moveable and may be held for personal use (a) jewellery (b) archaeological collections (c) drawings (d) paintings (e) sculptures or (f) any work of art. (iii) agricultural land in India, which is not an urban agricultural land. In other words, it must be a rural agricultural land (iv) 6. 5% fortunate Bonds, 1977, 7% Gold Bonds, 1980 or National Defence Gold Bonds, 1980 issued by the Central Government (v) Special Bearer Bonds, 1991, issued by the Central GovernmentC. S. Executive Tax Law Dec. 09 Solved Ans. (vi) Gold Deposit Bonds issued under the Gold Deposit Scheme 1999. 10 QN. 7. Attempt any four of the following (a) Service tax is generally payable by the service provider, but there are certain situations in which service receiver is liable to pay service tax. Explain. (b) What are the due dates for payment of service tax by different assessees? (c) Indicate the amount of interest payable for late payment of service tax and the amount of penalty payable for late filing of return of service tax. d) Explain the provisions regarding submission of return under service tax. (e) What is the basis of calculation of service tax payable? Explain the provisions judicature valuation of taxable services. (f) Choose the most appropriate answer from the given options in respect of the following (i) What would be the value of taxable service, if gross amount charged by a service provider on 5th March, 2009 is Rs. 9,000 (a) Rs. 8,010 (b) Rs. 8,160 (c) Rs. 9,000 (d) Rs. 8,100. (ii) If Raj has collected any amount of service tax from Brij which is not required to be collected.Raj shall pay the amount so collected to (a ) Brij (b) The Central Government (c) Keep it with himself (d) None of the above. (iii) E-payment of service tax is compulsory in the case of an assessee who had paid service tax in the preceding financial year equal to at least (a) Rs. 10 lakh (b) Rs. 40 lakh (c) Rs. 50 lakh (d) Rs. 1 crore. (iv) Upto what amount, the value of all taxable services provided by a service provider during a financial year is exempt from payment of service tax (a) Rs. 4 lakh (b) Rs. 8 lakh (c) Rs. 10 lakh (d) Rs. l2 lakh. v) If a corporate assessee lias paid Rs. 5,000 as excess service lax during the previous half-year destruction period, this excess amount can be adjusted against its subsequent tax liability (a) Equally every month (b) Equally per cast (c) In one lump-sum (d) Equally on half-yearly basis, Solution (a) The general principle is that the person providing a taxable service is liable to pay service tax, but in certain specific situations, as Government may notify, persons other than th e person providing the taxable service are liable for payment of service tax. S. No. run Persons liable for payment 1 Telecommunication Provider of service General Insurance Insurer or reinsurer 3 4 5 Insurance appendix Insurance Agent Any service provided from outside India and Receiver of service in India received in India Goods transport agency (GTA) Person making payment of freight i. e. receiver of the service (if consignor or consignee of goods are in organized sector), or GTA i. e. provider of service (in other cases) C. S. Executive Tax Law Dec. 09 Solved Ans. Sponsorship services Receiver of services Business auxiliary services of distribution of mutual Receiver of service in India fund Any other taxable service Service provider 6 7 8 11 B) There have been frequent changes in the due dates for payment of service tax. The current law pertaining to due dates for depositing the service tax are summarized in the table given below Category of Assessee Periodicity of Payment Pe riod overdue Date Individuals, proprietary Quarterly firms or partnership firms April to June 5th (6th in case of eJuly to September paymentofthe month October to December immediately following the said quarter January to March 3 1st March Others All months except March 5th (6th in case of e-payment) of the month immediately , following the calendar month MonthlyMarch 3 1st March (C) The amount of interest payable for late payment of service tax is 13%. Return of service tax has to be filed within the prescribed period. A late fee has to be paid along with the filing of return of service tax if the same is filed late. Where the return is supply late the person liable to furnish return is liable to pay to the Central Government a penalty, on the basis of period of delay subject to maximum of Rs. 2,000. Period of delay from due date Penalty to be paid Upto 1 5 days 16 to 30 days Rs. 500 Rs. 1,000 After 30 days Rs. 1,000 + 100 per day in excess of 30 days pto maximum of Rs. 2,000 (D) Every person liable to pay service tax shall himself assess the tax due on the services provided by him and furnish a return in Form ST-3 (in triplicate) on a half-yearly basis. Half year means 1st April to 30th September and 1st October to 31st March of financial year. Without prejudice to the provisions of section 70, the Board may, by notification in he Official Gazette, frame a Scheme for the purposes of enabling any person or class of persons to prepare and furnish a return under section 70, and authorise a Service Tax Return Preparer to act as such under the Scheme.The return has to be submitted by the 25th of the month following the point half-year. Even a NIL return has to be filed if the assessee has not rendered any taxable service during a particular half year. There are no provisions under the Act which enable the filing of revised returns. (E) As per section 66, service tax is to be charged 12% of the value of taxable service proved or to be provided. Hence, we have to determine the value of such taxable services so as to pay service tax. As per section 67, the valuation of taxable service shall be determined as under SituationValuation (i) where the provision of service is for a gross amount charged by the service provider for such consideration in money service provided or to be provided by him (ii) where the provision of service is for a such amount in money, with the addition of service tax consideration not wholly or partly consisting charged, as is analogous to the consideration. In other of money words, it should be value of similar services provided to third party. If similar service is not provided to third party, it should be market value as determined by the assessee ut it cannot be lower than the cost of provision of same. (iii) C. S. Executive Tax Law Dec. 09 Solved Ans. 12 where the provision of service is for a the amount as may be determined in the prescribed consideration which is not ascertainable manner (F) (i) (b) 8160 (ii) (b) The central Government (iii) (c) Rs. 50 lakhs (iv) (c) Rs. 10 lakhs (v) (c) In one Lump-sum PARTC QN. 8 Attempt, any four of the following (i) How would you take input tax credit when goods purchased are transferred by the head teacher to his branch in any other State ? ii) A registered dealer can set-off the amount of input tax against the amount of his output tax. Explain. (iii) Explain the procedure of registration under value added tax (tub). (iv) In what purchases input, tax credit is not allowed under bath ? (v) What are the deficiencies in the design of tub that has been take by the States in India? Give your opinion (vi) Tax credit or score method has been espouse universally because of the inherent advantages in the credit method of calculating tax liability? Explain, Solution (i) Stock/Branch transfers i. . transfer of stock from head office to the branch or vice-versa (viz. Inter-State transfers) do not involve sale and, therefore, they cannot be subjected to sales-tax/VAT. However, if (1) inputs are used in the manufacture of finished goods, which are stock/branch transferred or (2) goods purchased for re-sale are stock/branch transferred, then, tax paid on such inputs/goods will be available as input tax credit subject to retention of 4% out of such tax by the State Governments. (ii) For claiming input tax credit dealer must be a registered dealer.A registered dealer can only set off the amount of input tax against the amount of his output tax. Further a registered dealer must purchase goods from another registered dealer who has not opted for composition contrivance to claim credit of input tax. Apart from registration requirement the registered dealer must keep supporting evidences like VAT invoice of the purchases. (iii) Any dealer whose gross annual turnover is above Rs. 5 lakh will be liable to get compulsory registration. An existing dealer will be automatically registered under the VAT Act.A dealer registered under the VAT Acts is called a registered dealer. Any other dealer may get himself voluntarily registered. On such a dealer Commissioner may impose any conditions as he thinks fit. If dealer fails to get registration he may be registered compulsorily by the commissioner. Time limit practical application for registration must be made within 30 days from the date of liability to get registered. Whom to apply Application for registration must be made to the VAT Commissioner. Exemption from registration A small dealer with gross annual turnover not exceeding Rs. lakhs does not require registration. Further States may annex the above limit for the small dealers to Rs. 10 lakhs. Penalty If a dealer who is liable to get himself registered, fails to do so then he shall be liable to penalty and he shall not be eligible for input tax credit related to the period prior to the compulsory registration. Cancellation of registration In the following cases registration can be cancelled (i) In case of discontinuanc e of business or (ii) In case of sale or disposal of business or (iii) In case of shifting or transfer of business to a new state or (iv)Annual turnover of the dealer falls below the specified amount. (iv) Purchase in which input tax credit is not allowed under VAT i) purchases from unregistered dealer. ii) iii) iv) v) vi) vii) viii) C. S. Executive Tax Law Dec. 09 Solved Ans. Purchase from registered dealer who opted for composition scheme. Purchase of goods as may be notified by the state Government. Purchase of goods where invoice does not show the amount of tax separately. Purchase of goods, which are being utilized in the manufacture of exempted goods. Goods imported from outside the territory of India.Inter state purchases. Purchase of goods used for personal use/ consumption or provided free of cheque us gifts. 13 (v) Deficiencies in the design of VAT that has been adopted by the States in India are as under (1) Detailed records even by small traders In order to ensure genu ine availment of credit, VAT governing body requires maintenance of little accounting records even by all dealers. The small traders/firms find it difficult to do so since the accounting cost is higher than the benefit gained by them by marinating such records. Hence, they object to the VAT system. 2) Problems due to different VAT rates, exemptions, concessions and composition schemes The advantages of VAT can be achieved only if there is single rate of VAT without any exemptions, concessions and/or composition schemes. The presence of different VAT rates, exemptions, concessions and/or composition schemes distorts the flow of audit trail introduced by VAT system and may result in cascading effect of taxation. (Note Composition schemes provide for lumpsum payment of VAT at a lower rate on the total turnover, in full discharge of VAT liability, without any input tax credit. (3) Matching Requirements v. Different rates of VAT Due to varying fiscal and social needs, there are vary ing VAT rates in India. The presence of different VAT rates requires matching of purchases and sales, which is not only difficult but impractical as well. However, if matching requirement is waived off, then, there will be scope for tax evasion by showing higher sales of goods bearing lower rate and lower sales of goods bearing higher rate. (4) Increase in investment and inflation As compared to single-point taxation- at the time of last sale, VAT equires payment of tax at each stage of production/distribution. Since there may be time-gap in availment of credit on inputs and utilization of such credit against payment of VAT on sales, the dealers will have to carry tax paid stock, which would mean higher investment in stocks/working capital. This would increase interest cost and would increase the prices, thereby, causing inflation. However, this criticism is not fully correct. Availability of credit/set-off of tax paid on inputs reduces cost of production and ultimately the sale pr ice, thereby, putting a check over inflation.The price reduction is more than price increase due to interest cost. Thus, VAT is not inflationary in nature. (5) Non-integration of State VAT with Central VAT Until the State VAT gets integrated with Central VAT and Central Sales Tax, the purchases from other states cannot be put at par with purchases from within the Stage because tax on inter-state purchases (i. e. CST) is not available as credit/set-off while tax on intra-state purchases (i. e. VAT) is available as credit/set-off. Thus, VAT system doesnt rule out cascading effect and the neutrality as to source of purchases remains confined to within the State. vi) Tax credit or invoice method has been adopted universally because of the inherent advantages in the credit method of calculating tax liability which are (i) Government gets the tax on ultimate sale price to consumer i. e. the tax paid by the consumer gets into Government Exchequer. The Revenue is collected at various stage s on the amount of value addition made at the several(prenominal) stages. Thus, there is no revenue leakage. (ii) This method checks evasion of tax. In order to avail credit of tax paid on purchases, the dealer will have to maintain purchase invoices.If the purchase invoices are not maintained, no credit will be available and the dealer will have to pay tax on the total sales value, thereby, leading to higher sale price or lower profits. A dealer not maintaining purchase invoices will lax either way. Thus, the possibility of tax evasion is minimum. (iii) If the profit margin is kept at constant level, then the credit/set-off provided under this method would eliminate cascading effect of taxation and would result in reduction of ultimate sale price. Thus, the industry and the trade would benefit.