BADALA CLASSES DIRECT TAX SOLUTION

DIRECT TAX SOLUTION

1. Computation of total Income and tax liability of Mr. Sikri for the A. Y. 2018-19.
Income from salary 87,000
Income from H.P. (W.N. 1) 10,500
Income from B.P (W.N. 2) 3,17,850
Income from C.G (W.N. 3) 2,17,138
Income from O.S (W.N. 4) 5,980
Gross Total Income 6,38,468
Less Deduction u/s 80 (W.N. 5) 63,500
Total Income 5,74,968
Total Income rounded off u/s 288 A 5,74,970
Less LTCG 2,17,138
Other Income 3,57,832
+ Ag. Income 64,000
P 4,21,832
Tax on P 8591
Less tax on basic exemption limit + agriculture income (3200)
Tax on other Income 5391
+ Tax on LTCG 43,428
Total Tax 48,819
+ 3% cess 1465
Tax liability 50,284
Roounded off u/s 288B 50280

Working notes
1. Calculation of Income from H.P.
Gross Annual value 15000
Less Municipal taxes -
Net Annual value 15000
Less 30% S.D. U/s 24 (a) 4500
Income from H.P. 10500
2. Calculation of Professional Income
Revenue receipts
Legal fees 4,45,000
Special commission fees 5,500
4,50,000
Less Revenue payments
Subscription & membership 4,500
Rent 23,750
Car Expenses 14,000
Office expenses 8,500
Electricity Exp. 2,000
Less Depreciation U/s 32
Car 5,20,000 X 15% 78,000
Legal books
200 X 40% 800
5500 X 40% X 1100
Income from Profession 3,17,850
BADALA CLASSES DIRECT TAX SOLUTION
3. Calculation of capital gain
Sales proceeds 2,92,000
Less index COA
, 74,862
[ X 272]
LTCG 2,17,138
4. Calculation of other Sources Income
Exam Remuneration 1,480
Interest on Saving bank deposit 3500
dividend from co-op. Society 1000
5980
5. Calculation of Dedn U/s 80
80C Life Insurance premium 60,000
80TTA Int. on saving A/c 3,500
63,500

(b) (i) Capital Gain in case of Slump sale (see 50B)

Slump sale means the transfer of one or more undertakings as a result of the sale or a lump-
sum consideration without values being assigned to the individual assets and liabilities in such
sales.
1. The Capital Gain: Will be calculated for the undertaking as a whole and not separately for each
asset.
2. Taxability Year: Would be previous year in which the transfer took place.
3. Nature of Capital Gain: It would be long term if the undertaking is owned and held by the
assessee for more than 36 months.
4. COA: It will be net worth of the undertaking.
5. Net Worth: Depreciable and non depreciable assets – liabilities
(i) Revaluation should be ignored
(ii) Depreciable assets value = WDV of the block
(iii) Other assets value = Book value
6. Benefit of Indexation: Not allowed even in case of long term gain.

(b) (ii) Sec 139 (9) Defective Return

A return is regarded defective by the Assessing officer if :
1) Annexures / statements/ columns in the return have not been filled properly
2) Following documents are not submitted with the return.
(a) Computation of tax payable
(b) Proof of tax – TDS/ TCS/ Advance Tax/ Self Assessment Tax paid.
(c) Audit report u/s 44 AB (if any)
(d) Audit report under any other law
(e) Cost audit report U/s 148 of companies Act 2013 (if any)
(f) Where regular books of account are maintained:
(i) Manufacturing A/c / Trading A/c / P & L A/c / Income & Expenditure A/c or Balance Sheet
(ii) Personal A/c of proprietor/ partner or member of AOP/ BOI are not submitted
(g) Where regular books of account are not maintained:
(i) Statement showing turnover/ gross receipts/ gross profit/ expenses/ net profit
(ii) Amount of sundry creditors sundry debtors, stock in trade and cash balance have not been filed.

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BADALA CLASSES DIRECT TAX SOLUTION
(b) (iii) ASSESSEE (Section 2(7)]
It means a person covered by any one of the following categories—
(a) First Category:
A person by whom any tax or any other sum of money (e.g. penalty / interest) is payable under this Act.
(b) Second Category:
Every person in respect of whom any proceeding under this Act has been taken for the assessment of –
 His income / loss; or
 The income / loss of any other person in respect of whom he is assessable; or
 The amount of refund due to him or to such other person.
(c) Third Category (Deemed Assessee)/Representative Assessee (Section 160):
Every person who is deemed to be an assessee under the provisions of Act. For example, legal representative
of a deceased person, agent of a non-resident, trustee of a trust etc.
Example: -
a) If an individual has expired without clearing his tax liability then the person inheritance is bound to pay
the tax on behalf of such deceased person. However, a person is not bound to pay tax more than the
assets he has acquired from the deceased person.
b) Representative assessee in respect of income of a minor, a mad person, foreign nation or trustee of
trust.

2. Computation of Capital gain of Mr. Shiva for the A.Y. 2018-19

Particulars Amt.
Sales proceeds (W.N.1) 32,00,000
Less transfer Expenses 25,000
Net Proceeds 31,75,000
Less Index COA (W.N.2) 5,84,800
Less Index COI (W.N.3) 2,84,651
LTCG 23,05,549
Less Exemption U/s 54 (W.N. 4) 16,00,000
Less Exemption U/s 54EC(W.N.5) -
Taxable LTCG 7,05,549

W. Notes
1. As per section 50 C Sales Proceeds Will be taken higher of
stamp duty value or sale consideration.
Stamp Duty value = 32,00,000
Sale Consideration = 25,00,000
Higher is taken as Sales proceeds = 32,00,000
2. Cost of Acquisition = 2,40,000 + 10% of 2,50,000
= 2,40,000 + 25,000
= 2,65,000
Since Mr. Shivam has acquired R.H. before 1.4.2001, therefore its COA will be compared
with its FMV as on 1.4.2001, out of them, whichever is higher will be taken as new COA
COA = 2,65, 000
FMV = 2,60,000
New COA = 2,65,000
Less Advance money forfeited = 50,000
Adjusted COA 2,15,000
Index COA , ,
= X272
= 5,84,800
3. Index COI , ,
= 272 = 284651

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 BADALA CLASSES DIRECT TAX SOLUTION
4. As her Sec. 54, any amount invested out of LTCG from sale of R.H. into R.H. is eligible for
exemption.
5. As per Sec. 54 EC, Amt. is required to be invested within 6 months from the date of transfer.

(b) (i) Share of profit from a partnership is exempt in the hands of partners
(ii) Any income earned by minor other than his personal skills will be clubbed with the income of
parents however no clubbing in respect of exempt income.
Therefore Rs. 80,000 is exempt but Rs.90,000 will be clubbed with parents. However exemption
of Rs. 1500 u/s 10(32) will be given.
(iii) As per section 27, if an individual transfer house property without adequate consideration to
spouse then transferor will be considered as deemed owner. So Rent from house property will be
taxable in the hands of Mr. X
(iv) Any income from asset transferred to spouse without adequate consideration will be clubbed with
the income of transferor. However income from income of transferred asset will not be clubbed.
Interest in the hands of Mr. X = 50,000 X 10% = 5000
Interest in the hands of Mr. Y = 20,000 X 10% = 2000
(v) Any income from asset transferred to any person for the benefit of spouse will be clubbed with
transfer therefore Rs. 5000 will be clubbed with Mr. X

(c) SECTION 45(1)

This section provides that if the following conditions are satisfied, the capital gain shall be taxed as the
income of the assessee in the year in which the transfer takes place:
(a) There is a capital asset and
(b) Such asset is transferred
Therefore, the profit on transfer of assets which are of capital nature is known as capital gain
Exceptions to this rule are
(i) Conversion of capital asset into stock
(ii) Insurance claim cases
(iii) compulsory acquisition of capital asset
(iv) Capital asset transferred under Joint development agreement.

3. (a)
Computation of gross total Income of Mr. R for the A. Y. 2018-19.
Income from salary 6,80,000
Set off of H.P. Loss (2,00,000) 4,80,000
Income from H.P.
H.P. A 35,000
H. P. B (2,40,000)
H. P. C (20,000)
Loss from H.P. (2,25,000)
Set off against salary 2,00,000 Nil
Loss c/f to next year (25,000)
Income from B/P
Business A (6,00,000)
“ B 7,00,000 1,00,000
Speculative business d
Share 8,20,000
Silver (9,40,000)
Loss C/& to next year (1,20,000)
Income from C.G.
STCL c/f to next year (4,40,000)
Income from other sources
winnings from Lotteries 6,00,000

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 BADALA CLASSES DIRECT TAX SOLUTION
Profit from horse race 4,00,000
Less loss from Horse race (2,10,000) 1,90,000
Gross Total Income 13,70,000

W. Note :-
1. Loss from H.P. can be set off against other heads of Income only upto Rs. 2 lakhs
2. Speculative business loss can be set off only against speculative business income
3. Loss from card games is not allowed.
4. STCL can be set off only against C.G.

(b)
Sec. 80 C
Deposit in PPE 20,000
Life Insurance prem. 25,000
(Subject to Maximum 20% of 1,00,000) 20,000
Term deposit with bank 50,000
90,000
Sec 80 CCD
Own contribution to NPS , , 1,20,000
( X 10)
2,10,000
Ceiling Limit U/s 80CCE 1,50,000
Employer’s contribution to NPS , , 1,20,000
( X 10)
Additional employer’s contribution to NPS (1,80,000-1,20,000) = 60,000
Or
Maximum Limit = 50,000 50,000
Sec 80 D
Own med claim Premium = 26,000
Or
Maximum Limit = 25,000 25,000
Mediclaim premium of father 28000
Preventive health checkup of father 2000
Sec 80 DD
Severe disabled mother 1,25,000
Total Deduction 5,00,000

4. (a) 1- False 2- False 3-False 4- False

5- False 6- True 7- True 8- True

(b) (i) As per Sec. 43 B, amount payable to Indian railways for the use of railways assets is allowed if
it is paid up to due date of return of Income otherwise it will be allowed in the year in which it is paid.
Therefore, amount paid by ABC Ltd. will be allowed in A. Y 2018-19.
(ii) Tax paid on non monetary perquisites is not allowed u/s 40(a)(v)
(iii) As per section 40A(3), Amount payable to transporter can be paid in cash up to Rs. 35000 on a
single day so it is allowed.
(iii) As per Rule 6 DD (Exception to Sec. 40A (3)] amount payable to cultivator can be paid in cash even
if it exceeds Rs. 10,000. So it is allowed.

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 BADALA CLASSES DIRECT TAX SOLUTION
(c) Computation of Income from salary of Mr. Uday for the A.Y. 2018-19
Basic Salary (10,000 × 12) 1,20,000
Dearness allowance (1000 × 12) 12,000
Entertainment allowance (1000 × 12) 12,000
n
Employer’s Cont to RPF (W.N.1) 4,800
Interest credited to RPF (W.N.2) 7,000
City compensatory allowance (100 × 12) 1,200
Medical Allowance (500 × 12) 3,000
Car facility (2400 × 12) 28,800
RFA (W.N.3) 20,430
Servant facility [(150+200) × 12] 1,800
Interest free loan facility [1,00,000 × × ] 4583
Income from Salary 2,15,613
W. Note
1. Employer’s contribution to RPF
Actual contribution 16% of 1,20,000 = 19,200
Less Maximum Limit 12% of 1,20,000 = 14,400
Excess employer’s contribution to RPF = 4,800
2. Interest credited to RPF
13% = 26000
3.5% = × 3.5 = 7000
3. Value of RFA = 15% of 136200 = 20,430
Meaning of salary = 1,20,000 +12,000 +1200 + 3000
= 1,36,200
5. (a) Computation of taxable Income of Mr. R
Particulars Rs.
Int. on Debenture in India Co. 5,000
Int. on Co. deposit in India 22,000
Int. On U.K. Development bonds received in India 20,000
Profit on sale of plant received in India 30,000
Business Income 70,000
Business in Delhi 45,000
Rental Income in India 46,000
Fees for technical services 25,000
Taxable Income 2,63,000
Note : Any income earned and received outside India whose control is also outside India will be not be
taxable for NOR.

(b) (i) As per section 194-I, tax is to be deducted at source @ 2% on payment of rent for use of plant and
machinery, only if the payment exceeds Rs. 1,80,000 during the financial year. Since rent of Rs.
1,65,000 paid by a partnership firm does not exceed Rs.1,80,000, tax is not deductible
(ii) Section 194E provides that the person responsible for payment of any amount to a non-resident
sportsman for contribution of articles relating to any game or sport in India in a newspaper has to
deduct tax at source @ 20%. Further, since Chris Gayle, a cricket player of West Indies team is a non-
resident, education cess @2% and secondary and higher education cess @1% on TDS should also be
added.
Therefore, tax to be deducted = Rs. 59,000 x 20.60% = Rs. 12,154.
(iii) Advertising is included in the definition of “work” under section 194C. Under section 194C, the
provisions for tax deduction at source would not be attracted if the amount paid to a contractor does not
exceed Rs. 30,000 in a single payment or Rs. 1,00,000 in the aggregate during the financial year.
Therefore, provisions for deduction of tax at source under section 194C are not attracted in respect of
payment of Rs. 28,000 on 1.6.2017 to X Ltd. However, payment of Rs. 37,000 on 21.9.2017 to X Ltd.
would attract TDS @2%, since it exceeds Rs. 30,000.

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 BADALA CLASSES DIRECT TAX SOLUTION
Hence, tax to be deducted = Rs. 37,000 x 2% = Rs. 740.
(iv) Section 194J provides for deduction of tax at source @10% from any sum paid by way of any
remuneration or fees or commission, by whatever name called, to a resident director, which is not in
the nature of salary on which tax is deductible under section 192. Therefore, tax @ 10% has to be
deducted at source under section 194J in respect of the sum of Rs.40,000 paid by PQR Ltd. to its
director

(c) (i) CEO (Secretary) (ii) Designated partner (iii) Principal officer
(iv) Karta (v) liquidator (vi) Guardian
6. (a) Returned Income 9,15,000
Tax on returned Income + 3% cess 98,365
Less TDS deposited 38,000
Tax Liability (rounded off) 60,370
Inst Dates Tax to be paid Tax deposited Difference Amt Int.
upto 15 June 7244 5000 2200 66
upto 15 Sep 21733 19000 2700 81
upto 15 Dec 45278 39500 5700 171
upto 15 March 60370 55500 4800 48
Interest U/s 234C 366

Assessed Income 9,50,000

Tax on Assessed Income + 3% cess 1,05,575
Less TDS 38,000
Tax Liability (rounded off) 67,580
90% of Assessed tax 60,822
Advance Tax paid 58,500
Since Advance tax paid is less than 90% of Assessed tax
∴ sec 234 B is applicable
Interest u/s 234B = 9000 x 1/100 x 9 = 810

(b)
(i) If Unit in SEZ was set up and began manufacturing from 18-08-2011:
Since A.Y. 2018-19 is the 7th assessment year from A.Y. 2012-13, relevant to the previous year 2011-12,
in which the SEZ unit began manufacturing of articles or things, it shall be eligible for deduction of 50% of
the profits derived from export of such articles or things.
= Profits of Unit in SEZ x Export turnover of Unit in SEZ x 50%
Total turnover of Unit in SEZ
= 2,10,000 x 4,70,000 x 50% = Rs. 82,250
6,00,000

(ii) If Unit in SEZ was set up and began manufacturing from 23-09-2015:
Since A.Y.2018-19 is the 3rd assessment year from A.Y. 2016-17, relevant to the previous year 2015-16,
in which the SEZ unit began manufacturing of articles or things, it shall be eligible for deduction of 100% of
the profits derived from export of such articles or things
= Profits of Unit in SEZ x Export turnover of Unit in SEZ x 100%
Total turnover of Unit in SEZ
= 2,10,000 x 4,70,000 x 100% = Rs. 1,64,500
6,00,000
The unit set up in Domestic Tariff Area is not eligible for the benefit of deduction under section 10AA in
respect of its export profits, in both the situations.

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BADALA CLASSES DIRECT TAX SOLUTION
Working Note:
Computation of total sales, export sales and net profit of unit in SEZ
Particulars Mr. X (Rs.) Unit in DTA (Rs.) Unit in SEZ (Rs.)
Total Sales 7,20,000 1,20,000 6,00,000
Export Sales 5,00,000 30,000 4,70,000
Net Profit 2,40,000 30,000 2,10,000

(c) (I) Yes. Since his total turnover for the F.Y.2017-18 is below Rs. 200 lakhs, he is eligible to opt for
presumptive taxation scheme under section 44AD in respect of his retail trade business.
(II) His income from retail trade, applying the presumptive tax provisions under section 44AD, would be
Rs.14,80,000, being 8% of Rs.1,85,00,000.
Alternative view: It can be assumed that Mr. Praveen has received whole the amount of turnover by
cheque or bank draft or use of electronic clearing system. In that case, his income from retail trade,
applying the presumptive tax provisions under section 44AD, would be Rs.11,10,000, being 6% of Rs.
1,85,00,000.
(III) Section 44AB makes it obligatory for every person carrying on business to get his accounts of any
previous year audited if his total sales, turnover, or gross receipts exceed Rs. 1 crore. However, if an
eligible person opts for presumptive taxation scheme as per section 44AD (1), he shall not be required to
get his accounts audited if the total turnover or gross receipts of the relevant previous year does not
exceed Rs. 2 crore.
In this case, if Mr. Ram does not opt for the presumptive taxation scheme under section 44AD, he has to
get his books of accounts audited and furnish a report of such audit under section 44AB, since his
turnover exceeds Rs. 1 crore during the P.Y.2017-18. In case he does not opt for the presumptive
taxation scheme, he is required to get his books of account audited, in which case the due date for filing
of return would be 30th September, 2018.

(d) (i) value recorded in the books of A/c (ii) 10% (iii) Rs. 1 crore, 12%

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