Hansraj College

B.com(Hons) Semester III

Income tax Test Paper
Maximum Marks: 60 Maximum Time: 2 Hours
1. Attempt any two: (2*5marks = 10 marks)
1. Explain the meaning of Previous Year. What would be the previous year for the
new business started during the financial year? Explain with examples.
2. Explain the concept of income deemed to accrue or arise in India?
3. Explain the concept of assesse u/s 2(7)?
4. Explain the concept of Marginal Relief with the help of an example?
2. X and Mrs. X are foreign citizens. They come to India on October 15, 2020 for a visit of 270
days. In the earlier PYs, they are in India as follows : (10 marks)
X Mrs. X
2019-20 265 310
2018-19 26 240
2017-18 25 4
2016-17 120 208
2015-16 30 75
2014-15 20 360
2013-14 100 240
2012-13 5 195
2011-12 6 176
2010-11 130 146
During the PY 2020-21, X and Mrs. X have the following income:
X(Rs.) Mrs. X
a. interest on company deposit in India 140000 240000
b. income deemed to be earned in India 62000 155000
c. Income from business situated in Nepal and controlled from India 84000 98000
(40% received in India and 60% received outside)
d. Salary received in India for service rendered outside India 92000 86000
e. Interest received from Government of India(received outside India) 158000 46000
f. Interest received from foreign company outside India 80000 25000
(On capital utilized outside India)
g. Interest received from foreign company outside India 68000 92000
(on loan which is utilized for doing business in India)
h. Royalty received in India from Government of India 910000 605000
i. Royalty received in India from a Non-resident in respect of 48000 370000
technology used by such person outside India
 The following information is also available:

Place of Birth Year of Birth

X Delhi 1951
Mrs. X Mumbai 1952
Father of X Muscat 1922
Mother of X Kathmandu 1925
grandfathers of X Mexico and Dubai 1893
Grandmothers of X Taipei and Sydney 1895
Father of Mrs. X Dubai 1926
Mother of Mrs. X Belfast 1927
Grandfathers of Mrs. X Chicago and Muscat 1901
Grandmothers of Mrs. X Karachi and Dubai 1902

3. (a.)Mr A, who is working with a sole proprietary firm, has submitted the following data
regarding his income. Compute his total taxable income and tax payable by him for AY
2021-22.(10 marks)
Basic salary Rs.10000 per month. Dearness allowance Rs.2000 per month. Employer’s
contribution to RPF 12% of salary. City compensatory allowance Rs.100 per month.
Interest on RPF 12% is Rs. 2400. HRA Rs.1000 per month
Entertainment allowance Rs. 200 per month.
He has been provided with 1800 cc car with driver for both official and personal purpose.
The assesse pays for running and maintenance for personal use of the car.

The assesse 2 children are studying in the school run by the employer. The cost of
education in similar institution per student is 1100 per month
The assesse is supplied with free gas, water and electricity for which employer pays 1500
per month to an outside agency. The assesse has encashed earned leave in the previous
year Rs.2600
The assesse is provided with free lunch during working days ( In all 300 lunches of Rs.
90 each.)
Rent paid by the assesse for the house he is living is Rs. 2500 per month
The following are his savings:
1. LIP paid Rs. 10000 on a policy of Rs. 120000 which was taken on life of his wife
and children
2. Contribution to PPF Rs. 1500

OR

(b.)Shri A.K Gupta was employed in a factory in Faridabad. He retired on 1.1.2021 and
had been getting a salary in pay scale of 9300-600-17300-800-60000 (forming part of
SRB) and he had joined the organisation on 1.05.1992. His pension was determined @ Rs
9000 per month and 3/4th portion of it was commuted for Rs 270000. In addition to this
 he received a gratuity of Rs 400000. He contributed Rs. 3500 per month to Recognized
Provident Fund and to which his employer had contributed an equal amount. Interest
credited to recognized provident fund is 50000 @ 12.5%. As per entitlement of 30days
earned leave for each year of service, he also received Rs 300000 for encashment of
earned leave of 12months during previous year. Compute gross income from salaries of
Shri Gupta for the assessment year 2021-22, assuming he is not covered under payment
of gratuity act.(10 marks)

4. (a.) The following is the P&L A/C of Mr Y for the year ending 31/3/2021: (15 Marks)
Particulars Rs. Particulars Rs.

Office salaries 80000 Gross Profit 708000

Commission 25000 Proceeds on sale of endowment policy 20000

Machine repair charges 45000 Profit on sale of furniture 12000

Payment to IIT 60000

Depreciation 80000

Rent 36000

Sundry expenses 70000

Life insurance premium 2000

Consultation fees 25000

Net profit 317000

Total 740000 Total 740000

Additional Information:
1. Machine Repair charges include 5000 paid for installation of new machinery
2. Payment to IIT has been given for being used for scientific research undertaken under a
programme approved by Central Government
3. Consultation fees has been paid to a CA 15000 for income tax planning and 5000 for arguing
an income tax appeal before the Appellate Tribunal
4. Life insurance premium is for the life of the assesse
5. A machine costing Rs. 40000 has been installed on 15/2/2020 for control of air pollution
6. Sundry expenses include 4000 in respect of penalty imposed for evasion of Indirect taxes
7. The particulars of assets are as follows:
a. Machinery: Actual Cost 200000 and WDV as on 1/4/2020 Rs.90000. A new
machinery costing 45000 was purchased on 1/1/2021
 b. Furniture: WDV as on 1/4/2020 is 86000. Furniture costing Rs.27500 of the WDV on
1/4/2020 Rs. 20000 was sold on 16/8/2020 for 32000

Compute taxable business income of Mr. Y for AY 2020-21.

OR

(b.)Mr B is a practicing CA, keeps his books of accounts on cash basis. The following is the summarized
Receipts & Payments account for the year ended 31/3/2021: (15 marks)

Particulars Rs. Particulars Rs.

Balance b/d 216500 Salaries 55000

Professional Receipts 458000 Rent from branch office 18000

Rent from house 36000 Telephone expenses 5000

Legal expenses 15000

Motor car expenses 4000

Office expenses 1500

Purchase of old car(1/1/2021) 200000

Advance of Income Tax 13000

Seminar and conference expenses 6000

Birthday party expenses 9000

Municipal tax of HP 2000

Professional books 7000

Indirect taxes 80000

Membership fees 1700

Computer purchases(1/8/2020) 40000

Office building 210000

Balance c/d 40000

Total 710500 Total 710500

 Additional Information:
a. 50% of motor car use is for personal purpose
b. Salary has been paid for 11 months only
c. Professional receipts include an amount of 15000 for giving lecture in a seminar to be
conducted on 31/5/2020 in a university. Further, a sum of 25000 towards consultancy fees is
outstanding
d. The WDV of the computer as on 1/4/2020 was 12800
e. Mr B had received some gifts in kind from his clients in course exercise of his profession, the
value of which is 20000
f. Legal expenses have been incurred in relation to defending a suit against him alleging
professional misconduct. Mr. B was successful in that suit

Compute business income of Mr. B for AY 2021-22

5. (a.) Mr H is the main picture of plastic fillings used in construction of buildings: (15 marks)
1. His stock and machinery were damaged and destroyed in a fire accident. The value of the
stock lost(total damage) was 9,75,000. Some parts of the machinery could be salvaged,
which were later taken over by the insurance company to settle the claim. The WDV of
the block consisting of the machinery as on 1 April 2020 was16,20,000. Mr H received
720000 towards loss of stock and 900000 towards damage of machinery from the
insurance company.
2. He had purchased a vacant land at a cost of Rs.60 Lakhs in financial year 2003-04.
Registration and other expenses were10%. He constructed residential building on the said
land for 75 Lakhs during financial year 2005-06. He entered into an agreement for sale of
the said land with Mr V in August 2019. The sale consideration was fixed at 400 lakhs
and on the date of agreement, Mr H received 15,00,000 as advance in cash. However Mr
V could not arrange the money on the due date hence advance paid by him was forfeited
by Mr H. He further entered into an agreement with Mr R to sell the house for
400,00,000. The sale deed was executed and registered on 15 February 2021 for the
agreed consideration, but the stamp duty of the value of the property fixed at 450 lakh.
Mr H paid 1% through brokerage on sale consideration received. Subsequent to sale, Mr
H made the following investment
i. Acquired a residential house at Delhi for 60,00,000
ii. Acquired a residential house at Dubai for Rs. 30 lakh
iii. Subscribe to NHAI bonds 45,00,00 on 30 May 2021 and 15,00,00 on 7 July 2021
1. Compute the income chargeable under the head capital gain for
assessment year 2021-22. The choice of exemption must be in the
manner both most beneficial to the assessee indicating clearly the reasons
for it. Also explain the tax treatment of advance money received and
retained by Mr H
2. (Cost Inflation Index: financial year 2003-04:109 financial year 2005-06:
117 2020-21: 301)

OR
(b.) Compute the capital gain chargeable to tax for AY 21-22 (15 marks)
3. Gurusaran sold a residential house on 28 June 2020 for 30,00,000. The stamp duty value
of the house is 34,00,000. He had purchased this house on 1 October 2005 for 5,20,000
and had spent 2,70,000 on the improvement of the house during the year 2006-07. He
purchased a new house on 21 October 2020 for 8,50,000. This house was sold by him on
16 July 2021 for 10 lakhs. He purchased another house on 21 November 2021 for
800000. Compute the capital gains for assessment year 21-22 and 22-23
(Cost Inflation Index 2005-06: 117 2006-07: 112 and 2020-21: 301)
4. Manish sold gold garments on 7/6/2020 for a sum for 2000000. These were gifted to him
by his father who purchased them in 1998 for 300000. The FMV of the gold as on
1/4/2001 was 500000. His father gifted the gold ornaments to Manish on 24/4/2020. He
spent 1000000 till 31/7/2021(the due date of filing ITR) on construction of a house
property and deposited 700000 on 31/7/2021 under CG Deposit Scheme A/C and further
a sum of 250000on 31/8/2021. He does not own any other house. (CII: 2001-02: 100 and
2020-21: 301)