PAPER - 3: TAXATION

SECTION A: INCOME TAX LAW

GENERAL INSTRUCTIONS TO CANDIDATES

 The question paper comprises two parts, Part I and Part II.
 Part I comprises Multiple Choice Questions (MCQs).
 Part II comprises questions which require descriptive type answers.
 Working notes should form part of the respective answers.
 All questions relate to Assessment Year 2024-25, unless otherwise stated.
 Candidate found copying or receiving or giving any help or defying instructions of the invigilators
will be expelled from the examination and will also be liable for further punitive action.
 You will be allowed to leave the examination hall only after the conclusion of the exam. If you have
completed the paper before time, remain in your seat till the conclusion of the exam.
 Duration of the examination is 3 hours.

PART I
MULTIPLE CHOICE QUESTIONS (ALL COMPULSORY)
(40 MARKS – 2 MARKS EACH)

1. Mr. Rajesh and Mr. Brijesh, resident individuals, are due to receive Rs.13 lakhs each on 1.4.2022 on
maturity of life insurance policy taken on 31.3.2012 and 1.4.2012, respectively, the sum assured of
which is Rs.10 lakhs. They had paid an annual premium of Rs.1.10 lakhs each. Are provisions of tax
deduction at source attracted on maturity proceeds received by Mr. Rajesh and Mr. Brijesh?

(a) Yes; Tax is deductible at source on maturity proceeds receivable by both Mr. Rajesh and Mr. Brijesh,
since the annual premium is more than Rs.1,00,000, being 10% of Rs.10 lakhs.
(b) No; Tax is not deductible at source on maturity proceeds receivable by either Mr. Rajesh or Mr. Brijesh,
since the annual premium is less than Rs.1,30,000, being 10% of Rs.13 lakhs.
(c) No tax is deductible at source on maturity proceeds receivable by Mr. Rajesh. Tax is deductible at
source on maturity proceeds received by Mr. Brijesh and the tax deductible at source is Rs.13,000.
(d) No tax is deductible at source on maturity proceeds receivable by Mr. Rajesh. Tax is deductible at
source on maturity proceeds received by Mr. Brijesh and the tax deductible at source is Rs.10,000.

2. ABC Ltd. took on sub-lease a building from Ms. Jhanvi with effect from 1.7.2023 on a rent of Rs.20,000
p.m. It also took on hire machinery from Ms. Jhanvi with effect from 1.10.2023 on hire charges of
Rs.15,000 per month. ABC Ltd. entered into two separate agreements with Ms. Jhanvi for sub -lease of
building and hiring of machinery. Which of the following statements is correct with reference to ABC
Ltd.'s liability to deduct tax at source, assuming that one-month's rent was received as security deposit,
which is refundable at the end of the lease period?

(a) No tax needs to be deducted at source since rent for building does not exceed Rs.2,40,000 p.a. and
rent for machinery also does not exceed Rs.2,40,000 p.a. Security deposit refundable at the end of the
lease term is not rent for the purpose of TDS
(b) Tax must be deducted@10% on Rs.2,00,000 & @2% on Rs.1,05,000 (rent including security deposit)
(c) Tax must be deducted@10% on Rs.1,80,000 & @2% on Rs.90,000 (rent excluding security deposit)
(d) Tax has to be deducted@10% on Rs.2,00,000 (i.e., rent including security deposit). However, no tax
is to be deducted on rent of Rs.1,05,000 (i.e., rent including security deposit) for machinery, since the
same does not exceed Rs.1,80,000.

3. Mr. Vallish, employed as Manager with ABC Ltd., pays rent of Rs.50,000 per month to his landlord.
Which of the following statements is correct?
(a) Mr. Vallish is liable to deduct tax@10% u/s 194-I, since his annual rent exceeds Rs.2,40,000.
(b) Mr. Vallish is liable to deduct tax@5% u/s 194-IB every month, since he pays rent of Rs.50,000 p.m.
(c) Mr. Vallish is liable to deduct tax@5% u/s 194-IB on annual rent in month of March, since he pays
rent of Rs.50,000 p.m.
(d) Mr. Vallish is not liable to deduct tax at source.

4. Mr. Hari is an interior decorator declaring profits under 44ADA in the P.Y.2023-24 & the earlier P.Y.,’s.
Mr. Hari has to pay brokerage of Rs.10 lakhs to Mr. Lal, a broker, to buy a residential house, & Rs.50
lakhs to Mr. Shyam, a contractor for reconstruction of the residential house. Are TDS provisions attracted
in the hands of Mr. Hari in respect of the above transactions?
(a) No; TDS provisions are not attracted for Mr. Hari in respect of payments to Mr. Lal & Shyam
(b) Yes; Mr. Hari has to deduct tax from payment to Mr. Lal and Mr. Shyam
(c) Mr. Hari does not have to deduct tax on payment to Mr. Lal but must deduct tax from payment to
Mr. Shyam
(d) Mr. Hari does not have to deduct tax on payment to Mr. Shyam but must deduct tax from payment
to Mr. Lal

5. Mr. Ganesh is running a steel factory. The total turnover of the factory during F.Y. 2022-23 amounted
to Rs.2.5 crores. The estimated turnover for F.Y. 2023-24 is likely to exceed Rs.3 crore. On 10-04-2023,
he availed consultancy services from a Delhi based chartered accountant. The consultancy fees amounted
to Rs.1,84,000. Should Mr. Ganesh deduct tax from consultancy fees of Rs.1,84,000? If yes, then what
shall be the amount of tax to be deducted and by when should the same be deposited with Government?

(a) Yes; Rs.18,400 to be deposited by 07.05.2023

(b) Yes; Rs.18,400 to be deposited by 07.07.2023
(c) Yes; Rs.15,400 to be deposited by 07.05.2023
(d) He is not liable to deduct tax in respect of professional fees paid

6. Mr. Harsh has to pay Rs.13 lakhs on 03.03.2024 to “Plan your trip”, a travel agency, for a holiday
package in Singapore and Malaysia for himself and his wife. He obtained a loan of Rs.10 lakhs for higher
education of his son studying in Columbia University, New York, on 20.03.2024 from SBI, and remitted,
under LRS of RBI, the said sum through the same bank, SBI, which is also an authorised dealer. Is tax
required to be collected at source from Mr. Harsh by travel agency and the bank? If so, how much?

(a) No tax is required to be collected by the travel agency since the payment for overseas tour
programme package is less than Rs.17 lakhs; tax has to be collected by SBI@5% of Rs.3 lakhs, being
the amount in excess of Rs.7 lakhs
(b) No tax is required to be collected by the travel agency since the payment for overseas tour
programme package is less than Rs.17 lakhs; tax has to be collected by SBI@0.5% of Rs.3 lakhs, being
the amount in excess of Rs.7 lakhs
(c) Tax has to be collected by the travel agency@5% on Rs.13 lakhs; and by SBI@5% of Rs.3 lakhs,
being the amount in excess of Rs.7 lakhs
(d) Tax has to be collected by the travel agency@5% on Rs.7 lakhs and 20% on 6 lakhs ; and by
SBI@0.5% of Rs.3 lakhs, being the amount in excess of Rs.7 lakhs

7. Mr. Mahesh engaged in the business of trading of car accessories. His turnover for F.Y. 2022-23 and
F.Y. 2023-24 was Rs.11.5 crore and Rs.9.75 crore, respectively. XYZ Ltd. placed order for purchase of
car accessories for Rs.90 lakhs on 01.06.2023. Mr. Mahesh delivered the order within 15 days of receipt
of order and received the payment within 7 days from the date of delivery. Is Mr. Mahesh required to
collect tax at source on the consideration received by him from XYZ Ltd., if the turnover of XYZ Ltd.
during the F.Y.2022-23 and F.Y.2023-24 was 15 crores and Rs.17 crores, respectively? If yes, what is the
amount of tax which he is required to collect at source? You may assume that XYZ Ltd. complies with all
its TDS obligations.

(a) No, since XYZ Ltd. is liable to deduct tax under section 194Q.
(b) No, since Mahesh’s turnover of F.Y.2023-24 does not exceed Rs.10 crore.
(c) Yes, since Mahesh’s turnover of F.Y.2022-23 exceeds Rs.10 crore; Amount of TCS = Rs.4,000
(d) Yes, since Mahesh’s turnover of F.Y.2022-23 exceeds Rs.10 crore; Amount of TCS = Rs. 9,000

8. Mr. Ram, born on 1.4.1963, has a gross total income of Rs.2,90,000 for A.Y.2024-25 comprising of
his salary income. He does not claim any deduction under Chapter VI-A. He pays electricity bills of
Rs.10,000 per month. He made a visit to Melbourne along with his wife for a month in February, 2023
for which he incurred to and fro flight charges of Rs.1.20 lakhs. The remaining expenditure for his visa,
stay and sightseeing amounting to Rs.80,000 was met by his son residing in Melbourne. Is Mr. Ram
required to file return of income for A.Y.2024-25, and if so, why?

(a) No, Ram is not required to file his return of income

(b) Yes, Ram is required to file his return of income, since his gross total income/total income exceeds
the basic exemption limit
(c) Yes, Ram is required to file his return of income since he pays electricity bills of Rs.10,000 per month,
which exceeds the prescribed annual threshold
(d) Yes, Ram is required to file his return of income since he has incurred foreign travel expenditure
exceeding Rs.1 lakh
9. A Ltd. filed its return of income for A.Y.2023-24 on 30th September, 2023. The return is to be revised.
The time limit for revision in this case is -

(a) 31.03.2024
(b) 31.10.2023
(c) 30.11.2023
(d) 31.12.2023

10. Mr. Mahesh is found to be the owner of two gold chains of 50 gms each (value of which is Rs.1,45,000
each) during the financial year ending 31.03.2024 which are not recorded in his books of account & he
could not offer satisfactory explanation for the amount spent on acquiring these gold chains. As per
section 115BBE, Mr. Mahesh would be liable to pay tax of –

(a) Rs.1,80,960
(b) Rs.2,26,200
(c) Rs.90,480
(d) Rs.1,23,958

11. Kamal grows paddy and uses the same for manufacturing rice in his own rice mill. The cost of
cultivation of 40% of paddy produce is Rs. 700000 which is sold for Rs.1500000 and the cost of cultivation
of balance 60% of paddy is 1200000 and the market value of such paddy is Rs.2400000. To manufacture
the rice, he incurred 200000 in manufacturing process on the balance 60% paddy. The rice was sold for
Rs. 3000000. His business income and agricultural income shall be

(a) Business income Rs. 600000 and Agricultural income Rs. 2000000
(b) Business income Rs. 400000 and Agricultural income Rs. 2000000
(c) Business income Rs. 2800000 and Agricultural income Rs. 800000
(d) Business income Rs. 1600000 and Agricultural income Rs. 2000000

12. X Ltd., a domestic company not opting for the provisions of section 115BAA or 115BAB, has a total
income of Rs.10,01,00,000 for A.Y.2024-25. The gross receipts of X Ltd. for P.Y.2021-22 is Rs.260 crore.
The tax liability of X Ltd. for A.Y.2024-25 is -

(a) Rs.2,68,50,000
(b) Rs.2,79,24,000
(c) Rs.2,91,49,120
(d) Rs.3,34,88,000

13. In the P.Y.2023-24, Mr. Ganguly, a resident individual aged 60 years, earned income from profession
(computed) Rs.1,45,000, winnings from card games Rs.1,50,000 (gross). He also has interest of
Rs.40,000 on fixed deposit with banks and Rs.9,000 on savings account with bank. He deposited
Rs.1,50,000 in PPF. What is the total income of Mr. Ganguly for P.Y.2023-24, assuming that he opts out
for section 115BAC?

(a) Rs.1,45,000
(b) Rs.1,50,000
(c) Rs.1,85,000
(d) Rs.1,90,000

14. Mr. Ashish’s total income comprises of long-term capital gains on sale of land Rs. 5 lakhs; short-term
capital gains on sale of STT paid listed equity shares Rs.2 lakhs; income from lottery Rs. 1 lakh and
savings bank interest Rs.30,000. He invests Rs.1.50 lakhs in PPF. His tax liability for A.Y.2024-25,
assuming that he is resident Indian age of 40 years and opt out for provisions of sec 115BAC, is –

(a) Rs.1,64,800
(b) Rs.1,66,400
(c) Rs. 1,14,400
(d) Rs. 1,13,300

15. Who among the following will qualify as non-resident for the previous year 2022-24?

- Mr. Bob, an Italian dancer, came on visit to India to explore Indian dance on 15.09.2023 & left on
25.12.2023. For past 4 years, he visited for dance competition & stayed in India for 120 days each year.
- Mr. Samrat born & settled in USA, visits India each year for 100 days to meet his parents &
grandparents, born in India in 1946, living in Delhi. His Indian income is Rs. 15,20,000.
- Mr. Joseph, an American scientist, left India to his home country for fixed employment there. He stayed
in India for study and research in medicines from 01.01.2019 till 01.07.2023.

Choose the correct answer

(a) Mr. Bob and Mr. Joseph
(b) Mr. Samrat
(c) Mr. Bob, Mr. Samrat and Mr. Joseph
(d) None of the three

16. Mr S, (38 yrs) works with N Ltd. as Manager – Finance. His pay slip for F.Y. 2023-24 is as follows:

EARNINGS TOTAL DEDUCTION TOTAL

Basic Pay 634068 Employee Contribution to PF 114132
DA 126814 Professional Tax 2400
HRA 317040 Income Tax 232830
Transport Allowance 19200 Net Pay 1303848
Personal Allowance 509088
Child Education Allowance (2 kids) 12000
Medical Allowance 15000
Bonus 20000

Total 1653210 Total 1653210

1. His employer also contributes equal amount of contribution towards PF.

2. DA forms part of retirement benefits.
3. He has intimated to his company that he would opt for 115BAC for the A.Y. 2024-25. Consequently,
he has not submitted any proof to company.
4. He paid Rs.55212 towards Mediclaim of his parents (above 65 years) by account payee cheque.
5. He purchased a house for Rs.28 Lakhs & has taken a loan of Rs.21,00,000 from HDFC. He is paying
EMI of Rs.22835. Possession of house is received on 01/04/2023. He self-occupies the house. Total
interest & principal for P.Y.2023-24 as per interest certificate is Rs.218983 & Rs.55037 respectively.
6. He has 3 children studying in DPS. School fees paid is as under:
Fee component Child 1 Child 2 Child 3 Total
Tution Fees 30000 37000 40000 107000
Admission fees 20000 - - 20000
Others 47000 57000 66000 170000
Total 97000 94000 106000 297000
7. He has invested Rs.5000 in HDFC ULIP and taken LIC policy of his wife for Rs.10000
8. He has invested 12500 and 25000 towards NPS tier I and Tier II A/c respectively.
9. He has donated Rs.50000 in PM Cares Fund.
10. He has invested Rs.40000 in listed equity shares on 01/03/2023 at 200 per share and sells 100
shares at 350 per share on 01.11.2023. STT paid both on sale as well as purchase.

Based on the above facts choose the most appropriate answer:

i. What would be income taxable under head Salaries in the hands of S for A.Y.2024-25?

a. Rs.1653210
b. Rs.1626036
c. Rs.1676036
d. Rs.1671236

ii. Whether TDS by N Pvt. Ltd. On salary paid to S based on intimation submitted by him, is correct?

a. Yes, the amount of TDS Rs.232830 is correct.

b. No, the correct amount of TDS is Rs.195320.
c. No, the correct amount of TDS is Rs.197660.
d. No, the correct amount of TDS is Rs.210920.
iii. What would be the total income without rounding off of S for A.Y. 2023-24 assuming he does not opt
for Section 115BAC?

a. Rs.1173736
b. Rs.1176699
c. Rs.1161699
d. Rs.1158736

iv. What would be the tax liability if S does not opt for 115BAC?

a. Rs.166530
b. Rs.168870
c. Rs.171210
Rs.167450

v. Assuming for the purpose of answering this question only that no contribution is made by S & his
employer towards PF, what amount of deduction is available to S under Chapter VI-A for P.Y. 2023-24, if
he does not opt for section 115BAC?

a. Rs.262500
b. Rs.259537
c. Rs.250000
d. Rs.204500 (2 x 5 = 10 Marks)

PART II - DESCRIPTIVE QUESTIONS (All compulsory) (60 Marks)

Q 1. PQR Limited has two units - one engaged in manufacture of computer hardware and the other
involved in developing software. As a restructuring drive, the company has decided to sell its software
unit as a going concern by way of slump sale for Rs.385 lakhs to a new company called S Limited, in
which it holds 74% equity shares.

The balance sheet of PQR limited as on 31st March 2024, being the date on which software unit has been
transferred, is given hereunder –

Balance Sheet as on 31.3.2024

Liabilities Rs. (in Lakhs) Assets Rs. (in Lakhs)

Paid up share Capital 300 Fixed Assets
General Reserve 150 Hardware unit 170
Share Premium 50 Software unit 200
Revaluation Reserve 120 Debtors
Current Liabilities (Ascertained Liabilities) Hardware unit 140
Hardware unit 40 Software unit 110
Software unit 90 Inventories
Hardware unit 95
Software unit 35

750 750

Following additional information are furnished by the management:

(i) The Software unit is in existence since May, 2015.
(ii) Fixed assets of Software unit includes land which was purchased at Rs.40 lakhs in the year 2016 and
revalued at Rs.60 lakhs as on March 31, 2024. The stamp duty value on 31.3.2024 is Rs.55 lakhs.
(iii) Fixed assets of Software unit mirrored at Rs.140 lakhs (Rs.200 lakhs minus land value Rs.60 lakhs)
is written down value of depreciable assets (Furniture and Plant & machinery) as per books of account.
However, the WDV of these assets u/s 43(6) of the Income-tax Act, 1961 is Rs.90 lakhs.

(a) Ascertain the tax liability, which would arise from slump sale to PQR Limited, assuming it does not
opt for section 115BAA.

(b) What would be your advice as a tax-consultant to make the restructuring plan of the company more
tax-savvy, without changing the amount of sale consideration? (10 Marks)
Q 2. Compute the quantum of depreciation available u/s 32 in respect of the following items of Plant and
Machinery purchased by Amar Textile owned by Mr. Amar, by paying through account payee cheque,
which is engaged in the manufacture of textile fabrics, for the year ended 31-3-2024. Assume Mr Amar
company does opts out of provisions of section 115BAC:

Particulars Rs. in Crores

New machinery installed on 1-5-2023 84
New Windmill purchased and installed on 18-6-2023 22
Lorries for transporting goods to sales depots (purchased & put to use in July, 2023) 3
Items purchased after 30th November 2023:
Fork-lift-machine, used inside factory 4
Computers installed in office premises 1
Computers installed in factory 2
New imported machinery 12

New imported machinery arrived at Chennai port on 30-03-2024 & was installed on 3-4-2024. All other
items were installed during the year ended 31-3-2024. The business was newly started during the year.
Also, compute WDV of various blocks of assets as on 1.4.2024 after depreciation for P.Y. 2023-24.
(10 Marks)

Q 3. A. Mr. Raj owns a residential house let out for on rent of Rs.15,000 p.m. The fair rental value of
HPfor let out period is Rs.1,50,000. The house was self-occupied by him from 01.01.2024 to
31.03.2024. He has taken a loan from the bank of Rs.20,00,000 for construction of the HP & has repaid
Rs.1,05,000 including interest of Rs.40,000 during the year. Compute Raj’s “Income from House
Property” for A.Y. 2024-25 (5 Marks)

Q 3. B. Enumerate the cases where a return of loss has to be filed on or before the due date specified
u/s 139(1) for carry forward of the losses. Also enumerate cases where losses can be c/f even though
return of loss has not been filed on or before the due date.

OR

In following cases relating to P.Y.2023-24, the total income of assessee or total income of any other
person in respect of which he/she is assessable does not exceed basic exemption limit. You are required
to state with reasons, whether assessee is still required to file ROI or loss for A.Y.2024-25 in each of
following independent situations:
a. Manish & Sons (HUF) sold a RHP on which there arose a LTCG of Rs.12 lakhs which was invested in
Capital Gain Bonds u/s 54EC so that no LTCG was taxable.
b. Mrs. Archana is born in Germany & married in India. She is R & OR in R.P.Y. She owns a car in Germany
which she uses for her personal purposes during her visit to her parents in that country
c. Sudhakar has incurred an expenditure of Rs.1,20,000 towards consumption of electricity, the entire
payment of which was made through banking channels.
(5 Marks)

Q 4. From the following calculate taxable amount under proper head of income for F.Y.2023-24 of Mr L,
who is resident and 56 years old. The reasons should form part of your answer:

1. Dividend of Rs.50,000 received in April 2023. The dividend was declared by the company- LMN Limited
at its annual general meeting held in October 2022.

2. Advance forfeited amounting to Rs.1,00,000 on 01.05.2023 as the negotiation for transfer of capital
asset did not result in transfer of Capital Asset.

3. Cash Gift received from non-relative on the occasion of marriage of Son Rs.51,000.

4. During the F.Y.2023-24, he received Rs.99,000 as pension from employer of deceased wife.

5. Paid to ABC Pvt. Ltd. for 100000 shares of face value 100 each at 150 per share. FMV of these shares
is Rs.135 per share.
(10 Marks)
Q 5.(a) Mr. Suraj, an Indian citizen, gives following details of his income & expenses during 2023-24
Income from profession 11,70,000
Winnings from lottery 70,000
Contribution to ULIP 1971 plan for spouse 70,000
Cheque donation to National Defense Fund 60,000
Cheque donation to Government for promoting family planning 35,000
Cheque donation to approved public charitable institution 1,20,000

Compute deduction u/s 80G allowable to him for A.Y. 2024-25 (4 Marks)

Q 5.(b) Mr. Chaman who is 50 years old & his wife Mrs. Chaman who in 48 years old furnish following
information (all amount of incomes/gains/losses are computed as per Income-tax Act):
(i) Mr. Chaman's salary income – Rs.11,00,000
(i) Mrs. Chaman's income from Kathak performances – Rs.2,50,000. She is a professional
Kathak dancer and pursue dancing as her profession.
(iii) Mrs. Chaman earned long-term capital gains of Rs.5,50,000 from sale of shares.
(iv) Mrs. Chaman gifted Rs.2,00,000 to Mr. Chaman out of her Stridhan on 1.4.2023,
Mr. Chaman invested entire amount in stock market but suffered a STCL of Rs.5,10,000.
(v) Miss Naina, their minor daughter, earned Rs.3,56,000 by performing in various quiz competitions
held online during the year 2023-24. She kept that amount in savings bank Account and earned interest
of Rs.15,000 during the year 2023-24.
(vi) Master Neelabh, their minor son earned Rs.35,000 from fixed deposit which was made out of the
cash he received on his birthday from his friends and family. Neelabh suffers from disability as mentioned
under section 80U. The medical certificate shows a disability of upto 75%.

Compute total income in the hands of Mr. & Mrs. Chaman and their minor children for A.Y.2024-25.
Ignore section 115BAC pertaining to alternative tax regime. (6 Marks)

Q 6. Mr. Jai, a resident individual furnishes the following particulars of his income and other details for
the previous year 2023-24:

Income from the activity of owning and maintaining race horses 40000
Income from crossword puzzle solving 30000
Income from Agricultural land in Haryana 25000
Dividend Income from domestic company (gross) 15000
(Expenses incurred in collecting above dividend) 1500
Income from cycling business 150000
Loss from warehousing facility for storage of edible oil 100000
(Share of loss from PR Associates a firm having 4 equal partners in which he is a partner)

Following items have been brought forward from A.Y. 2021-22

Brought forward loss from house property 100000

Loss from the activity of owning and maintaining race horses 37000
Loss from gambling 10000
Unabsorbed depreciation 15000
Speculation Loss 20000

Mrs. Jai (wife of Mr Jai) got a salary of Rs.1,20,000 from PR associates during 2023-24. She is not
qualified for the job.

Compute gross total income of Mr Jai for A.Y.2024-25 ignoring the provisions of section 115BAC.
(10 Marks)