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Answer Key

Exam: ABC Test 1 – CA Inter Total No. of Printed Pages : 5

Subject: Paper 4 – Taxation Total No. of Questions : 7 + 4

Maximum Marks : 25 Time Allowed : 45 Mins

Part I is compulsory. Part I – 7 Marks

Questions no. (1-7) carry 1 Marks each

Case Scenario: 1

Mr. Kishan is engaged in the following activities on agricultural land situated in India, total

area of land is 5 acres.

Activity A: He grows saplings or seedlings in a nursery spreading over on one acre land, the

sale proceeds of which is Rs. 5,00,000. Cost of plantation is Rs. 1,40,000. Basic operations are not

performed for growing saplings or seedlings.

Activity B: He grows cotton on 3 acres land. 40% of cotton produce is sold for Rs. 4,00,000, the

cost of cultivation of which is Rs. 2,25,000.The cost of cultivation of balance 60% cotton is Rs.

3,37,500 and the market value of the same is Rs. 6,00,000, which is used for the purpose of

manufacturing yarn. After incurring manufacturing expenses of Rs. 1,00,000, yarn is sold for Rs.

8,50,000

Activity C: Land measuring 1 acres is let out to Mr. Ramesh on monthly rental of Rs. 15,000

which is used by Mr. Ramesh as follows:

- 50% of land is used for agricultural purpose

- 50% of land is used for non-agricultural purpose.

Based on the facts of the case scenario given above, choose the most appropriate answer to

the following questions:

1. What amount of income arising from activity A would constitute agricultural income in the

hands of Mr. Kishan?

(a) Rs. 5,00,000 (b) Nil (c) Rs. 3,60,000 (d) Rs. 1,40,000

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2. What amount of income from activity B with respect to sale of cotton would constitute

agricultural income or/and business income in the hands of Mr. Kishan?

(a) Rs. 1,75,000 as agricultural income

(b) Rs. 1,75,000 as business income

(c) Rs. 1,75,000 as agricultural income and Rs. 2,62,500 as business income

(d) Rs. 4,00,000 as agricultural income

3. What amount of the income from activity B with respect to sale of yarn constitute agricultural

income or/and business income in the hands of Mr. Kishan?

(a) Rs. 1,50,000 as agricultural income

(b) Rs. 2,62,500 as agricultural income and Rs. 1,50,000 as business income

(c) Rs. 3,37,500 as agricultural income and Rs. 1,50,000 as business income

(d) Rs. 4,12,500 as business income

4. What amount of income arising from activity C constitute agricultural income or otherwise in

the hands of Mr. Kishan?

(a) Whole amount of Rs. 1,80,000 would be agricultural income

(b) Whole amount of Rs. 1,80,000 would be business income.

(c) Rs. 90,000 would be agricultural income and Rs. 63,000 is chargeable to tax as income from

house property

(d) Rs. 90,000 would be agricultural income and Rs. 90,000 is chargeable to tax under the head

“Income from Other Sources”

5. Mr. Ajay is a recently qualified doctor. He joined a reputed hospital in Delhi on 01.01.2023. He

earned total income of Rs. 3,40,000 till 31.03.2023. His employer advised him to claim rebate u/s

87A while filing return of income for A.Y. 2023-24. He approached his father, a tax professional,

to enquire regarding what is rebate u/s 87A of the Act. What would have his father told him?

(i) An individual who is resident in India and whose total income does not exceed Rs. 5,00,000 is

entitled to claim rebate under section 87A.

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(ii) An individual who is resident in India and whose total income does not exceed Rs. 3,50,000

is entitled to claim rebate under section 87A.

(iii) Maximum rebate allowable under section 87A is Rs. 5,000.

(iv) Rebate under section 87A is available in the form of exemption from total income.

(v) Maximum rebate allowable under section 87A is Rs. 12,500.

(vi) Rebate under section 87A is available in the form of deduction from basic tax liability.

Choose the correct option from the following:

(a) (ii), (iii), (vi) (b) (i), (v), (vi) (c) (ii), (iii), (iv) (d) (i), (iv), (v)

6. What is the amount of marginal relief available to Sadvichar Ltd., a domestic company, on the

total income of Rs. 10,03,50,000 for P.Y. 2022-23 (comprising only of business income) whose

turnover in P.Y. 2020-21 is Rs. 450 crore, paying tax as per regular provisions of Income-tax Act?

Assume that the company does not exercise option under section 115BAA.

(a) Rs. 9,98,000 (b) Rs. 12,67,600 (c) Rs. 3,50,000 (d) Rs. 13,32,304

7. Determine residential status of Sundaram (HUF) which carries out its transactions in Malaysia.

Its affairs are partly controlled from India. The Karta of HUF, Mr. Sundaram who is from

Chennai visits India on 01.06.2021 and leaves to Malaysia on 10.02.2022. He has not visited India

for the past 11 years.

(a) Non-resident (b) Resident but not ordinarily resident

(c) Deemed resident (d) Resident and ordinarily resident

Part II – 18 Marks

Answer All the Questions

1. Examine with reasons in brief whether the following statements are true or false with reference

to the provisions of the Income-tax Act, 1961

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i. Exemption is available to a Sikkimese individual, only in respect of income from any source

in the State of Sikkim

Ans:

ii. Compensation received or receivable from the Central Government, State Government or

local authority by an individual or his legal heir on account of any disaster is exempt except

to the extent of loss or damage allowed as deduction under the Act

Ans: True

iii. Mr. A, a member of a HUF, received Rs. 10,000 as his share from the income of the HUF.

The same is to be included in his chargeable income.

Ans:

2. Mr. Thomas, a citizen of Japan, comes to India for the first time during the P.Y. 2018-19. During

the financial years 2018-19, 2019-20, 2020-21 2021-22 and 2022-23, he was in India for 50 days, 65

days, 95 days, 150 days and 75 days, respectively. Determine his residential status for the A.Y.

2023-24. Examine the tax implications in the hands of Mr. Thomas for the Assessment Year

2023-24 of the following transactions entered by him.

(1) Interest received from Mr. Michel, a non-resident outside India (The borrowed fund is used

by Mr. Michel for investing in Indian company's debt fund for earning interest).

(2) He is also engaged in the business of running news agency and earned income of Rs. 5 lakhs

from collection of news and views in India for transmission outside India.

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(3) He entered into an agreement with ABC & Co., a partnership firm for transfer of technical

documents and design and for providing services relating thereto, to set up a Steel

manufacturing plant, in India. He charged Rs. 15 lakhs for these services from ABC & Co.

Ans:

Provision:

Under section 6(1), an individual is said to be resident in India in any previous year, if he

satisfies any one of the following conditions:

(i) He has been in India during the previous year for a total period of 182 days or more, or

(ii) He has been in India during the 4 years immediately preceding the previous year for a total

period of 365 days or more and has been in India for at least 60 days in the previous year. If an

individual satisfies any one of the conditions mentioned above, he is a resident. If both the

above conditions are not satisfied, the individual is a non-resident.

During the previous year 2022-23, Mr. Thomas was in India for 75 days and during the 4 years

preceding the previous year 2022-23, he was in India for 360 days (i.e. 50+ 65+ 95+ 150 days).

The total stay of the Mr. Thomas during the previous year in India was less than 182 days and

during the four years preceding this year was for 360 days. Therefore, due to non-fulfillment of

any of the two conditions for a resident, he would be treated as non-resident for the Assessment

Year 2023-24.

(1) Not taxable, since interest payable by a non-resident to another non-resident would be

deemed to accrue or arise in India only if the borrowed fund is used for the purposes of

business or profession carried on by him in India. In this case, it is used for investing in Indian

company’s debt fund for earning interest and not for the purposes of business or profession.

Hence, it is not taxable in India.

(2) No income shall be deemed to accrue or arise to Mr. Thomas through or from activities

which are confined to the collection of news and views in India for transmission outside India.

Hence, Rs. 10 lakhs is not taxable in India in the hands of Mr. Thomas.

(3) Rs. 10 lakhs is deemed to accrue or arise in India to Mr. Thomas, a non-resident, since it

represents royalty/fees for technical services paid for services utilized in India, in this case, for

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setting up a Steel manufacturing plant in India. Hence, the same would be taxable in India in

the hands of Mr. Thomas.

3. M/s Rajveer, a proprietorship has two units namely, Unit X and Unit Y. Unit X located in

Special Economic Zone and Unit Y in Domestic Tariff Area (DTA). The following are the details

for the financial year 2022-23:

Particulars Unit Y (Rs.) M/s Rajveer (Rs.)

Total sales 50,00,000 85,00,000

Export sales 28,00,000 55,00,000

Domestic sales 12,00,000 30,00,000

Net Profit 4,00,000 10,00,000

Total Sales of F.Y. 2022-23 include freight of Rs. 5 lacs for delivery of goods outside India with

respect to Unit X.

Both the units were set up and started manufacturing from 20.6.2018. Compute the amount of

deduction available to M/s Rajveer under section 10AA for the A.Y. 2023-24.

Ans:

Computation of deduction under section 10AA for A.Y. 2023-24

Since A.Y. 2023-24 is the 5th assessment year from A.Y. 2019-20, relevant to the previous year

2018-19, in which the SEZ unit began manufacturing of articles or things or provide any

services, it shall be eligible for deduction of 100% of the profits derived from export of such

articles or things or from services, assuming all the other conditions specified in section 10AA

are fulfilled.

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4. Mr. Sushant furnished the following particulars of his income for the year ended 31.3.2023.

Particulars Rs.

(a) Income earned from business in Dubai which is controlled from Delhi

(Rs. 65,000 is received in India) 80,000

(b) Pension for services rendered in India but received in Dubai (computed) 24,000

(c) Dividend from an Oil Company, a Dubai based company, received in Dubai 15,000

(d) Rent from property in Dubai, deposited in a bank in Dubai and later on,

remitted to India through approved banking channels 70,000

(e) Dividend from Sunset Ltd., an Indian company, received in Dubai 78,000

Compute his gross total income for the assessment year 2023-24, if he is:

(i) Resident and ordinarily resident;

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(ii) Resident but not ordinarily resident;

(iii) Non-resident 5

Ans:

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