Test Series: August, 2018

MOCK TEST PAPER – 1

INTERMEDIATE (NEW) COURSE
PAPER – 4: TAXATION
Time Allowed – 3 Hours Maximum Marks – 100
SECTION – A: INCOME TAX LAW (60 MARKS)
Question No. 1 is compulsory
Attempt any five questions from the remaining six questions
Working Notes should form part of the answer. Wherever necessary, suitable assumptions may be made by
the candidates and disclosed by way of a note.
Your answers should be based on the provisions of Income-tax law as amended
by the Finance Act, 2017. The relevant assessment year is A.Y.2018-19.
1. Dr. Kumar is running a clinic in Delhi. His Income and Expenditure account for the financial year
ended 31-03-2018 is given below:
Expenditure Amount Income Amount
(Rs.) (Rs.)
To Staff salary 4,30,000 By Fee receipts 12,63,600
To Consumables 14,750 By Dividend from an Indian 15,000
Company
To Medicine consumed 3,69,800 By Winning from lotteries (Net 28,000
of TDS)
To Depreciation 91,000 By Income-tax refund 2,750
To Administrative expenses 1,51,000 By Honorarium for lectures at 24,000
seminars
To Rent of clinic 20,000
To Donation to Prime Minister’s 5,000
National Children’s Fund
Children’s Fund
To Excess of income over
expenditure 2,51,800
Total 13,33,350 Total 13,33,350
Other Information:
(1) Depreciation in respect of all assets has been computed at Rs. 50,000 as per Income-tax
Rules, 1962
(2) Medicines consumed include cost of medicine for self and family of Rs. 25,000 and for treating
poor patients of Rs. 24,000 from whom he did not charge any fee either
(3) Salary includes Rs. 15,000 paid in cash to a computer specialist who computerized his
patient’s data in October, 2017.
(4) Donation to Prime Minister’s National Children’s Fund has been made by way of a crossed cheque.
(5) He has paid a sum of Rs. 25,000 for Life Insurance Policy (Sum assured Rs. 2,00,000) of
himself, which was taken on 1-07-2012.

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 (6) He has sold a land in August, 2017 for Rs. 12,00,000, the stamp duty value of which was
Rs. 14,00,000 on that date. The land was acquired by him in May, 2001 for Rs. 4,00,000.
(7) He has paid Rs. 4,000 for purchase of lottery tickets, which has not been debited to Income
and Expenditure account.
(8) He also contributed Rs. 1,20,000 towards Public Provident Fund.
(9) Dr. Kumar also paid interest of Rs. 10,000 on loan taken for higher education of his daughter.
You are required to compute the total income and tax payable by Dr. Kumar for the Assessment
Year 2018-19.
Cost Inflation Index: F.Y. 2001-2002 - 100, F.Y. 2017-18 - 272 (10 Marks)
2. (a) Mr. Shiva purchased a house property on February 15, 1979 for Rs. 3,24,000. In addition, he
has also paid stamp duty value @10% on the stamp duty value of Rs. 3,50,000.
In April, 2007, Mr. Shiva entered into an agreement with Mr. Mohan for sale of such property
for Rs. 14,35,000 and received an amount of Rs. 1,11,000 as advance. However, the sale
consideration did not materialize and Mr. Shiva forfeited the advance. In May 2014, He entered
into an agreement for sale of said house for Rs. 20,25,000 to Ms. Deepshikha and received
Rs. 1,51,000 as advance. However, as Ms. Deepshikha did not pay the balance amount,
Mr. Shiva forfeited the advance. In August, 2014, Mr. Shiva constructed the first floor by
incurring a cost of Rs. 3,90,000.
On November 15, 2017, Mr. Shiva entered into an agreement with Mr. Manish for sale such
house for Rs. 30,50,000 and received an amount of Rs. 1,50,000 as advance through an
account payee cheque. Mr. Manish paid the balance entire sum and Mr. Shiva transfer the
house to Mr. Manish on February 20, 2018. Mr. Shiva has paid the brokerage @1% of sale
consideration to the broker.
The fair market value of the house property on April 1, 1981 was Rs. 4,00,000. The fair market
value of the house property on April 1, 2001 was Rs. 10,70,000. Valuation as per Stamp duty
Authority of such house on 15 November, 2017 was Rs. 30,00,000 and on 20 February, 2018
was Rs. 32,00,000.
Compute the capital gains in the hands of Mr. Shiva for A.Y.2018-19.
CII for F.Y. 2001-02: 100; F.Y. 2007-08: 129; F.Y. 2014-15: 240; F.Y. 2017-18: 272. (7 Marks)
(b) Explain the difference between Circulars and Notifications in the context to the Income-tax
Act, 1961. (3 Marks)
3. (a) Mr. Shashank is an employee of KML (P) Ltd. drawing a monthly salary of Rs. 30,000. He
provides you the following information for the previous year 2017-18:
(i) He had a fixed deposit of Rs. 4,00,000 with State Bank of India with interest @10%. He
instructed bank to credit such interest on deposit to the saving account of Mr. Ram, his
sister’s son, to help him in his higher education.
(ii) He gifted a flat to Mrs. Kajal (wife of Mr. Shashank) on April 1, 2017. During the previous
year 2017-18, she received a rent of Rs. 20,000 p.m. from letting out the flat.
(iii) He gifted Rs. 10,00,000 to Mrs. Kajal on 1 st April, 2017 which Mrs. Kajal invested in her
business on the same day. Capital in the business before such investment was
Rs. 20,00,000. She earned profits from business for the financial year 2017-18 of
Rs. 9,00,000.
(iv) His minor son Sandeep earned income from company deposit of Rs. 1,50,000.
Mr. Shashank and Mrs. Kajal do not have any other income during the P.Y. 2017-18. Compute
the total income of Mr. Shashank and Mrs. Kajal for A.Y. 2018-19. (6 Marks)

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 (b) Examine the taxability or otherwise of the following independent transactions as per the
provisions of section 56 of the Income-tax Act, 1961 for the Assessment year 2018-19.
(i) Mrs. Meenakshi has received cash gifts aggregating of Rs. 2 lakhs from several friends
and relatives on her birthday. Each cash gift ranges from Rs. 500 to Rs. 1,000.
(ii) Mr. Krishna has received an immovable property, the stamp duty value of which is
Rs. 10 lakhs as per a WILL executed by Mrs. Chandraben on her death.
(iii) Mr. King has received an immovable property at Kilkanur Village from Mr. Prince as a
gift. The stamp duty value of the property is Rs. 75,000
(iv) Mrs. Vijaya has gifted diamonds valued at Rs. 1 lakh to Mrs. Preethi, her sister's
daughter-in-law on her birthday. (4 Marks)
4. Miss Kaira, an American national, got married to Mr. Ramesh of India in USA on 1.03.2017 and
came to India for the first time on 20.03.2017. She left for USA on 20.9.2017. She returned to India
again on 27.03.2018. She has earned the following income during the financial year 2017-18.
Sr. Particulars Amount
No. (Rs.)
1. Dividend from American company, received in America 20,000
2. Profits from a profession in Delhi, but managed directly from America 50,000
3. Long term capital gain on sale of shares of an Indian company, received 60,000
in India
4. Interest on savings bank deposit in SBI, Delhi 17,000
5. Agricultural income from a land situated in Tamilnadu 55,000
6. Rent (computed) from property in America deposit in a Bank there, later 1,00,000
on remitted to India
7. Cash gift received from a friend on her birthday on 16.8.2017 51,000
8. Past foreign untaxed income brought to India 70,000
Determiner her residential status and compute the total income chargeable to tax for the
Assessment Year 2018-19. (10 Marks)
5. (a) The Gross Total Income of Mr. Bharadwaj, a resident, for the year ended 31-03-2018 is
Rs. 15 lakhs. Examine the allowability of the deduction to Mr. Bharadwaj from the following
information.
(i) He has contributed Rs. 2 lakh towards Clean Ganga Fund set up by the Central
Government
(ii) He has incurred medical expenditure of Rs. 50,000 towards surgery for his grandmother
who is 85 years of age. (No Premium is paid to keep in force an insurance on her health).
(3 Marks)
(b) From the following information of Ms. Kareena, born on 16th
August, 1975, an Indian resident,
you are required to compute total income and tax payable by Ms. Kareena for the Assessment
Year 2018-19.
Particulars Rs.
Long-term capital gains on sale of house 1,50,000
Short-term capital gains on sale of shares in B Pvt. Ltd. 50,000
Loss from house property 3,50,000

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 Interest from saving account in post office 15,000
Prize winning from a T.V. show (Gross) 20,000
Business income 5,50,000
Net agricultural income 1,10,000
LIC premium for self and husband 70,000
Tuition fees to University for full time education of her daughter 50,000
(7 Marks)
6. Mr. Thomas is an executive at M/s. A Ltd., Chennai from 01-04-2017.His salary and other particulars
are as given here under:
Basic Salary Rs. 20,000 p.m.
Dearness Allowance Rs. 15,000 p.m. (100% forming part of retirement benefits)
House Rent Allowance Rs. 20,000 p.m.
Rent paid by Mr. Thomas is Rs. 25,000 p.m.
Telephone bills paid by A Ltd. for the telephone installed at his Residence Rs. 24,000 p.a.
Motor car running and maintenance charges of Rs. 30,600 fully paid by employer. (The motor car
is owned and driven by Mr. Thomas. The engine cubic capacity is below 1.60 litres. The motor car
is used for both official and personal purpose by the employee)
Annual premium paid by A Ltd. towards a personal accident policy on his life Rs. 5,000.
He was retrenched by his previous employer M/s B Ltd. after continuous service of 20 years. He
received a compensation of Rs. 15 Lakhs. His Basic Salary and Dearness Allowance at the time of
retrenchment was Rs. 25,000 p.m. and Rs. 18,000 p.m. respectively.
Compute the amount taxable under the head salary for the Assessment Year 2018-19. (10 Marks)
7. (a) Pertaining to the following transactions, what is the minimum amount above which quoting
Permanent Account Number is mandatory?
(i) Opening a demat account with a depository
(ii) Purchase of bank draft from a banking company
(iii) Payment for purchase of any foreign currency at any one time.
(iv) Payment to a company for acquiring debentures issued by it.
(v) Payment as life insurance premium to an insurer (5 Marks)
OR
(a) Briefly mention the provisions of the Income-tax Act with regard to the Quoting of Aadhar
Number under section 139AA. (5 Marks)
(b) Examine the applicability of TDS provisions, if any, to be deducted in the following cases:
(i) Payment of fee for professional services of Rs. 20,000 and royalty of Rs. 27,000 to Ms.
Kajal, who is having PAN. (2 Marks)
(ii) Payment of Rs. 1,05,000 made to Mr. Ram for purchase of calendars made according to
specifications of M/s XYZ Ltd. However, no material was supplied for such calendars to
Mr. Ram by M/s XYZ Ltd. (2 Marks)
(iii) Rent paid for plant and machinery Rs. 1,70,000 by a partnership firm having sales
turnover of Rs. 49,00,000 and net loss of Rs. 15,000. (1 Mark)

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 SECTION B - INDIRECT TAXES (40 MARKS)
QUESTIONS
Question no. 1 is compulsory. Attempt any three questions out of the remaining four questions.
(i) Working Notes should form part of the answers.
(ii) Wherever necessary, suitable assumptions may be made by the candidates, and disclosed by way of note.
(iii) All questions should be answered on the basis of the position of GST law as amended up to 30th April, 2018.
(iv) The GST rates for goods and services mentioned in various questions are hypothetical and may not
necessarily be the actual rates leviable on those goods and services. Further, GST compensation cess
should be ignored in all the questions, wherever applicable.
1. (a) Mr. Bholenath, a registered supplier of goods, pays GST under regular scheme and provides the
following information for the month of January, 20XX:
Particulars (Rs.)
(i) Inter-state taxable supply of goods 10,00,000
(ii) Intra state taxable supply of goods 2,00,000
(iii) Intra state purchase of taxable goods 5,00,000
He has the following input tax credit at the beginning of January 20XX:
Nature ITC Amount in (Rs.)
CGST 20,000
SGST 30,000
lGST 25,000
Rate of CGST, SGST and IGST are 9%, 9% and 18% respectively.
Both inward and outward supplies are exclusive of taxes wherever applicable.
All the conditions necessary for availing the ITC have been fulfilled. Compute the net GST payable by
Mr. Bholenath for the month of January, 20XX. (6 Marks)
(b) Shridhar Co. Ltd., a registered supplier, is engaged in the manufacture of heavy machinery. It
procured the following items during the month of March.

S. No. Items GST paid

(Rs.)
(i) Sweets for consumption of employees working in the factory 50,000
(ii) Raw material 1,00,000
(iii) Trucks used for the transport of raw material 2,00,000
(iv) Electrical transformers to be used in the manufacturing process 4,00,000

Determine the amount of input tax credit available with Shridhar Co. Ltd., for the month of March
by giving necessary explanations for treatment of various items.
Note: All the conditions necessary for availing the input tax credit have been fulfilled. (4 Marks)

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2. (a) A manufacturer of machinery supplied a special machine to Modern Furnishers. Following details
are provided in relation to amounts charged:
S. No. Particulars Rs.
(i) Price of machinery excluding taxes (before cash discount) 5,00,000
Additional charges not included above:-
(ii) Freight 13,000
(iii) Packing charges 10,000
(iv) Charges for designing the machine 17,000
Other information furnished is -
(a) Cash discount @ 2% on price of machinery has been allowed to the customer at the time of
supply and also recorded in invoice.
(b) GST rate – 18%.
Calculate value of supply of the special machine. (5 Marks)
(b) Explain the conditions necessary for obtaining input tax credit? (5 Marks)
3. (a) Examine whether GST is exempted on the following independent supply of services:
(i) Relax & Co, a tour operator, provides services to a foreign tourist for tour conducted in Kerala
and receives a sum of Rs. 1,50,000.
(ii) Ms. Sneha acts as a Coach for Indian Sports League (ISL), a recognised sports body, for a Tennis
tournament organised by Superb retail company and received a remuneration of Rs. 4,00,000.
(6 Marks)
(b) Gupta & Sons, a registered supplier, paying tax under normal scheme is a wholesale supplier of
ready-made garments located in Bandra, Mumbai. On 5th September, 20XX, Mohini, owner of
Charming Boutique located in Dadar, Mumbai, approached Gupta & Sons for supply of a
consignment of customised dresses for ladies and kids.
Gupta & Sons gets the consignment ready by 2nd December, 20XX and informs Mohini about the
same. The invoice for the consignment was issued the next day, 3 rd December, 20XX.
Due to some reasons, Mohini could not collect the consignment immediately. So, she collects the
consignment from the premises of Gupta & Sons on 18th December, 20XX and hands over the
cheque for payment on the same date. The said payment is entered in the accounts on
20th December, 20XX and amount is credited in the bank account on 21st December, 20XX.
You are required to determine the time of supply of the readymade garments supplied by Gupta &
Sons to Mohini elaborating the relevant provisions under the GST law. (4 Marks)
4. (a) When shall the interest be payable by a registered person under section 50 of the CGST Act, 2017
and what is the maximum rate of interest chargeable for the same? (4 Marks)
(b) Who is required to furnish Final Return under CGST Act, 2017 and what is the time limit for the
same? Discuss. (3 Marks)
(c) Does cancellation of registration impose any tax obligations on the person whose registration is so
cancelled? Discuss. (3 Marks)
5. (a) Sangam Ltd., obtains registration for paying taxes under section 9 of CGST Act. He asked his tax
manager to pay taxes on quarterly basis. However, Sangam Ltd.’s tax manager advised the
Company to pay taxes on monthly basis. You are required to examine the validity of the advice
given by tax manager? (4 Marks)
6

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 (b) Mr. Akash Malhotra of Gujarat often participates in the jewellery exhibition at Trade Fair in Delhi,
which is organised every year in the month of February. Mr. Akash Malhotra applied for registration
in January. The proper officer demanded an advance deposit of tax in an amount equivalent to the
estimated tax liability of Mr. Akash Malhotra.
You are required to examine whether any advance tax is to be paid by Mr. Akash Malhotra at the
time of obtaining registration? (4 Marks)
(c) Discuss any two functions of GSTN. (2 Marks)

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 Test Series: August, 2018
MOCK TEST PAPER – 1
INTERMEDIATE (NEW) COURSE
PAPER – 4: TAXATION
SECTION – A: INCOME TAX LAW
SOLUTIONS
1. Computation of Total income of Dr. Kumar for the Assessment Year 2018-19
Particulars Rs.
Profits and gains of business or profession (Working Note 1) 2,68,050
Capital Gains (Working Note 2) 3,12,000
Income from other sources (Working Note 3) 64,000
Gross Total Income 6,44,050
Less: Deduction under Chapter VI-A (Working Note 4) 1,55,000
Total Income 4,89,050
Computation of tax liability of Dr. Kumar for the Assessment Year 2018-19
Particulars Rs.
Tax on winnings from lotteries [Rs. 40,000 @ 30%] 12,000
Tax on long term capital gains 20% of Rs. 1,99,050, being Rs. 3,12,000 – 39,810
unexhausted basic exemption limit of Rs. 1,12,950 [i.e., Rs. 2,50,000 – (Rs.
2,68,050 + Rs. 24,000 – Rs. 1,55,000)]
51,810
Add: Education cess@2% and secondary and higher education cess@1% 1,554
Total tax liability 53,364
Less: Tax deducted at source 12,000
Net tax liability 41,364
Net tax liability (rounded off) 41,360
Working Notes:
1. Computation of income under the head “Profits and gains of business or profession”
Particulars Rs. Rs.
Net income as per Income and Expenditure Account 2,51,800
Add: Expenditure debited to Income and Expenditure Account
but to be disallowed
Depreciation (Rs. 91,000 – Rs. 50,000) 41,000
Medicine consumed for self and family (disallowed under 25,000
section 37, being expenditure of personal nature)
Medicine consumed for treating poor patients from whom
fees was not charged is an allowable expense, since the -
same is incurred in the course of carrying on medical
profession.
Cash payment of salary disallowed under section 40A(3), 15,000
since the same is in excess of Rs. 10,000

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 Donation to Prime Minister’s National Children’s Fund
(not allowable as deduction while computing income from
profession) 5,000 86,000
3,37,800
Less: Income credited to Income and Expenditure Account
but not chargeable to income-tax or not chargeable
under this head
Dividend from Indian company 15,000
Winning from lotteries (taxable under the head “Income 28,000
from other sources”)
Income-tax refund (Not taxable) 2,750
Honorarium for giving lectures at seminars (taxable
under the head “Income from other sources”) 24,000 69,750
Income from profession 2,68,050
2. Computation of income under the head “Capital Gains”
Particulars Rs. Rs.
Sale consideration 12,00,000
Valuation as per Stamp Valuation Authority 14,00,000
(Value to be taken is the higher of the actual sale consideration
or valuation adopted for stamp duty purpose as per section
50C)
Full value of consideration 14,00,000
Less: Indexed cost of acquisition (Rs. 4,00,000 x 272/100) 10,88,000
Long term Capital gains (Since Land was held from more 3,12,000
than 24 months)
3. Computation of income under the head “Income from Other Sources”
Particulars Rs. Rs.
Dividend from Indian company [Exempt u/s 10(34)] -
Honorarium for giving lectures at seminars 24,000
Winning from lotteries (Net) 28,000
Add: TDS @30% (Rs. 28,000 x 30/70) 12,000 40,000
Income from other sources 64,000
Note: As per section 58(4), no expense or deduction is allowable in respect of winning from
lotteries.
4. Computation of deduction under Chapter VI-A
Section Particulars Rs.
80C Life Insurance Premium [Rs. 25,000 restricted to 10% of 20,000
Rs. 2,00,000 (i.e. sum assured) since the policy is issued on or
after 1.4.2012]
Contribution to Public Provident Fund 1,20,000
1,40,000
80E Interest on loan taken for higher education of daughter 10,000
2

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 80G Donation to Prime Minister’s National Children’s Fund [100% 5,000
deduction allowable, since it is made by a mode other than cash]
Total deduction under Chapter VI-A 1,55,000
2. (a) Computation of Capital gains in the hands of Mr. Shiva for A.Y. 2018-19
Particulars Amount Amount
(Rs.) (Rs.)
Actual sale consideration 30,50,000
Valuation as per Stamp duty Authority 30,00,000
(As per section 50C, value to be taken is the higher of actual
sale price or valuation adopted for stamp duty purpose.
In case date of agreement and date of registration are not the
same, the vale adopted for the stamp duty purpose on the date
of agreement may be taken if the amount of consideration or a
part thereof has been received, inter alia, by way of an account
payee cheque)
Deemed sale consideration 30,50,000
Less: Expenses on transfer (Brokerage @1% of Rs. 30,50,000) 30,500
Net sale consideration 30,19,500
Less: Indexed cost of acquisition (Note 1) 26,08,480
Less: Indexed cost of improvement (Note 2) 4,42,000 30,50,480
Long term capital loss (30,980)
Notes:
(1) Computation of indexed cost of acquisition
Particulars Amount Amount
(Rs.) (Rs.)
Cost of acquisition, 10,70,000
Being the higher of
(i) Fair market value on April 1, 2001 10,70,000
(ii) Actual cost of acquisition (Rs. 3,24,000 + 3,59,000
Rs. 35,000, being stamp duty @10% of
Rs. 3,50,000
Less: Advance money taken from Mr. Mohan and forfeited 1,11,000
Cost of acquisition for indexation 9,59,000
Indexed cost of acquisition (Rs. 9,59,000 x 272/100) 26,08,480
(2) Computation of indexed cost of improvement
Particulars Amount
(Rs.)
Cost of construction on first floor in August, 2014 3,90,000
Indexed cost of improvement (Rs. 3,90,000 x 272/240) 4,42,000
(3) Where advance money has been received by the assessee, and retained by him, as a result
of failure of the negotiations, section 51 will apply. The advance retained by the assessee will
go to reduce the cost of acquisition. Indexation is to be done on the c ost of acquisition so

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 arrived at after reducing the advance money forfeited i.e. Rs. 10,70,000 – Rs. 1,11,000 =
Rs. 9,59,000. It may be noted that in cases where the advance money is forfeited during the
previous year 2014-15 or thereafter, the amount forfeited would be taxable under the head
“Income from Other Sources” and such amount will not be deducted from the cost of
acquisition of such asset while calculating capital gains. Hence, Rs. 1,51,000, being the
advance received from Ms. Deepshikha and retained by him, is taxable under the head
“Income from other sources”.
(b) Difference between Circulars and notifications
Circulars Notifications
Circulars are issued by CBDT. Notifications are issued by the Central
Government. The CBDT is also empowered
to issue notifications.
Circular are issued with certain specific Central Government issues notifications to
problems and to clarify doubt regarding the effect the provisions of the Act and CBDT
scope and meaning of certain provisions of the issues notifications to make and amend
Act. Income-tax Rules.
The department is bound by the circulars. Notifications are binding in nature. Both
While such circulars are not binding on the department and assessees are bound by the
assessees, they can take advantage of notifications.
beneficial circulars.
3. (a) Computation of Total income of Mr. Shashank and Mrs. Kajal for the A.Y. 2018-19
Particulars Mr. Shashank Mrs. Kajal
(Rs.) (Rs.)
Salary income (Rs. 30,000 x 12) 3,60,000
Income from house property [Rs. 2,40,000 (Rs. 20,000 x 12) 1,68,000
less standard deduction of 30%] (Note 1)
Income from other sources
Interest on fixed deposit with State bank of India 40,000
(Rs. 4,00,000 x 10%) (Note 2)
Profits and gains from business or profession
Profits earned by Mrs. Kajal from her business (Note 3) 3,00,000 6,00,000
Income before including income of minor child under section 8,68,000 6,00,000
64(1A)
Income from other sources
Minor son Sandeep - Income from company deposit (Note 4) 1,48,500
Total income 10,16,500 6,00,000
Notes:
(1) According to section 27(i), an individual who transfers any house property to his or her spouse
otherwise than for adequate consideration or in connection with an agreement to live apart,
shall be deemed to be the owner of the house property so transferred. Hence, Mr. Shashank
shall be deemed to be the owner of the flat gifted to Mrs. Kajal and hence, the income arising
from the same shall be computed in the hands of Mr. Shashank.
Note: The provisions of section 56(2)(x) would not be attracted in the hands of Mrs. Kajal,
since she has received immovable property without consideration from a relative i.e., her
husband.

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 (2) As per section 60, in case there is a transfer of income without transfer of asset from which
such income is derived, such income shall be treated as income of the transferor. Therefore,
the fixed deposit interest of Rs. 40,000 transferred by Mr. Shashank to Mr. Ram shall be
included in the total income of Mr. Shashank.
(3) Section 64(1)(iv) provides for the clubbing of income in the hands of the individual, if the
income earned is from the assets transferred directly or indirectly to the spouse of the
individual, otherwise than for adequate consideration or in connection with an agreement to
live apart. In this case Mrs. Kajal received a gift of Rs. 10,00,000 on 1.4.2017 from her
husband which she invested in her business on the same day. The income to be clubbed in
the hands of Mr. Shashank for the A.Y. 2018-19 is computed as under:
Particulars Mrs. Kajal’s Capital Total (Rs.)
capital contribution out of
contribution gift from Mr.
(Rs.) Shashank (Rs.)
Capital as on 1.4.2017 20,00,000 10,00,000 30,00,000

Profit for P.Y. 2017-18 to be 6,00,000 3,00,000 9,00,000

apportioned on the basis of (9,00,000 x 2/3) (9,00,000 x 1/3)
capital employed on the first
day of the previous year i.e.
as on 1.4.2017 (2:1)
Therefore, the income to be clubbed in the hands of Mr. Shashank for the A.Y.2018-19 is
Rs. 3,00,000.
Note: The provisions of section 56(2)(x) would not be attracted in the hands of Mr s. Kajal,
since she has received a sum of money exceeding Rs. 50,000 without consideration from a
relative i.e, her husband.
(4) As per section 64(1A), the income of the minor child is to be included in the total income of
the parent whose total income (excluding the income of minor child to be so clubbed) is
greater. Further, as per section 10(32), income of a minor child which is includible in the
income of the parent shall be exempt to the extent of Rs. 1,500 per child.
Therefore, the income of Rs. 1,50,000 received by minor son Sandeep from company deposit
shall, after providing for exemption of Rs. 1,500 under section 10(32), be included in the
income of Mr. Shashank, since Mr. Shashank’s income of Rs. 8,68,000 (before including the
income of the minor child) is greater than Mrs. Kajal’s income of Rs. 6,00,000. Therefore,
Rs. 1,48,500 (i.e., Rs. 1,50,000 – Rs. 1,500) shall be included in Mr. Shashank’s income. It
is assumed that this is the first year in which clubbing provisions are attracted .
(b)
S.No. Taxable Reason
(i) Taxable As per Sec 56(2)(x), where any person receives, in any previous year
from any person or persons, any sum the aggregate value of which
exceeds Rs. 50,000, the whole of the aggregate value of such sum
shall be included in the total income of such person under the head
“Income from other sources”.
Though the gifts range from Rs. 500 to Rs. 1000, the aggregate value
exceeds Rs. 50,000. Hence, Rs. 2 lakhs is taxable in her hands.
(ii) Not taxable Immovable property received by Mr. Krishna from the deceased Mrs.
Chandraben as per a WILL is not taxable since any sum of money or
any property received under a will is excluded under section 56(2)(x).
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 (iii) Taxable Where any immovable property is received by any person without
consideration the stamp duty value of which exceeds Rs. 50,000, the
stamp duty value shall be included in the total income of such person
under the head “Income from other sources”. Therefore, Rs. 75,000
being the stamp duty value of the immovable property received as gift
by Mr. King is taxable in his hands.
(iv) Taxable The provisions of section 56(2)(x) are not attracted in respect of any
sum of money or property received from a relative. However, sister’s
daughter in law is not a relative as per section 56(2)(x). Since, the fair
market value of diamonds exceeds Rs. 50,000, the value of diamonds
is taxable in the hands of sister’s daughter in law.
4. 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. I f both the above
conditions are not satisfied, the individual is a non-resident.
Therefore, the residential status of Miss Kaira, an American National, for A.Y.2018-19 has to be
determined on the basis of her stay in India during the previous year relevan t to A.Y. 2018-19 i.e.
P.Y.2017-18 and in the preceding four assessment years.
Her stay in India during the previous year 2017-18 and in the preceding four years are as under:
P.Y. 2017-18
01.04.2017 to 20.09.2017 - 173 days
27.03.2018 to 31.03.2018 - 5 days
Total 178 days
Four preceding previous years
P.Y.2016-17 [1.4.2016 to 31.3.2017] - 12 days
P.Y.2015-16 [1.4.2015 to 31.3.2016] - Nil
P.Y.2014-15 [1.4.2014 to 31.3.2015] - Nil
P.Y.2013-14 [1.4.2013 to 31.3.2014] - Nil
Total 12 days
The total stay of the assessee during the previous year in India was less than 182 days and during the
four years preceding this year was for 12 days. Therefore, due to non-fulfillment of any of the two
conditions for a resident, she would be treated as non-resident for the Assessment Year 2018-19.
Computation of total income of Mrs. Kaira for the A.Y. 2018-19
S. No. Particulars (Non-Resident)
(Rs.)
1. Dividend from American company, received in America (Note 1) -
2. Profit from profession in Delhi, but managed directly from America 50,000
(Note 2)
3. Long-term capital gain on sale of shares of an Indian company 60,000
(Note 2)

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 4. Interest on savings account with SBI (Note 2) 17,000
5. Agricultural income from land in Tamilnadu [Exempt under section -
10(1)]
6. Rent (computed) from property in America deposited in a Bank at -
America, later on remitted to India (Note 1)
7. Cash gift received from a friend on Mrs. Kaira birthday on 16.8.2017 51,000
Note: As per section 56(2)(x), cash gifts received from a non-relative
would be taxable, if the amount exceeds Rs. 50,000 in aggregate
during the previous year.
8. Past foreign untaxed income brought to India [Not taxable, since it -
does not represent income of the P.Y.2017-18].
Total Income 1,78,000
Notes:
(1) As per section 5(1), global income is taxable, in case of a resident. However, as per section 5(2),
only the following incomes are chargeable to tax, in case of a non-resident:
(i) Income received or deemed to be received in India; and
(ii) Income accruing or arising or deemed to accrue or arise in India.
Therefore, dividend from American company received in America, rent from property in America
by Mrs. Kaira, a non-resident, would not be taxable in India, since both the accrual and receipt are
outside India.
(2) Profits from profession in Delhi, long term capital gains and interest on saving account with SBI
are taxable in the hands of Mrs. Kaira, since such incomes are deemed to accrue or arise in India
during the P.Y. 2017-18.
5. (a) Allowable deduction to Mr. Bhardwaj from Gross Total Income
(i) Contribution towards Clean Ganga Fund set up by the Central Government: Whole of
the contribution i.e., Rs. 2 lakh towards Clean Ganga Fund, set up by the Central Government,
is allowable as deduction under section 80G to Mr. Bharadwaj, since he is a resident of India.
(ii) Medical Expenditure of Rs. 50,000 towards surgery of his grandmother: Deduction is
allowable under section 80D, in respect of medical expenditure incurred by an assessee for
himself or any member of the family or parents, if any of such person(s) is of the age of 80
years or more and no payment has been made to keep in force an insurance on the health of
such person(s).
In the present case, no deduction is allowable to Mr. Bharadwaj, since he incurred medical
expenditure towards surgery of his grandmother, who does not fall within the definition of
“family” under section 80D. Apart from family, deduction is only allowable in respect of
premium paid for parents, and not grandparents.
(b) Computation of total income of Ms. Kareena for the A.Y.2018-19
Particulars Rs. Rs.
Profits and gains from business or profession
Business income 5,50,000
Less: Loss from house property of Rs. 3,50,000 to be restricted 2,00,000 3,50,000
to Rs. 2,00,000 by virtue of section 71(3A) [Note 2]
Capital Gains
Long term capital gains on sale of house 1,50,000
Short term capital gains on sale of shares in B Pvt. Ltd 50,000 2,00,000
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 Income from other sources
Interest from saving account in post office 15,000
Less: Exempt under section 10(15) to the extent of Rs. 3,500 3,500
11,500
Prize winnings from a T.V. show 20,000 31,500
Gross Total Income 5,81,500
Less: Deduction under Chapter VI-A
Deduction under section 80C
Life insurance premium for self and husband 70,000
Tuition fees to University for full time education 50,000
1,20,000
Deduction under section 80TTA – Interest on saving
account in post office 10,000 1,30,000
Total Income 4,51,500
Computation of tax payable by Ms. Kareena for the A.Y.2018-19
Particulars Rs. Rs.
Step 1
Agricultural income and Non-agricultural income 5,61,500
(Rs. 1,10,000 + Rs. 4,51,500)
Tax on the above income
(i) Tax on long-term capital gain of Rs. 1,50,000 @ 20% 30,000
(ii) Tax on winnings of Rs. 20,000 from a T.V. show @ 30% 6,000
(iii) Tax on balance income of Rs. 3,91,500 7,075 43,075
Total tax on Rs. 5,61,500 43,075
Step 2
32B

Basic exemption limit to agricultural income (Rs. 2,50,000

3B 3,60,000
+ Rs. 1,10,000)
Tax on Rs. 3,60,000
35B 5,500
Step 3
36B

Tax on non-agricultural income (Tax under step 1 – Tax

37B

under step 2) (Rs. 43,075 – Rs. 5,500) 37,575

Add: Education cess @ 2%
38B 751
Add: Secondary and higher education cess @ 1%
39B 376
Tax payable by Ms. Kareena
40B 38,702
TTax payable (Rounded off) 38,700
Notes:
1. Short-term capital gains on sale of shares in B Pvt. Ltd. is taxable at normal rates.
2. The balance loss of Rs. 1,50,000 from house property to be carried forward to next
assessment year for set-off against income from house property of that year.

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6. Computation of Income taxable under the head “Salaries” for the A.Y. 2018-19
Particulars Rs. Rs. Rs.
Basic Salary (Rs. 20,000 x 12) 2,40,000
Dearness Allowance (Rs. 15,000 x 12) 1,80,000
House Rent Allowance Received 2,40,000
Less: Exempt under section 10(13A) 2,10,000 30,000
Least of the following would be exempt
House Rent Allowance Received 2,40,000
Rent paid (-) 10% of salary [(Rs. 25,000 x 12) – 10% x 2,58,000
4,20,000]
50% of salary, since place of residence is Chennai 2,10,000
(50% x 4,20,000)
Telephone bills paid by A Ltd. for the telephone installed at -
his Residence [Telephone provided at the residence of the
employee and payment of bill by the employer is a tax free
perquisite]
Annual premium paid by A. Ltd. for towards personal accident -
policy on his life
Motor car owned and driven by employee, running and 9,000
maintenance charges borne by the employer [Rs. 30,600 -
Rs. 21,600 (i.e., Rs. 1,800 × 12)]
Retrenchment compensation received 15,00,000
Less: Exempt under section 10(10B) 4,96,154 10,03,846
Least of the following would be exempt
Compensation actually received 15,00,000
Monetary Limit 5,00,000
Amount calculated as per section 25F of Industrial 4,96,154
Disputes Act {15/26 x [(25,000 + 18,000) x 3]/3 x 20}
Salary income chargeable to tax 14,62,846
7. (a) Monetary limit for mandatory quoting of PAN
Transaction Minimum amount above which quoting of
PAN is mandatory
(i) Opening a demat account with a All such transactions
depository. (There is no minimum amount)
(ii) Purchase of bank draft from a Payment in cash of an amount exceeding
banking company Rs. 50,000 during any one day
(iii) Payment for purchase of any foreign Payment in cash of an amount exceeding
currency at any one time Rs. 50,000
(iv) Payment to a company for acquiring Amount exceeding Rs. 50,000.
debentures issued by it
(v) Payment as life insurance premium Amount aggregating to more than Rs. 50,000 in a
to an insurer financial year

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 OR
(a) Every person who is eligible to obtain Aadhar Number is required to mandatorily quote Aadhar
Number, on or after 1st July, 2017:
(a) in the application form for allotment of Permanent Account Number (PAN)
(b) in the return of income.
The provisions of section 139AA relating to quoting of Aadhar Number would, however, not apply
to an individual who does not possess the Aadhar number or Enrolment ID and is:
(i) residing in the States of Assam, Jammu & Kashmir and Meghalaya;
(ii) a non-resident as per Income-tax Act, 1961;
(iii) of the age of 80 years or more at any time during the previous year;
(iv) not a citizen of India.
If a person does not have Aadhar Number, he is required to quote Enrolment ID of Aadhar
application form issued to him at the time of enrolment in the application form for allotment of PAN
or in the return of income furnished by him.
Every person who has been allotted PAN as on 1st July, 2017, and who is eligible to obtain Aadhar
Number, shall intimate his Aadhar Number to prescribed authority on or before a date as may be
notified by the Central Government.
(b) (i) As per section 194J, liability to deduct tax is attracted only in case the payment made as fees
for professional services and royalty, individually, exceeds Rs.30,000 during the financial
year. In the given case, since, the individual payments for fee of professional services i.e.
Rs. 20,000 and royalty Rs. 27,000 is less than Rs. 30,000 each, there is no liability to deduct
tax at source. It is assumed that no other payment towards fees for professional services and
royalty were made during the year to Ms. Kajal.
(ii) According to section 194C, the definition of “work” does not include the manufacturing or
supply of product according to the specification by customer in case the material is purchased
from a person other than the customer.
Therefore, there is no liability to deduct tax at source in respect of payment of
Rs. 1,05,000 to Mr. Ram, since the contract is a contract for ‘sale’.
(iii) As per section 194-I, tax is to be deducted @ 2% on payment of rent for plant and machinery,
only if the payment exceeds Rs. 1,80,000 during the financial year. Since rent of Rs. 1,70,000
paid by a partnership firm does not exceed Rs. 1,80,000, tax is not deductible.

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 SECTION B - INDIRECT TAXES (40 MARKS)
SUGGESTED ANSWERS
Notes
(i) Section/sub-section/rule/notification numbers mentioned in the answers are solely for the ease
of reference. The students are not expected to cite the same in their answers under examination
conditions.
(ii) GST law is in its nascent stage and has been subject to frequent changes. Althoug h various
clarifications have been issued in the last few months by way of FAQs or otherwise, many issues
continue to arise on account of varying interpretations on several of its provisions. Therefore,
alternate answers may be possible for the questions depending upon the view taken.
For the sake of brevity, Central Goods and Services Tax, Integrated Goods and Services Tax, Central Goods
and Services Tax Act, 2017, Integrated Goods and Services Tax Act, 2017 and Central Goods and Services
Tax Rules, 2017 have been referred to as CGST, IGST, CGST Act, IGST Act and CGST Rules respectively.
1. (a) Computation of net GST payable by Mr. Bholenath for the month of January, 20XX
Working of GST payable on Outward supplies
S.No. Particulars (Rs.) GST (Rs.)
(i) Inter-State taxable supply of goods
IGST @ 18% on Rs. 10,00,000 1,80,000
(ii) Intra-State taxable supply of goods
CGST @ 9% on Rs. 2,00,000 18,000
SGST @ 9% on Rs. 2,00,000 18,000 36,000
Computation of total ITC
Particulars CGST SGST IGST
@ 9% (Rs.) @ 9% (Rs.) @ 18% (Rs.)
Opening ITC 20,000 30,000 25,000
Add: ITC on Intra-State purchases of taxable
goods valuing Rs. 5,00,000 45,000 45,000
Total ITC 65,000 75,000 25,000
Computation of GST payable from cash ledger
Particulars CGST @ 9% (Rs.) SGST @ 9% (Rs.) IGST @ 18% (Rs.)
GST payable 18,000 18,000 1,80,000
Less: ITC (18,000)-CGST (18,000)-SGST (25,000)-IGST
(47,000)-CGST
(57,000)-SGST
Net GST payable Nil Nil 51,000
Note: ITC of IGST, CGST & SGST have been used to pay IGST in that order.
(b) Computation of ITC available with Shridhar Co. Ltd. for the month of March
S. No. Items ITC (Rs.)
(i) Sweets for consumption of employees working in the factory Nil
[Note-1]
(ii) Raw material [Note-2] 1,00,000

11

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 (iii) Trucks used for the transport of raw material [Note-3] 2,00,000
(iv) Electrical transformers [Note-4] 4,00,000
Total ITC 7,00,000
Notes:-
1. ITC on food or beverages is specifically disallowed unless the same is used for making
outward taxable supply of the same category or as an element of the taxable composite or
mixed supply-Section 17(5)(b)(i).
2. Being goods used in the course or furtherance of business, ITC thereon is available in terms
of section 16(1).
3. Though ITC on motor vehicles has been specifically disallowed under s ection 17(5)(a), ITC
on motor vehicles used for transportation of goods is allowed under section 17(5)(a)(ii).
4. Being goods used in the course or furtherance of business, ITC thereon is avai lable in terms
of section 16(1).
2. (a) Computation of value of special machine
Particulars Rs.
Price of machinery 5,00,000
Add: Freight [Note 1] 13,000
Packing charges [Note 2] 10,000
Designing charges [Note 3] 17,000
Total 5,40,000
Less: 2% cash discount on price of machinery [Rs. 5,00,000 x 2%] 10,000
[Note 4]
Value of taxable supply 5,30,000
Notes:
(1) Supply of machinery (goods) with supply of ancillary services like freight is a composite
supply, the principle supply of which is the supply of machinery. Thus, value of such ancillary
supply is includible in the value of composite supply.
(2) All incidental expenses including packing charged by the supplier to the recipient of a supply
are includible in the value of supply in terms of section 15(2)(c) of CGST Act, 2017.
(3) Designing charges are includible in the value of supply as any amount charged for anything
done by the supplier in respect of the supply of goods at the time of, or before delivery of
goods is so includible in terms of section 15(2)(c) of CGST Act, 2017.
(4) Cash discount was given at the time of supply and also recorded in invoice, so the same is not
to be included while computing value of supply in terms of section 15(3)(a) of CGST Act, 2017.
(b) The following four conditions are to be satisfied by the registered person for obtaining input tax credit:-
(i) he is in possession of tax invoice or debit note or such other tax paying documents as may
be prescribed;
(ii) he has received the goods or services or both;
(iii) the supplier has actually paid the tax charged in respect of the supply to the Government; and
(iv) he has furnished the return under section 39.
3. (a) (i) Services provided by a tour operator to a foreign tourist are exempt from GST provi ded such
services are in relation to a tour conducted wholly outside India. Thus, since in the given
case, services provided by Relax & Co. are in relation to a tour conducted within India, the
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 same are not exempt from GST.
(ii) Services provided by a coach to a recognised sports body for participation in a sporting event
are exempt from GST provided said sporting event is organised by a recognized sports body.
Thus, since in the given case, the sporting event is not organised by a recognised sports
body, the services provided by Ms. Sneha are not exempt from GST.
(b) As per Notification No. 66/2017 CT dated 15.11.2017, a registered person (excluding composition
supplier) has to pay GST on the outward supply of goods at the time of supply as specified in
section 12(2)(a) of CGST Act, 2017 i.e., date of issue of invoice or the last date on which invoice
ought to have been issued in terms of section 31.
Therefore, the time of supply of goods is 3rd December which is the date on which the invoice for
the consignment was issued.
4. (a) As per section 50 of the CGST Act, 2017, interest is payable in the following cases:-
• failure to pay tax, in full or in part within the prescribed period,
• undue or excess claim of input tax credit,
• undue or excess reduction in output tax liability.
The maximum rate of interest chargeable for the same is as under-
(i) 18% p.a. in case of failure to pay full/part tax within the prescribed period
(ii) 24% p.a. in case of undue or excess claim of input tax credit or undue or excess reduction in
output tax liability.
(b) Every registered person who is required to furnish a return under section 39(1) of the CGST Act,
2017 and whose registration has been surrendered or cancelled shall file a Final Return
electronically in the prescribed form through the common portal.
Final Return has to be filed within 3 months of the:
(i) date of cancellation
or
(ii) date of order of cancellation
whichever is later.
(c) Yes, as per section 29(5) of the CGST Act, every registered person whose registration is cancelled
shall pay an amount, by way of debit in the electronic cash ledger, equivalent to the credit of input
tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held
in stock or capital goods or plant and machinery on the day immediately preceding the date of such
cancellation or the output tax payable on such goods, whichever is higher.
5. (a) The advice given by tax manager is valid in law. Payment of taxes by the normal tax payer is to
be done on monthly basis by the 20 th of the succeeding month. Cash payments will be first
deposited in the Cash Ledger and the tax payer shall debit the ledger while making payment in the
monthly returns and shall reflect the relevant debit entry number in his return. However, payment
can also be debited from the Credit Ledger. Payment of taxes for the month of March shall be pa id
by the 20 th of April. Composition tax payers will need to pay tax on quarterly basis.
(b) Yes, advance tax is to be paid by Mr. Akash Malhotra at the time of obtaining registration. Since
Mr. Akash Malhotra occasionally undertakes supply of goods in the course or furtherance of
business in a State where he has no fixed place of business, thus he qualifies as casual taxable
person in terms of section 2(20) of CGST Act, 2017.
While a normal taxable person does not have to make any advance deposit of tax to obtain
registration, a casual taxable person shall, at the time of submission of application for registration
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 is required, in terms of section 27(2) read with proviso thereto, to make an advance deposit of tax
in an amount equivalent to the estimated tax liability of such person for the period for which the
registration is sought. If registration is to be extended beyond the initial period of 90 days, an
advance additional amount of tax equivalent to the estimated tax liability is to be deposited for the
period for which the extension beyond 90 days is being sought.
(c) The functions of the GSTN include:
➢ facilitating registration;
➢ forwarding the returns to Central and State authorities;
➢ computation and settlement of IGST;
➢ matching of tax payment details with banking network;
➢ providing various MIS reports to the Central and the State Governments based on the
taxpayer return information;
➢ providing analysis of taxpayers' profile; and running the matching engine for matching,
reversal and reclaim of input tax credit.
(Note: Any two points may be mentioned)

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