SECTION – A: INCOME TAX LAW (60 MARKS)

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. However, in answers to Questions in Division A,
working notes are not required.
The relevant assessment year is A.Y.2021-22.
Division A – Multiple Choice Questions
Write the most appropriate answer to each of the following multiple choice questions by choosing
one of the four options given. All questions are compulsory.
1. Mr. Akash had bought a residential house worth Rs. 2.5 crores at South Extension, Delhi in 2018
and let out the house on rent to Mr. Riyaz. The property was funded through loan from PNB. The
interest due for F.Y.2020-21 to PNB is Rs. 25 lakhs, out of which he paid only Rs. 20 lakhs during
the year. Mr. Akash then took a loan of Rs. 1.5 crores from SBI on 1.7.2020 for construction of first
floor in that house for self-occupation. The construction is in progress as on 31.3.2021. Mr. Akash started
repaying EMIs due to SBI. During the P.Y. 2020-21, he repaid principal amount of Rs. 25 lakhs and
Rs. 5 lakhs to PNB and SBI, respectively. He also paid interest of Rs. 8 lakhs to SBI out of Rs. 10
lakhs, being interest due for the period from 1.7.2020 to 31.3.2021.
Mr. Akash owns another house in Haryana. He transferred that house to his minor daughter Miss Sia
on her birthday as her birthday gift. Miss Sia gave the said house to the local Panchayat from
September, 2020 at a rent of Rs. 5,000 per month. Mrs. Akash’s total income for A.Y.2021-22 is higher
than that of Mr. Akash. This is the first year when Miss Sia has any source of income.
Mr. Akash bought electric vehicle worth Rs. 50 lakhs on loan from BSM Bank which it sanctioned on
1.4.2020. BSM Bank charged interest of Rs. 7 lakhs on electric vehicle for the P.Y.2020-21. Mr. Akash
has also taken loan from ABC Bank for his daughter’s higher education. He paid Rs. 50,000 as
interest to ABC Bank. He also paid mediclaim of Rs. 20,000 to New India Assurance Scheme for
insuring his health.
Mrs. Akash owns a shop of 200 square feet area in Gurgaon. She rented it to Mr. Vishal from October,
2020 at Rs. 60,000 per month, who gave her an interest-free deposit of Rs. 1,50,000.
From the information given above, choose the most appropriate answer to the following questions -
(i) What is the amount of interest allowable as deduction u/s 24 to Mr. Akash for A.Y.2021-22?
(a) Rs. 2 lakhs
(b) Rs. 25 lakhs
(c) Rs. 28 lakhs
(d) Rs. 35 lakhs (2 Marks)
(ii) What is the amount of deduction permissible to Mr. Akash under Chapter VI-A of Income-tax
Act, 1961 for A.Y. 2021-22?
(a) Rs. 1,70,000
(b) Rs. 2,20,000
(c) Rs. 3,70,000
(d) Rs. 9,20,000 (2 Marks)
(iii) Is notional interest on interest free deposit received in respect of shop let out on rent
chargeableto income-tax? If so, under which head of income would the same be taxable?
(a) No, it is not chargeable to tax
(b) Yes, it is chargeable to tax as profits and gains from business, since a commercial
 propertyhas been let out.
(c) Yes, it is chargeable to tax as “Income from Other Sources”, being the residuary head
of income.
(d) Yes, it is chargeable to tax as “Income from house property”, since section 22 does
not distinguish between a residential house property and commercial house property. (2
Marks)
(iv) In whose hands would Sia’s rental income from house property at Haryana be taxable and
how much income would be taxable?
(a) In Sia’s hands; Rs.24,500
(b) In Mr. Akash’s hands; Rs.24,500
(c) In Mrs. Akash’s hands; Rs.23,000
(d) It would change every year depending on the parent whose income is higher in that year.
(2 Marks)
2. Miss Nisha (68 years) is a resident individual. For the Assessment Year 2021-22, she has
following income:
Long-term capital gain on transfer of equity shares
Rs.1,80,00
0(Securities Transaction Tax has been paid on acquisition and transfer of the said shares)
Other income Rs.2,75,000
Calculate the tax liability of Miss Nisha for Assessment Year 2021-22.
(a) Nil
(b) Rs.5,670
(c) Rs.5,720
(d) Rs.8,320 (2 Marks)
3. K is a working partner in a firm on behalf of his HUF and the HUF has contributed Rs.3,00,000 as its capital
contribution. Apart from this, K has given a loan of Rs.50,000 to the firm in his individual capacity. The firm
pays interest as per market rate of 15% per annum on capital as well as loan. Compute the amount of
interest that shall be allowed to the firm while calculating its business income assuming that the interest is
authorized by the partnership deed.
(a) Rs.42,000
(b) Rs.51,000
(c) Rs.52,500
(d) Rs.43,500 (2 Marks)
4. Mr. Prakash is employed with XYZ Ltd. from 05.11.2017. He resigned on 31.03.2022 and also withdrew
a sum of Rs. 55,000, being the accumulated balance of employer’s contribution in his EPF Account, on
thesame date. The tax would be deducted -
(a) Rs. 500 u/s 192
(b) Rs. 5,500 u/s 192
(c) Rs. 4,125 u/s
192A
 (d) Rs. 5,500 u/s 192A (2 Marks)
5. 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 01.06.2019 and leaves to Malaysia on 10.02.2020. 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 (2 Marks)
6. Ms. Shalini received interest on enhanced compensation of Rs. 5,00,000. Out of this interest, Rs. 1,50,000
relates to the previous year 2018-19, Rs. 1,90,000 relates to previous year 2019-20 and Rs. 1,60,000
relates to previous year 2020-21. She paid Rs. 1 lakh to her advocate for his efforts in the matter.
What amount would be taxable in P.Y. 2020-21 and taxable, if any, under which head of income.
(a) Rs.2,50,000 under the head “income from other sources”
(b) Rs. 4,00,000 under the head “income from other sources”
(c) Rs.1,60,000 under the head “income from other sources”
(d) Rs.1,60,000 under the head “Capital gains” (2
Marks) Division B – Descriptive Questions
Question No. 1 is compulsory
Attempt any two questions from the remaining three questions
1. From the following information provided by Mr. Suresh, aged 43 years and a wholesale dealer, for the
A.Y. 2021-22, you are required to compute the tax payable by him.
Trading and Profit and Loss Account of Mr. Suresh
Particulars Amount in Particulars Amount in
Rs. Rs.
To Opening Stock 24,21,000 By Sales 2,62,50,100
To Purchases 2,06,00,500 By Closing stock 52,00,100
To Direct expenses 4,12,040
To Freight inward 2,65,000
To Gross Profit c/d 77,51,660
3,14,50,200 3,14,50,200
To Salaries and wages 17,15,000 By Gross Profit b/d 77,51,660
To General expenses 3,65,000 By dividend from Indian companies 17,20,000
(gross)
To Rates and taxes 2,40,000 By Interest received on FDs (Net of tax) 1,11,000
[FD made on 1.8.2020]
To Interest paid on late filing 3,845 By Rent received 7,20,000
of GST
To Income-tax paid for FY 3,45,000 By Income-tax Refund 19,000
2019-20
To Interest paid to NBFC 1,15,000
To Depreciation 1,82,000
To Net Profit 73,55,815
1,03,21,660 1,03,21,660
The following additional information is provided by him:
 (a) Closing stock of previous year 2020-21 was undervalued by Rs. 55,000.
(b) Rates and taxes include Rs. 1,000 paid towards late filing of his Income-tax return
forAssessment Year 2020-21 under section 234F of lncome-tax Act.
(c) Salaries include Rs. 30,000 paid on single day by way of cash to his accountant.
(d) Interest paid on loan of Rs. 10,00,000 taken from a Non-Banking Finance company. Out of the
loan, amount of Rs. 2 lakhs was used for personal purpose and the balance was used for
business purpose. No TDS was deducted while paying the interest on loan.
(e) An amount of Rs. 35,000 was paid by cheque during the year towards health insurance policy
covering himself, his spouse and his children.
(f) General expenses include Advertisement expense of Rs. 25,000 paid by cheque towards an
advertisement in a souvenir published by local political party.
(g) Income-tax refund includes Rs. 2,500 towards interest.
(h) Depreciation charged is as per Income-tax Rules is Rs. 2,20,000
(i) Advance Tax paid during the year is Rs. 9 lakhs.
(j) TDS has been deducted on interest received on FD.
(k) Turnover for the year ending 31.03.2020 was Rs. 2.58 crores. (14 Marks)

2. (a) Mr. Thomas, a citizen of Japan, comes to India for the first time during the P.Y. 2016-17. During
the financial years 2016-17, 2017-18, 2018-19 2019-20 and 2020-21, 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. 2021-22. Examine the tax implications in the hands of Mr. Thomas for the Assessment Year
2021-22 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.
5lakhs from collection of news and views in India for transmission outside India.
(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.
(7 Marks)
(b) Mr. Naksh has undertaken certain transactions during the F.Y.2020-21, which are listed below.
You are required to identify the transactions in respect of which quoting of PAN is mandatory
inthe related documents –
S.No. Transaction
1. Payment of life insurance premium of Rs. 40,000 in the F.Y.2020-21 by account
payee cheque to LIC for insuring life of self and spouse
2. Payment of Rs. 1,10,000 to RBI for acquiring its bonds
3. Applied for issue of credit card to SBI
4. Payment of Rs. 1,00,000 by account payee cheque to travel agent for travel to
Singapore for 3 days to visit
(4 Marks)
(c) Ms. Soha (aged 35 years), a resident individual, is a dealer of scooters. During the previous year
2020-21, total turnover of her business was Rs. 110 lakhs (out of which Rs. 25 lakhs was
received by way of account payee cheques and balance in cash). Ms. Soha does not opt to pay
tax as per the provisions of section 115BAC.
What would be your advice to Ms. Soha relating to the provisions of advance tax with its due date
 along with the amount payable, assuming that she wishes to make maximum tax savings.
(3 Marks)
3. (a) Mr. Kashyap, aged 38 years, is entitled to a salary of Rs. 40,000 per month. He is given an
option by his employer either to take house rent allowance or a rent free accommodation which is
owned by the company. The HRA amount payable was Rs. 8,000 per month. The rent for
the hired accommodation was Rs. 6,500 per month at New Delhi. Advice Mr. Kashyap whether it
would be beneficial for him to avail HRA or Rent Free Accommodation. Give your advice on the
basis of “Net Take Home Cash benefits”.Assume Mr. Kashyap does not opt for the provisions of
section 115BAC. (7
Marks)
(b) Compute the total income of Mr. Veer for the assessment year 2021-22 under proper heads from
the following information furnished by him for the financial year 2020-21:
Particulars Rs.
Income from let out house property (computed) 3,50,000
Interest paid on housing loan for self-occupied property 2,00,000
Income from Textile business 5,75,000
Brought forward business loss of Assessment Year 2017-18 1,05,000
Short-term capital loss 70,000
Brought forward long-term loss from Assessment Year 2019-20 90,000
Long-term capital gain on sale of house 75,000
Interest on enhanced compensation from Government for acquisition of 5,00,000
land in 2016
Dividend from ABC Ltd., Andhra Pradesh 15,000
Deposit made on 15.02.2021 in his Public Provident fund account 75,000
Loss from owning and maintaining race horse of Assessment Year 2020-21 20,000
Loss from Gambling 8,000

Also state the loss that can be carried forward to A.Y. 2022-23. Mr. Veer filed the return of
income for assessment year 2017-18 after the expiry of due date for filing the return. (7 Marks)
4. (a) Mr. Raj is carrying on business of manufacture and sale of art-silk cloth. He purchased machinery
worth Rs. 4 lacs on 1.5.2017 and insured it with United India Assurance Ltd against fire, flood,
earthquake etc., The written down value of the asset as on 01.04.2020 was Rs. 1,87,850. The
insurance policy contained a reinstatement clause requiring the insurance company to pay the
value of the machinery, as on the date of fire etc., in case of destruction of loss. A fire broke
out in August, 2020 causing extensive damage to the machinery of the assessee rendering
them totally useless. The assessee company received a sum of Rs. 4 lacs from the insurance
company on 15th March, 2021. Examine the issues arising on account on the transactions and
their tax treatment. (Cost inflation index for financial year 2008-09 and 2020-21 are 137 and
301 respectively) (4 Marks)
(b) Compute the amount of TDS on the following payments made:
(i) Payment of royalty of Rs. 20,000 & fee for technical services of Rs. 24,000 to Mr. A, who is
having PAN, were made during the Previous Year 2020-21 by M/s. Zen Ltd.
(ii) Kiara Ltd., paid Rs. 18,000 to one of its directors as sitting fees on 02.02.2021.
(iii) Rs. 2,35,000 paid to Mr. Sumit, a resident Individual on 26.12.2021 by State of Tamil
Naduon Compulsory Acquisition of his urban land. (3 Marks)
(c) (i) Mrs. Neha transferred 100 shares of ABC (P) Ltd. to M/s. XYZ Co. (P) Ltd. on 10.9.2020 for
Rs. 3,00,000 when the market price was Rs. 5,00,000. The indexed cost of acquisition of
 shares for Mrs. Neha was computed at Rs. 4,30,000. The transfer was not subjected to
securities transaction tax.
Determine the income chargeable to tax in the hands of Mrs. Neha and M/s. XYZ Co.
(P) Ltd. because of the above said transaction. (2 Marks)
(ii) Mr. Chetan is employed in a company with taxable salary income of Rs. 5,50,000. He
received a cash gift of Rs. 1,00,000 from Atma Charitable Trust (registered under section
12AA) in December 2020 for meeting his medical expenses.
Is the cash gift so received from the trust chargeable to tax in the hands of Mr. Chetan?
(1 Mark)
(d) Mr. Vikas holds shares carrying 33% voting power in Kaya Ltd. Mrs. Rinky is working as
accountant in Kaya Ltd. getting income from salary (computed) of Rs. 4,60,000 without any
qualification in accountancy. Mr. Vikas also receives Rs. 35,000 as interest on securities.
Mrs. Rinky owns a house property which she has let out. Rent received from tenants is Rs.
6,000
p.m. Compute the gross total income of Mr. Vikas and Mrs. Rinky for the A.Y. 2021-22.(4 Marks)