a)

State the scope of total income in case of an individual, whose residential status is ‘non-resident' with reference to Section 5(2) of the Act.

b)

Mr. X a citizen of India received salary from the Government of India for the services rendered outside India. Is the salary income chargeable to tax?

c)

Mr. Anil earned Rs.500000 from sale of Coffee grown and cured (processed) by him. He claims the entire income as agricultural income, hence exempt from tax. Is he correct?

d)

What is the time limit for filing application seeking registration in the case of charitable trust/Institutions under Section 12AA of the Act?

e)

In what status and tax rate Limited Liability Partnership (LLP) is taxed under the Act?

a

Scope of Total Income [Sec. 5]

The following chart highlights the provisions of scope of total income in case of a non-resident:

Tax Treatment

Income accrued or deemed to be accrued and received or deemed to be received in India

Taxable

Income accrued outside India but received or deemed to be received in India .

Taxable

Income accrued or deemed to be accrued in India but received outside India

Taxable

Income accrued and received outside India from a business controlled in or profession set-up in India .

Not taxable

Income accrued and received outside India from a business controlled or profession set-up outside India .

Not taxable

Income accrued and received outside India in any year preceding the previous year and later on remitted to India in current financial year.

Not taxable

b

As per sec. 9(1)(iii), any salary payable by the Government of India to a citizen of India for services rendered outside India shall be deemed to accrue or arise in India. However, it is to be noted that any allowances or perquisites paid by the Government to a citizen of India for services rendered outside India shall be exempted [Sec. 10(7)]

c

Income from sale of coffee grown, cured by seller in India shall be segregated into business income and agriculture income. For this purposes 25% of the income from sale of coffee is considered as business income and 75% of the income from sale of coffee is considered as agriculture income. Hence, claim of Mr. Anil is incorrect.

d

Trust should submit an application for registration in the Form 10A to the Commissioner of Income Tax before the expiry of 1 year from the date of creation of trust.

e

As per sec. 2(23)(i), firm shall have the meaning assigned to it in the Indian Partnership Act, 1932 and shall include a limited liability partnership as defined in the Limited Liability Partnership Act, 2008. In other words, LLP shall be treated at par with firm and taxable @ 30% plus education cess.

Particulars

Details

Amount

Amount

Income from House Property

Rent Receipts

96000

Less : Municipal Tax (as paid by Tenant)

Nil

Net Annual Value

96000

Less : Standard Deduction u/s 24(b) [30% of Net Annual Value]

28800

67200

Arrears of Rent (assumed not charged to tax in previous years)

120000

Less : Standard Deduction u/s 25B [30% of above]

36000

84000

151200

Less : Interest on Loan Payable

36000

115200

Profits and Gains from Business or Profession

Poultry Farming

400000

Share Business - STT is allowable deduction

88500

488500

Less : Brought forward loss of Automobile Business

(38500)

450000

Income from Other Sources

Winnings from Horse Race

30000

Interest on Company Deposits

15100

Rent from Furniture [Clubbed u/s Sec. 60]

26000

71100

Gross Total Income

636300

Less : Deduction u/s 80-C

- LIP

22500

- Repayment of housing loan (Principal)

30000

- PPF

20000

72500

Total Income

563800

Particulars

Amount

Amount

Tax on Winning from Horse Race @ 30% [30000 * 30%]

9000

Tax on Other Income [160000 * 0% + 140000 * 10% + 200000 * 20% + 33800 * 30%]

64140

73140

Add : Education Cess & SHEC @ 3%

2194

75334

Less: TDS on Winning from Horse Race

9000

Tax Payable [Rounded off u/s 288B]

66330

Previous year 2008-09

Profit Rs.300000

Previous year 2009-10

Profit Rs.440000

Particulars

Amount

Investment as on 1-4-2008

Rs.600000

Add : Investment of gift from wife on 10-4-2008

Rs.200000

Add : Net profit earned during the year 2008-09 (assumed reinvested in the business)

Rs.300000

Total investment in the business as on 1-4-2009

Rs.1100000

Particulars

Amount

Investment as on 1-4-2008

Rs.600000

Add : Investment of gift from husband on 10-4-2008

Rs.200000

Total investment in the business as on 1-4-2009

Rs.800000

Particulars

Long term capital gain

Other income

Alternate 1

Alternate 2

Income

500000

360000

330000

Tax rate

20%

Slab

Slab

Tax on above

100000

26000

20000

Add : Education cess & SHEC

3000

780

400

Advance tax payable

103000

26780

20400

Date

Advance tax on LTCG

Advance tax on income other than LTCG

Total

Working

Amount (a)

Working

Amount (b)

15-09-2009

Nil

30% of Rs.26780

8034

8034

15-12-2009

Nil

30% of Rs.26780

8034

8034

15-03-2010

100% of Rs.103000

103000

40% of Rs.26780

10712

113712

Total

103000

26780

129780

Date

Advance tax on LTCG

Advance tax on income other than LTCG

Total

Working

Amount

Working

Amount

15-09-2009

Nil

30% of Rs.20400

6120

6120

15-12-2009

Nil

30% of Rs.20400

6120

6120

15-03-2010

100% of Rs.103000

103000

40% of Rs.20400

8160

111160

Total

103000

20400

123400

1.4.2006

WDV of plant 'X' and plant 'Y'

Rs.200000

10.12.2009

Acquired a new plant 'Z' for

Rs.200000

22.1.2010

Sold plant 'Y' for

Rs.400000

Expenditure incurred in connection with transfer

Rs.10000

Particulars

Amount

WDV as on 01/04/06

200000

Less : Depreciation @ 15%

30000

WDV as on 01/04/07

170000

Less : Depreciation @ 15%

25500

WDV as on 01/04/08

144500

Less : Depreciation @ 15%

21675

WDV as on 01/04/09

122825

Add : Purchase of Plant on 10/12/09

200000

322825

Less : Sale Consideration restricted to Rs.322825

322825

WDV as on 31/03/10

Nil

Depreciation

Nil

Particulars

Amount

Amount

Full Value of Consideration on transfer of Plant Y

400000

Less : Deductions u/s 50(1)

- Expenses on Transfer

10000

- WDV of Plant X & Plant Y as on 01/04/2009

122825

- Cost of Plant Z

200000

332825

Short Term Capital Gain

67175

i.

An Insurance Company paid Rs.45000 as Insurance Commission to its agent Mr. Hari.

ii.

X & Co. (Firm) engaged in wholesale business assigned a contract for construction of its godown building to Mr. Ravi, a contractor. It paid Rs.2500000 to Mr. Ravi as contract payment.

iii.

AB Ltd. allowed a discount of Rs.50000 to XY & Co. (a firm) on prompt payment of its dues towards supply of automobile parts.

iv.

Y & Co. engaged in real estate business conducted a lucky dip and gave Maruti car to the prize winner.

Applicable Section

Rate of TDS

(i)

194D

10%

(ii)

194C

1% *

(iii)

NA

No Deduction

(iv)

194B

30%

Income (loss) from house property

Rs.

House-1

36,000

House-2 (Self-occupied)

(20,000)

House-3

60,000

Profits and gains from Business or Profession

Textile Business

2,00,000

Automobile Business

(3,00,000)

Speculation Business

2,00,000

Capital Gains

Long-term capital gain from sale of shares ( STT paid)

1,50,000

Long-term capital gain from sale of vacant site

2.00.000

Short-term capital loss from sale of building

1,00,000

(Note: Assume that the figures given above are computed and arrived at after considering eligible deductions).

Other sources

Gift from a Friend (non-relative) on 5.6.2009

60,000

Gift from Maternal Uncle on 25.2.2010

1,00,000

Gift from Grandfather's Younger Brother on 10.2.2010

1,00,000

Particulars

Amount

Amount

Income from House Property

House 1

36000

House 2

(20000)

House 3

60000

76000

Profits and Gains from Business or Profession

Textile Business

200000

Speculation Business

200000

Automobile Business

(300000)

100000

Capital Gains

LTCG on sale of Shares [Exempt 10(38)]

Nil 

LTCG on sale of Site

200000

STCG on sale of Building

(100000)

100000

Income from Other Sources

Gift from Friend on 5/06/2009

60000

Gift from Maternal Uncle, a relative [Exempt]

Nil

Gift from Grand Father's Brother

100000

160000

Total Income

436000

i.

Briefly explain the term 'Manufacture' defined in Section 2(29BA).

ii.

In whose hands the income from an asset is chargeable to tax in the case of transfer which is not revocable during the life time the beneficiary /transferee?

iii.

List the conditions for deduction under Section 80-ID for hotels located in specified district having "World Heritage Site"

iv.

State the provisions for self assessment prescribed under Section 140A of the Act.

(i)

As per sec. 2(29BA), "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing,:

-  resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or

-  bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure

(ii)

Revocable transfer [Sec. 61]

If an assessee transfers an asset under a revocable transfer, then income generated from such asset, shall be clubbed in the hands of the transferor.

Revocable transfer : As per sec. 63(a), a transfer shall be deemed to be revocable if -

-  It contains any provision for the retransfer (directly or indirectly) of any part or whole of the income/assets to the transferor; or

-  It, in any way, gives the transferor a right to re-assume power (directly or indirectly) over any part or whole of the income/assets.

Exceptions [Sec. 62]

As per sec. 62(1), the provision of sec. 61 shall not apply to an income arising to a person by virtue of -        

a.  A transfer by way of creation of a trust which is irrevocable during the lifetime of the beneficiary;

b.  Any transfer which is irrevocable during the lifetime of the transferee; or

c.  Any transfer made before 1.4.61, which is not revocable for a period exceeding 6 years.

In any case, the transferor must not derive any benefit (directly or indirectly) from such income.

Note : As per sec. 62(2), income, in any of the above exceptional case, shall be taxable as under -

(iii)

Conditions to be satisfied for claiming deduction u/s 80-ID in respect of profit from hotel business in World Heritage Site

1.  Nature of business : The assessee is engaged in the business of hotel.

2.  Location : Such hotel should be located in the specified district having a World Heritage Site.

(iv)

Self-Assessment [Sec. 140A]

In self-assessment, assessee itself is responsible to determine its taxable income, tax liability and to pay tax accordingly. Provision of sec. 140A is as follows -

a.  Where any tax is payable (after deducting relief, advance payment of tax or tax deducted or collected at source or MAT credit, if any) on the basis of return furnished the assessee is required to pay such tax before filing the return.

b.  If any interest is payable for delayed filing of return (u/s 234A) or default in payment of advance tax (u/s 234B) or for deferment of advance tax (u/s 234C) then such interest should be paid along with self-assessment tax.

Note : While calculating above interest for the purpose of self-assessment, tax on the total income declared in the return shall be considered.

c. Where the amount paid by the assessee falls short of the aggregate of tax and interest, the amount so paid shall first be adjusted towards interest payable and the balance, if any, shall be adjusted towards tax payable.

d.  After assessment, any amount paid under this section shall be deemed to have been paid towards such assessment.

e.  If an assessee fails to pay whole or any part of such tax or interest or both in accordance with the provisions of sec. 140A, he shall be deemed to be an assessee in default .

i.

Is Service Tax payable on free-services?

ii.

State the due dates for payment of Service tax in the case of an individual rendering taxable service.

iii.

A Company located in the State of Jammu & Kashmir rendered service in Delhi. Is the service provided by the Company liable for Service Tax?

iv.

Do you agree with the statement that "Tax cannot be evaded under VAT system"?

v.

Mr. Raj rendered taxable service in February. 2010. The amount was however realized on 18.4.2010. What is the due date for payment of Service tax?

i.

Service tax is not payable on free services. However, if the authorized dealer of motor vehicle provides to customers free servicing of motor vehicles without charging any amount of service charge from the customers and vehicle manufacturer reimburses the amount to authorized service station on account of such free services, the authorized service station shall have to pay service tax on the amount received from the vehicle manufacturer for the purpose of servicing the vehicle.

ii.

Payment of Service Tax [Sec. 68]

As per Rule 6, the service tax provider being an individual is required to pay service tax within:

Case

Due date

- Service tax on the value of taxable services received during the quarter ending March

Within 31 st March

- Service tax on the value of taxable services received during other quarter

Within 5 th (6 th if paid electronically) of the month immediately following the quarter

iii.

Service tax is not payable if services are provided in the State of Jammu & Kashmir irrespective of the fact whether the service provider is residing in or outside Jammu & Kashmir. However, if a person from Jammu and Kashmir provides taxable service in other States, such service is not exempted.

iv.

Under VAT, credit of input tax paid is allowed against the liability of tax on the final product sold. If proper records are not kept in respect of various inputs, it is not possible to claim credit. Since input tax is allowed to be set off from the ultimate tax burden thus it leads to avoidance of multiple taxation. It totally eliminates cascading effect and also discourages tax evasion since suppression of purchases will lead to loss of revenue to the dealer.

v.

Service tax is payable at the time of receipt of the value of taxable services provided or to be provided. Thus charge of service tax is on the event of providing services but payment of service tax to the Government is deferred till the receipt of the value of taxable services. Therefore in this case liability to pay service tax arises when payment is received in the month of April. Since it is a case of an individual, due date for the payment shall be 5/7/2010 for the quarter ending June 2010.

Date of receipt

Nature of receipt

Amount

Time of providing Service

20.4.2009

For service

Rs.100000

Services rendered in July, 2009

30.6.2009

Advance for service

Rs.500000

Services were rendered in July and August, 2009

05.8.2009

For service

Rs.50000

For services rendered in March, 2009

10.9.2009

Advance for service

Rs.350000

A sum Rs.50000 was refunded in April, 2010 after termination of agreement. For the balance amount, service was provided in September, 2009.

Particulars

Quarter 1

Quarter 2

Amount received on

- 20/04/2009

100000

- 30/06/2009

500000

- 05/08/2009

50000

- 10/09/2009

350000

Total Receipt during the Quarter

600000

400000

Less : Service tax included therein [600000 * 10.3%/110.3%]1 [400000 * 10.3%/110.3%]2

56029

37353

Value of taxable service

543971

362647

Service tax

56029

37353

- Service Tax

54397

36265

- Education Cess

1088

725

- SHEC

544

363

a.

Compute the VAT liability of Mr. P Kapoor for the month of Oct, 2009, using the ‘Invoice method' of Computation of VAT.

Purchases from the local market (Includes VAT @ 4%)

Rs.65000

Storage cost incurred

Rs.750

Transportation Cost

Rs.1750

Goods sold at a margin of 5% on the cost of such goods. VAT rate on Sales 12.5%

b.

State briefly about Provisional payment of Services tax.

c.

What are the three variants of VAT? Which of these methods is most widely used and why?

Particulars

Amount

Raw material purchased from local market [Rs.65000 / 104 * 100]

62500

Storage cost

750

Transportation cost

1750

Cost of production

65000

Add : Profit earned @ 5% on Rs.65000

3250

Sale Price

68250

VAT @ 12.5% on sales

8531

Particulars

Amount

VAT on sale price

8531

Less : Set-off of VAT on local purchases

2500

Net VAT payable

6031

Variant

Pros and cons

Gross Product Variant

Deduction for tax paid on all purchase of raw-material and components shall be allowed. But, no deduction shall be allowed for tax paid at the time of purchase of capital goods.

• Capital goods are taxed twice i.e., at the time of purchase and at the time of sale of goods produced using that capital goods by way of depreciation included in the value of output product.
• These doubly tax treatment to capital goods cause delay in modernization and upgrading of plant and machinery.
• The economic base of the variant is equivalent to Gross National Product (GNP)   

Income Variant

Deduction shall be allowed for tax paid on:

- Purchase of raw materials and components; and

- Depreciation on capital goods

• Credit on Capital purchases are allowed in the ratio of Depreciation over the life of the capital asset.     
• Computation of depreciation is also depending on different variant viz. the life of asset and rate of inflation. Thus, it is difficult to provide a specific method of depreciation.   

Consumption Variant

Deduction for tax paid on all business purchases including capital assets shall be allowed

• There is no need to distinguish between current expenditure and capital expenditure. Further, life of assets, etc. is not required to specify.
• Since tax paid on capital goods is also allowed to be set-off, hence its impact on investment decision is nil.
• It is simple and easier. Chances of disputes between Government and the tax payer are less.
• The system leads to loss of revenues to the Government.