7. Mr.

Dinesh Karthik, a resident individual aged 45, furnished the followi ng information pertaining to the year ended 31.03.2012: (i) He is a partner in Badrinath & Co. He has received the following amounts fro m the firm: Interest on capital at 15% ,000 Salary as working partner (at 1% of firm ,000 (ii) He is engaged in a business in which he manufactures wheat flour from wheat . The profit and loss account pertaining to this business (summarised form) is a s under: To ` By ` Salaries 1,20,000 Gross profit 12,50,000 Bonus 48,000 Interest on Bank FD (Net of TDS 5,000) 45,000 Car expenses 50,000 Agricultural income 60,000 Machinery repairs 2,34,000 Pension from LIC Jeevandhara Advance tax 70,000 Depreciation Car 3,00,000 Machinery 1,25,000 Net profit 4,32,000 13,79,000 13,79,000 s sales) ` 90 `3,00

24,000

Opening WDV of assets are as under: ` Car Machinery (Used during the year for 170 days) Additions to machinery New purchased on 23.09.2011 New purchased on 12.11.2011 (New machinery is purchased for manufacturing purpose) Old purchased on 12.04.2011 (All assets added during the year were put to use immediately after purchase) Bonus amount was paid on 11.10.2011.

3,00,000 6,50,000

2,00,000 3,00,000 1,25,000

One-fifth of the car expenses are towards estimated personal use of the assessee . (iii) In March, 2010, he had sold a house at Chennai. Arrears of rent relating t o this house amounting to `75,000 was received in February, 2012. (iv) Details of his Savings and Investments are as under: ` Life Insurance Premium for policy in the name of his major son employed 50,000 LMN Ltd. at a salary of `6 lacs p.a. (Sum assured `2,00,000) Contribution to Pension Fund of National Housing Bank

70,000 Medical Insurance Premium for his father aged 70, who is not dependent on him 22,000 You are required to compute the income of Mr. Dinesh Karthik for the assessment year 2012-13 and the tax payable by him. Also indicate whether interest, if any, under section 234A and 234B are payable, assuming that the return was field on 28th September, 2012. Computation of interest, if any, is NOT required. 16 Marks

Solution 7: Computation of total income of Mr. Dinesh Karthik for the A.Y. 2012-13 Particulars ` ` Income from house property Arrears of rent received in respect of the Chennai house Note (ii) 75,000 taxable under section 25B Less: Deduction @ 30% 2,500 Income under the head House Property 52,500 Profits and gains of business or profession (a) Own business Note (iii) (b) Income from partnership firm (See Note (i)) Interest on capital 2,40,000 [As per section 28(v), chargeable in the hands of the partner only to the extent allowable as deduction in the firm s hand i.e. @12%] Salary of working partner [Assumed as fully allowed in firm s hands] 90,000 3,30,000 Income from other sources (a) LIC Jeevan Dhara pension 24,000 (b) Interest from bank FD (gross) 50,000 74,000 Gross Total Income 9,89,750 Less: Deductions under Chapter VIA Section 80C Life insurance premium for policy in the name of major son not dependent on the assessee, restricted to 20% of sum assured i.e. 20% of `2,00,000. Contribution to pension fund of NHB Total qualifying amount 10,000 Restriction as per section 80CCE 1,00,000

5,33,250

40,000 70,000 1,

Section 80D Mediclaim premium for father, a senior citizen (qualifies for deduction, even though the father is not dependent on the assessee) Maximum amount allowable 20,000 Total Income 8,69,750 Computation of tax payable Tax on aggregate of non-agricultural income and agricultural income i.e., `9,29,750 (being, `8,69,750 + `60,000) 1,30,925.00 Less: Tax on the aggregate of agricultural income and basic exemption limit i.e., `2,40,000 (i.e., `60,000 + `1,80,000) 6,000.00

22,000

1,24,925. 00 Add: Education cess @ 2% 2,498.50 Secondary and higher education cess @ 1% 1,249.25 1,28,672.75 Less: Advance income tax 70,000 TDS 5,000 Tax payable (rounded off) 53,670 Interest under section 234A Mr. Dinesh Karthik receives salary of `90,000 from the firm, Badrinath & Co., wh ich is given as 1% of the firm s sales. Therefore, the turnover of the firm is `90 l akh, being 90,000/1%. Since the turnover of the firm exceeds `60 lakhs, the firm is subject to tax audit. Since Mr. Dinesh Karthik is a working partner in a par tnership firm whose accounts are subject to tax audit, his due date for filing o f return would be 30th September, 2012. Since the return was filed before the d ue date, no interest is payable under section 234A. (Tax is paid before filing t he return of income) Interest under section 234B Under section 208, obligation to pay advance tax arises in every case where the advance tax payable is `10,000 or more. Interest under section 234B is attracted for non-payment of advance tax or payment of advance tax of an amount less than 90% of the assessed tax. Therefore, in this case, interest under section 234B w ould be attracted on the balance tax payable. Notes: (i) The income by way of interest on capital and salary of Mr. Dinesh Karthik fr om the firm, Badrinath & Co., in which he is a partner, to the extent allowed as deduction in the hands of the firm under section 40(b), has to be included in t he business income of the partner as per section 28(v). Accordingly, `3,30,000 [ i.e., `90,000 (salary) + `2,40,000 (interest @ 12%)] should be included in his b usiness income. It has been assumed that salary has been allowed in full in the hands of the firm. (ii) As per section 25B, any arrears of rent received will be chargeable to tax, 75,000.00

after deducting a sum equal to 30% of such arrears, as income from house proper ty in the year of receipt, whether or not the assessee remains the owner of the house property. (iii) Computation of income from own business Particulars ` Net profit as per profit and loss account 4,32,000 Less: Items credited to profit and loss account not treated as business income Interest on bank FD (net of TDS 5,000) 45,000 Agricultural income 60,000 Pension from LIC Jeevan Dhara 1,29,000 ,000 Add: Items debited to profit and loss account to be disallowed/considered separately Advance tax 70,000 Depreciation Car 3,00,000 Machinery 1,25,000 Car expenses disallowed 0 5,05,000 8,08,000 Less: Depreciation (See Working Note below) 2,74,750 Income from own business 5,33,250 Working Note: Computation of depreciation allowable under the Income-tax Act, 1961 Block I Car 15% on 3,00,000 Less: 1/5th for personal use 9,000 36,000 Block II Machinery Opening WDV Additions during the year (Used for more than 180 days) 3,25,000 Depreciation at 15% on 1,46,250 Additions during the year (used for less than 180 days) Hence, depreciation at 7.5% on 22,500 Total normal depreciation (A) 2,04,750 Where an asset acquired during the year is put to use for less than 180 days, 50% of the rate of depreciation is allowable. This restriction does not apply to assets acquired in an earlier year.

24,000 3,03

10,00

45,000

6,50,000 9,75,000 3,00,000

Additional depreciation New machinery Used for more than 180 days at 20% 40,000 Used for less than 180 days at 10% 30,000 Total additional depreciation (B) 70,000 Total permissible depreciation (A) + (B)

2,00,000 3,00,000