Chapter 9: Profit & Gains of Profession

Multiple choice questions

1. Where the amount of an expenditure claimed as deduction exceed `20000 it should be paid by
a) Crossed cheque
b) A/c payee cheque/ draft
c) Cash
d) None of these
2. Where the amount of an expenditure claimed as deduction exceed `20000,it is not made by a/c
payee cheque/draft
A) 20% of such payment cheque shall be disallowed
B) 100% of such payment shall be disallowed
C) 20% of the excess over `20000of such payment shall be s=disallowed
D) None of these
3. In the case, asset of a particular block is acquired and put to use during the previous year for
less than 180 days, depreciation will be charged
a) At normal rate
b) At 50% of normal rate
c) No depreciation is allowed
d) None of these
4. Tax is allowed as a deduction while computing the business income.
a) Wealth tax
b) Income tax
c) Sales tax
d) All of the above
5. Export incentives received by an assessee are
a) Exempt
b) Taxable as business income
c) Exempt up to certain limits
d) None of the above
6. Mr. Richard, who was carrying on agency of sell computation business, received a sum of
`80000 from his principal for termination of agency. Compensation so received shall be
a) Exempt as it is capital receipt
b) Taxable as business income
c) Taxable as income from other source
d) None of the above
7. Salary, bonus, commission or remuneration due to received by a working partner from the firm
is taxable under the head.
a) Income from salaries
b) Other sources
c) Professionals income
d) None to the above
8. Mobile handset received by the assessee doctor during the course of carrying on his profession
is taxable under the head.
a) Salary
b) Other sources
c) Professional income
d) None of the above
9. An amount paid to a company to be used for scientific research shall be allowed a deduction
equal to
a) 100%
b) 125%
c) 150%
d) None of the above
10. Bonus paid to employee is allowed as deduction on
a) Accrual basis
b) Payment basis
c) Declaration
d) None of the above
11. Capital expenditure incurred on repairs of factory building is
a) Not allowed as business deduction
b) Allowed as business
c) Is allowed 50%
d) None of the above
12. Salary, bonus, commission or remuneration due to or received by a working partner from the
firm is taxable under the head.
a) Income
b) Other sources
c) Business income
d) None of the above
13. Perquisite received by the assessee during the course of carrying on his business or profession
is taxable under the head.
a) Salary
b) Other sources
c) Business/ professional income
d) None of the above
14. Interest on capital or loan received by a partner from a firm is
a) Exempt u/s 10 (2a)
b) Taxable as business and profession income
c) Taxable as income from other sources
d) None of the above
15. Under the head business or profession ,the method accounting which an assessee can follow
shall be
a) Mercantile system only
b) Cash system only
c) Mercantile or cash system
d) Hybrid system
16. Depreciation is allowed in case of
a) Tangible fixed assets only
b) Intangible assets only
c) Tangible and intangible assets
d) Wasting assets only
17. Which of the following tax is allowed as deduction while computing the business income?
a) Wealth tax
b) Income tax
c) Sales tax
d) None of the above
18. Where the amount of an expenditure claimed as deduction exceeds20000 it should be paid by
a) Crossed cheque
b) A/c payee cheque/draft
c) Cash
d) None of these
19. Expenditure incurred on family planning amongst the employees is allowed to
a) Any assessee
b) A company assessee
c) An assessee which is a company or co-operative society
d) None of the above
20. Any activity carried on with a view to earn profit is called
a) Commerce
b) Trade
c) Business
d) All of the above
21. If any asset is used for more than 180 days in the year of purchase, the depreciation rate will be
_______ of the normal rate.
a) 50%
b) 100%
c) 75%
d) None of the above
22. Expenses exceeding `20000 paid in cash are disallowed u/s _______.
a) 40 A(2)
b) 40 AB
c) 40 A(3)
d) 43 B
23. Any sum received under non-compete agreement is taxable under the head________.
a) Income from other sources
b) Business income
c) Capital gain
d) Not taxable
24. Machinery is acquired on 20-10-2012 & put to use on 01-04-2013. The rate of depreciation to
be applied in the P/Y 2012-13_______.
a) 15%
b) 7.5%
c) 30%
d) None of d above
25. Unabsorbed depreciation can be carried forward to subsequent assessment years for
________.
a) 8 years
b) 7 years
c) 5 years
d) No limit
26. In the subsequent years, unabsorbed depreciation can be set off against chargeable_______.
a) Business income
b) Income from other sources
c) Capital gains
d) Any head of income

27. Eligible assesses for claiming deduction u/s 35 D are _________.
a) Indian and foreign companies
b) Foreign companies and non-resident non-corporate assesses
c) Indian companies and resident non-corporate assesses
d) None of the above
28. The qualifying amount of the preliminary expenditure can be claimed as deduction over period
of ________years in equal installments.
a) 4
b) 5
c) 8
d) 10
29. Insurance premium paid in respect of insurance against risk of damage or destruction of stocks
or stores can e claimed as deduction u/s _________.
a) 36(1)(i)
b) 36(1)(iii)
c) 36(1((iv)
d) 36(1)(ii)
30. Income tax, wealth tax & fringe benefit tax are_________.
a) Allowed u/s 40(b)
b) Disallowed
c) Allowed u/s 40(a)
d) None of the above
31. All firms will be charged to tax at the _________.
a) Minimum marginal rate
b) Average rate
c) Maximum marginal rate
d) None of the above
32. Payments to specified persons which are unreasonable are_________.
a) Allowed u/s 40A(2)
b) Disallowed u/s 40A(2)
c) Allowed u/s 40A(3)
d) Disallowed u/s 40A(3)

Ans : (1 - b),(2 - b),(3 - b),(4 - c),(5 - b),(6 - b),(7 - c),(8 - c),(9 - b) ,(10 - b ),(11 a),(12 c),(13
c),(14 -b),(15 c),(16 c),(17 c),(18 - b ),(19 b),(20 c),(21 b),(22 c),(23 b),(24 d),(25 d),(26
a),(27 c),(28 b),(29 a),(30 b),(31 c),(32 - b).



Fill in the blanks

1. Depreciation under income tax act is charged at the prescribed rate on the written down
value of the _________.
2. If any assets is used for less than _______ days in the year of purchase. The depreciation rate
will be only 50% of the normal rate.
3. Advertisement in souvenir of a________ party is disallowed while computing business income.
4. Expense exceeding _________paid in cash are disallowed.
5. Deduction for bonus or commission to employee is allowed only on _______basis.
6. Profit on sale of import license is taxed under the head_________.
7. Any expenditure incurred on scientific research except on _______shall be allowed as business
expenditure u/s. 35.
8. A weight deduction of _______ of the amount paid, to be used for scientific research, to a
university or national laboratory will be as on business expenditure.
9. _______ Tax is allowed as deduction while computing the business expenditure.
10. If some expenses are partly disallowed, then only disallowed portion should be ________to the
profit.
11. An assesee can claim additional depreciation on plant and machinery at the rate of 20%
of________ if a few conditions are satisfied.
12. The _________ of WDV of the block and rate of depreciation is amount of depreciation.
13. Unabsorbed depreciation can be carried forward ________ period.
14. Amount paid to national laboratory to be used for scientific research shall be allowed a
weighted deduction of _______% of sum period.
15. Expenditure incurred on family planning amongst the employees is allowed to __________
assesee.
16. If residential flats are let out to the employees for efficient conduct of assesses own business,
income from such letting is taxable under the head_______.
17. Expenditure on scientific research incurred by the assessee can be claimed as deduction
provided the research is ________ to assesees business.
18. In respect of ________ allowed as deduction u/s 35, no depreciation can be claimed u/s 32.
Ans: (1)Block of asset; (2)180 days; (3)Political; (4)20000; (5)Payment; (6)Profit & Gains of business;
(7)Land; (8)2 times; (9)Sales; (10)Added; (11)Actual cost; (12)Product; (13)Indefinite; (14)200%;
(15)Company; (16)Business income; (17) related capital expenditure


Match the Columns
1.
Column 1 Column 2
1. Non-compete agreement
2. Speculative transaction
3. Temporary cash from a financial institution
4. Assets used by the assessee for less than
180 days
5. Business income
a. Not a business income but a loan
b. Full depreciation at normal rate
c. Depreciation at 50% of normal rate
d. Export incentive received
e. Profit on sale of personal car
f. Purchase and sale without delivery of
goods
g. Taxable as business income

Ans: (1-g), (2-f), (3-a), (4-c) (5-d)
2.
Column 1 Column 2
1. bonus to employees
2. provision for bad debts
3. interest on loan taken from bank
4. amount given to national laboratory
5. payment made outside India for services
rendered in India
a. expenditure disallowed
b. deduction of 200% actual expenditure
c. allowable expenditure provided TDS is
deducted
d. deductable as expenditure on payment
basis
e. expenditure allowed on payment
Ans: (1-d) (2-a) (3-e) (4-b) (5-c)
3.
Column 1 Column 2
1. Account payee cheque /draft
2. unabsorbed depreciation
3. amortization of preliminary expense
expenditure
4. Insurance of premium paid in cash to
cover the risk of stock & health of
employees.
a. qualifying amount to be written off in 5
equal installments
b. payments of expenditure of `20000 or
more is allowed
c. can be carried forward and set off against
any income
d. allowed as expenditure u/s 36(1)(i)
e. disallowed as expenditure u/s36(1)(i)
Ans: (1-b) (2-c) (3-a) (4-e)
4.
Column 1 Column 2
1. compensation received o n termination of
agency
2. capital expenditure on repairs of factory
building
3. negative WDV of a block of assets
4. Unabsorbed depreciation
5. bonus to employees
a. Set off against other incomes possible
during subsequent years
b. business income
c. no depreciation claim
d. deductible as expenditure when paid
e. Not allowed as business deductable
Ans: (1-b) (2-e) (3-c) (4-a) (5-d)

True or false
1. A weighted deduction of 1 time of the amount paid it national laboratory is allowed as
business expenditure.
2. Expenditure on purchase of land gets a weighted deduction of 175% of the amount spent u/s35.
3. Expenditure which is personal in nature is allowed as business expenditure.
4. Speculative transaction means a transaction in which a contract for the purchase or sale of any
including stocks and shares is settled otherwise than by actual delivery.
5. Export incentives received by an assessee are exempt from tax.
6. Income of trade or professional association, from specific services performed for its members
shall be taxable under the head: income from business.
7. Salary, bonus, commission or remuneration due to or received by working partner from the firm
is taxable under the head: business & profession.
8. Any sum received by an employer from key man insurance policy taken on the life if the
employee shall be exempt.
9. Interest on capital received by a partner from d=firm shall be exempt u/s 10(2a).
10. Unabsorbed depreciation which could not be set off in the same assessment year can be carried
forward indefinitely.
11. Lump sum payment for acquisition of technical Know how after 31-3-1999 shall be subject to
deduction in 3 equal installments.
12. Interest incurred before the commencement of the production is to be treated as revenue
expenditure.
13. Expenditure incurred on family planning amongst the employees is allowed to only company
assessee.
14. Capital expenditure incurred on family planning amongst of the company assessee is allowed as
deduction in 5 equal installments.
15. Deduction under section 37(1) shall be allowed even of those expenditure which are of capital
nature if used for the purpose of business.
16. Interest on capita of or loan from partner of a firm is allowed as deduction to the firm @12%.
17. Wealth tax is subject to provisions of section 43B.
18. Where the amount of an expenditure claimed as deduction exceeds 20000, it should be paid by
crossed cheque only.
19. Bad debts not allowed as deduction in the earlier year shall be taxed when subsequently
recovered.
20. Excessive & unreasonable expenditure incurred by the assessee is disallowed u/s 40A (2).
21. Receipts of non-compete fees to be treated as income from other sources.
22. Unabsorbed depreciation can be carried forward to subsequent 8 assessment years.
23. Depreciation is available only tangible assets.
24. Charging section for business income is sec. 28.
Ans: True: - 1, 4, 6, 7, 11, 16, 17, 24, 28, 19;
False: - 2, 3, 5, 8, 9, 10, 12, 13, 14, 15, 18, 20, 21, 22, 23, 25, 26, 27.