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ANSWERS TO PCC MAY 2008 TAXATION PAPER (ONLY INCOME TAX)

ANSWERS TO PCC MAY 2008 TAXATION PAPER (ONLY INCOME TAX) Question No. 1(a) Ms. Vasudha contends that sale of a work of art held by her is not eligible to capital gains tax; is she correct ? Solution Sec. 2(14) of the Income tax Act defines the term Capital Asset to mean property of any kind held by an assessee whether or not connected to his business or profession. However, the term capital asset does not include; (a) Stock in trade; (b) Personal effects of movable nature; (c) agricultural land not situated in a specified area; (d) Gold Bonds; (e) Special bearer bonds. Though personal effects of movable nature is not a capital asset, the transfer of which is not subject to capital gains, it does not include any asset which is in the nature of work of art. Accordingly the same is not covered by exception provided u/s. 2(14). Therefore, any transfer of work of art is subject to capital gains tax. Thus, the contention of Ms. Vasudha is not correct. Question No. 1(b) Will a charitable trust forfeit the exemption granted to it, if it holds shares in a public sector company? Solution According to sec. 13, the income of a charitable trust shall not be exempt in case it invests in any shares in a company. However, investment in shares in a public sector company is allowed to made by a charitable trust. Therefore, in a case where a charitable trust holding shares in a public sector company can continue to claim exemption provided u/s. 11. Question No. 1(c) Deduction under Section 80CCD is available only to individuals employed by Central Government. Discuss the correctness of this statement. Solution Sec. 80CCD enables an assessee to avail deduction in respect of contribution made to any pension scheme notified by the Central Government. The deduction is available in respect of an individual employed by the central government or any other employer. Accordingly, the statement in the question is incorrect. Question No. 1(d) Mrs. Hemalatha has made payments of Rs. 5 lacs to a contractor (for business purposes) during the last two quarters of the year ended 31.3.2008. Her turnover for the year ended 31.3.2007 was Rs. 45 lacs. Is there any obligation to deduct tax at source? Solution Sec. 194C mandates tax deduction at source on any payment made in pursuance of any contract for carrying out any work or for supply of labour in connection with carrying out work. In case where the payer is an individual, the provisions of tax deduction at source shall apply only where the turnover/gross receipts of such individual has exceeded the limits specified in Sec. 44AB of the Income tax Act (Rs. 40 lakhs is the case of business and Rs. 10 lakhs is the case of profession) in the financial year immediately preceding the year in which such payment is made. Again, the payer is not liable to deduct tax at source in respect of contract payments which are exclusively for personal purposes. In the given case, since the business turnover of Mrs. Hemalatha has exceeded Rs. 40 lakhs for the year ended 31st March 2007, and the contract payment is relating to business activities, she shall be liable to deduct tax at source in respect of payment made to a contractor.

Question No. 1(e) Can an individual who is not in India, sign the return of income from outside India? Is there any other option? Solution According to Sec.140, the return of income of an individual shall be signed by himself. However, in a case where such individual is absent from India or mentally incapacitated or for any other reason not able to sign the return of income, sec. 140 enables his guardian or any other person competent to act on his behalf duly authorized by such individual to sign the return of income. Question No. 1(f) Mr. Vatsan has transferred through a duly registered document the income arising from a godown, to his son, without transferring the godown. In whose hands will the rental income from godown be charged? Solution Sec. 60 provides that where there is only a transfer of income without transfer of assets, the income arising from that asset shall be included in the total income of the transferor irrespective of whether the transfer is revocable or not. Accordingly in the given case the rental income derived from the godown shall be clubbed in the hands of Mr. Vatsan. Question No. 2 Ramesh is the karta of Ramesh (HUF) in which the other members are his wife Padma, major son Guru and a minor daughter Champaka. The following details of this HUF, resident in India, pertaining to the year ended 31st March, 2008 are made available to you: (a) Rent (at Rs. 10,000 per month) received from a flat in Selem is Rs. 1,10,000. Rent of Rs.10,000 for the month of March, 2008 was received in April, 2008. Property tax paid is Rs.10,000. Bank loan of Rs. 10,00,000 was taken for construction of this flat, bearing interest at 10%. Rs. 8,000 interest is in arrears pertaining to this year, which was paid by the HUF in May, 2008 only. Principal repayment during the year was Rs. 48,000. (b) Ramesh represents the HUF in a partnership firm M/s. Ashok & Co., engaged in turmeric business. The firm has paid interest of Rs. 1,80,000 to HUF computed at 15%. For the services rendered by Ramesh to this firm as the lone Working partner, the firm has paid him a remuneration of Rs. 1,50,000, as per the provisions of the partnership deed. The book profit of the firm in terms of Section 40(b) is Rs. 1,35,000. (c) The HUF is also running two businesses, as narrated below : i. Retail trade in food grains : A rough account-book alone is maintained. Expenses bill/vouchers are not properly maintained. The total turnover is Rs. 38 lacs. The net profit as per the rough account is Rs. 1,41,000. This has been arrived at after considering a penalty of Rs. 8,000 levied by Sales-tax authorities for misuse of c Form. ii. Business of Civil construction : Cash received from contractee Value of materials supplied by contractee No books of accounts are maintained. Rs. 31,00,000 Rs. 7,00,000

(d) The HUF has received dividend of Rs. 90,000 from shares held in foreign company.

(e) Tuition fees of Rs. 20,000 was paid for the purpose of part-time education of Ms. Champaka in an Indian college. (f) The following sums have been paid by the HUF in respect of Life Insurance Premium : Policyholders name Mrs. Padma Guru Insurer LIC IRDA-approved Private insurer Premium (Rs.) 30,000 42,000 Late fee (Rs.) 500 1,500

Part of the above premiums were paid from out of agricultural income of Rs. 60,000 derived from agricultural lands situated in Colombo. You are required to compute the total income of Ramesh (HUF) for the assessment year 200809. showing clearly the computation under proper heads of income. You are also required to indicate with reasons, whether any item is to be considered in the hands of Ramesh (Individual). Solution: (I) Computation of total income of M/s. Ramesh (HUF) Name of the Assessee: Ramesh (HUF) Sl.No. 1 2 3 4 Particulars Income from House property Profits & Gains of Business or Profession Income From Other Sources Gross Total Income Deductions under Chapter VI-A Total Income (II) Income chargeable to tax in the hands of Mr. Ramesh (Individual) Mr. Ramesh, who is a partner in M/s. Ashok & Co. derives remuneration of Rs. 1,50,000 as per the partnership deed. Though, Mr. Ramesh is acting as partner in representative capacity of HUF in which he is the kartha, the remuneration paid by the firm shall be subject to tax in his individual hands. However, the amount of remuneration subject to tax shall be reduced by the amount of remuneration disallowed in the hands of the firm in accordance with sec. 40(b)(ii). In the given case, it was stated that the book profit of the firm is Rs. 1,35,000. The remuneration allowable shall be: On the first 75,000 of the book profit On the balance of Rs. 60,000 Total remuneration allowed in the hands of the firm Remuneration disallowed u/s. 40(b) [1,50,000-1,03,500] 90% 60% 67,500 36,000 1,03,500 46,500 4 A.Y. 2008-09 W .Note Ref. 1 2 3 Amount (23,000) 5,82,000 1,50,000 7,09,000 1,00,000 6,09,000

According to the above computation, Rs. 46,500 being the amount disallowed in the hands of the firm shall not be taxed in the hands of Mr. Ramesh in his individual capacity. Thus, Rs. 1,03,500 alone shall be subject to tax under the head business income along with any other income derived by Mr. Ramesh. Working Note 1 - Income from House Property Particulars Gross Annual value of the Property Less: Municipal Taxes Amount (in Rs.) 1,20,000 10,000 Amount (in Rs.)

Net Annual Value Less: Deduction u/s. 24 30% of Net Annual Value Interest On Borrowed Capital - [10% of 10 lakhs] 33,000 1,00,000
-

1,10,000

Working Note 2 Profits & Gains from Business or Profession Particulars 1. Interest income from partnership firm 1.8 lakhs @ 15% Less: Disallowed in the hands of the firm u/s. 40(b) [15%12%] 2. Retail Trade in Food Grains Presumptive income as per Sec. 44AF @ 5% on turnover [5% of 38,00,000] 3. Civil Construction Business Presumptive income as per Sec. 44AD @ 8% on turnover [5% of 31,00,000] Income from Business Working Note 3 Income from Other Sources Particulars 1. Dividend received from foreign company Dividend from Domestic Company subject to Dividend Distribution tax alone is exempt. 2. Agricultural Income from lands situated in Colombo Agricultural income from land situated in India alone is exempt. Income from other sources Working Note 4 Deduction under Chapter VI-A Particulars 1. Life Insurance Premia paid (Rs. 30,000 + Rs. 40,000) [late fee cannot be claimed] 2. Principal amount of loan repaid Total Deduction restricted u/s. 80CCE to Amount 72,000 Amount 90,000 5,82,000 2,48,000 1,90,000 Amount (in Rs.) 1,80,000 ___36,000 1,44,000 Amount (in Rs.)

1,33,000 Loss from house property (23,000)

_60,000 1,50,000

48,000 1,20,000 1,00,000

Note: 1. Gross Annual Value (GAV) shall include rent received as well as receivable. Accordingly, Rs. 10,000 realized in the month of April 2008 pertaining to the financial year 2007-08 should also be considered for GAV. 2. Interest on loan borrowed for construction/acquisition of property is entitled for deduction u/s 24 irrespective of whether actual payment has been made. Accordingly, in the given case Rs.1,00,000/- being 10% of Rs.10,00,000/- is allowed as deduction. 3. Where any remuneration is earned by a partner for services rendered for the partnership firm shall be considered as income in his hands even though such individual is acting as representative of a HUF. 4. Where assessee is in the business of retail trade, Sec. 44AF shall be applied to determine the presumptive income at the rate of 5% of the gross receipts. However, in case the gross turnover exceeds Rs. 40 lakhs, this special scheme does not apply. In case the assessee desires to offer income less than the percentage prescribed u/s. 44AF, he shall maintain the proper books of accounts u/s. 44AA and get the same audited in accordance with sec. 44AB. In the given case since proper books of account have not been maintained, income which is lower than the percentage stipulated under sec. 44AF shall not be considered. 5. The business of civil construction is covered under the presumptive method of taxation wherein 8% of the gross receipts shall be deemed as income provided such gross receipts do not exceed Rs. 40 lakhs during the year. However, in case the gross turnover exceeds Rs. 40 lakhs, this special scheme does not apply. In case the assessee desires to offer income less than the percentage prescribed u/s. 44AD, he shall maintain the proper books of accounts u/s. 44AA and get the same audited in accordance with sec. 44AB. While computing the gross receipts value of material supplied by the contractee shall not be considered. Accordingly, a sum of Rs. 31 lakhs shall be treated as gross receipts and 8% thereon amounting to Rs. 2.48 lakhs shall be the presumptive income. 6. According to Sec. 80C deduction shall be allowed for tuition fees paid by an individual for full time education in India for his children. However, this deduction is not eligible to the member of an HUF. Accordingly in the given case, tuition fee for Ms. Champaka cannot be claimed as deduction by Ramesh (HUF). Question No. 3(a) M/s. Vivitha & Co., a partnership firm, with four partners A, B, C and D having equal shares, furnishes the following details, summarized from the valid returns of income filed by it : Assessment year 2006-07 2007-08 2007-08 2007-08 Item eligible for carry forward and set off Unabsorbed business loss Rs. 1,20,000 Unabsorbed business loss Rs. 1,90,000 Unabsorbed depreciation Rs. 1,20,000 Unabsorbed long-term Capital losses : - from shares - from buildings Rs. 1,10,000 Rs. 1,90,000

C who was a partner during the last three years, retired from the firm with effect from 1.4.2007. The summarized results of the firm for the assessment year 2008-09 are as under:

Particulars Income from house property

Amount 70,000

Income from business : Speculation Non-speculation Capital gains Short-term (from sale of shares) Long-term (from sale of building) Income from other sources 40,000 2,10,000 60,000 2,20,000 (-) 50,000

Briefly discuss, how the items brought forward from earlier years can be set off in hands of the firm for the assessment year 2008-09, in the manner most beneficial to the assessee. Also show the items to be carried forward. Computation of total income is not required. Solution: M/s. Vivitha & Co: In the case of a partnership firm where there is a change in the constitution of the firm, the loss attributable to the shares of the retired partner which is remaining unabsorbed shall not be allowed to be carried forward by the firm Sec. 78. However, this restriction shall not apply to unabsorbed depreciation. In the given case, it was mentioned that one among the 4 partners of the firm viz. C who has one fourth share has retired from the firm. Accordingly, M/s. Vivitha & Co. is entitled to carry forward the losses to the extent detailed herebelow: Share of loss attributable to the retired partner 30,000 47,500 75,000 Nil

Sl.No

Assessment year

Nature of loss

Loss as per the return of income

Loss eligible for carry forward and set off

2006-07

Business loss Business loss

1,20,000 1,90,000 3,00,000 1,20,000

90,000 1,42,500 2,25,000 1,20,000

2007-08

Long term capital losses Depreciation

It needs mention that set-off and carry forward provisions are beneficial in nature to the assessee. Unless otherwise there is a restriction placed under the law not to set-off particular losses against certain specific income, an assessee is entitled to do so which is most beneficial to him. This view has been clarified by the Central Board of Direct Taxes in Circular No. 721 dt. 13-9-1995 wherein it was mentioned that where there is more than one source for set-off the assessee can adopt the most beneficial method of set-off. Accordingly, in the given case, the following would be the order of set-off which may be most beneficial to the assessee. 1. Set off of Long term losses: According to Sec. 74, Long term capital losses shall be entitled to be set-off only against long term capital gains. In the given case, the total long term capital loss eligible for set off is Rs. 2,25,000 (refer table above). Long term capital gain for the assessment year 2008-09 is Rs. 2,10,000. After set-off of unabsorbed capital loss with the long term capital gain for the assessment year 2008-09 the taxable long term

capital gain shall be nil. The balance unabsorbed long term capital loss of Rs. 15,000 shall be carried forward to A.Y 2009-10 for set-off. 2. Set-off of business loss: According to Sec. 70, speculation loss cannot be adjusted against non speculative income. Whereas as loss from non speculative business can be set-off against income from speculative business. Accordingly, in the given case, loss of Rs. 50,000 from non-speculative business can be set-off against income of Rs. 2,20,000 from speculative activities. With this inter source adjustment the balance business income available is Rs. 1,70,000. 3. This business income of Rs. 1,70,000 shall be set-off first against the unabsorbed business loss of the Assessment year 2006-07 and the balance income, if any, shall be set-off against the business loss brought forward from assessment year 2007-08. Thus, in the given case, the balance unabsorbed business loss shall be as follows: Particulars Unabsorbed business loss for the AY 2006-07 Unabsorbed business loss for the AY 2007-08 Amount (in Rs.) 90,000 1,42,500 2,32,500 Less: Set off of income for the A.Y. 2008-09 Balance unabsorbed business loss pertains to A.Y 2007-08 to be carried forward to assessment year 2009-10 for set-off 1,70,000 62,500

4. The balance income available for the assessment year 2008-09 shall be set-off as detailed here below. Particulars Income from house property Short term capital gain Income from other sources Total Less: Set-off of unabsorbed depreciation loss for the A.Y. 2007-08 Taxable income Question No. 3(b) Following benefits have been granted by Ved Software Ltd. to one of its employees Mr. Badri : (i) Housing loan @ 6% per annum. Amount outstanding on 1.4.2007 is Rs. 6,00,000. Mr. Badri pays Rs. 12,000 per month, on 5th of each month. Amount 70,000 40,000 60,000 1,70,000 1,20,000 50,000

(ii) Air-conditioners purchased 4 years back for Rs. 2,00,000 have been given to Mr. Badri for Rs. 90,000. Compute the chargeable perquisite in the hands of Mr. Badri for the assessment year 2008-09. The lending rate of State Bank of India as on 1.4.2007 for housing loan may be taken as 10%.

Solution: Computation of taxable perquisite in the hands of the Mr.Badri.


<<,

Sl.No i. ii.

Particulars Taxable perquisite for loan taken-(Rs.56.042-Rs.32,981) note (i) On transfer of asset [working note (ii)] Total taxable value of perquisite working

Amount 23,061 30,000 53,061

(i) In the given case, employee has repaid a sum of Rs.12,000 every month (EMI) in respect of concessional loan availed from the employer. The question does not specify as to the amount of interest element embedded in the sum repaid. Based on the interest rate of 6%, the following calculation has been made to arrive at the maximum outstanding monthly balance. (a) Computation of interest charged by the SBI bank @ 10% p.a. Month 1 2 3 4 5 6 7 8 9 10 11 12 Opening EMI paid Outstanding balance 6,00,000 12,000 5,93,000 12,000 5,85,942 12,000 5,78,825 12,000 5,71,649 12,000 5,64,413 12,000 5,57,116 12,000 5,49,759 12,000 5,42,340 12,000 5,34,860 12,000 5,27,317 12,000 5,19,711 12,000 TOTAL INTEREST Interest 5,000 4,942 4,883 4,824 4,764 4,703 4,643 4,581 4,520 4,457 4,394 4,331 56,042 Principal 7,000 7,058 7,117 7,176 7,236 7,297 7,357 7,419 7,481 7,543 7,606 7,669 Closing Outstanding balance 5,93,000 5,85,942 5,78,825 5,71,649 5,64,413 5,57,116 5,49,759 5,42,340 5,34,860 5,27,317 5,19,711 5,12,042

(b) Computation of interest which is paid by the employee @ 6%.p.a: Closing Opening EMI paid Interest Principal Outstanding Month Outstanding balance balance 1 6,00,000 12,000 3,000 9,000 5,91,000 2 5,91,000 12,000 2,955 9,045 5,81,955 3 5,81,955 12,000 2,910 9,090 5,72,865 4 5,72,865 12,000 2,864 9,136 5,63,729 5 5,63,729 12,000 2,819 9,181 5,54,548 6 5,54,548 12,000 2,773 9,227 5,45,321 7 5,45,321 12,000 2,727 9,273 5,36,048 8 5,36,048 12,000 2,680 9,320 5,26,728 9 5,26,728 12,000 2,634 9,366 5,17,362 10 5,17,368 12,000 2,587 9,413 5,07,949 11 5,07,949 12,000 2,540 9,460 4,98,489 12 4,98,489 12,000 2,492 9,508 4,88,981 TOTAL INTEREST 32,981

(ii) Calculation of perquisite in the case of assets taken over by Mr.Badri Particulars Cost of asset to the employer Less Depreciation for 4 years method @ 10%(SLM Method) [(Rs.2,00,000*10%=20,000)4] Less amount paid by the employee to the employer Taxable perquisite for asset taken over 80,000 90,000 30,000 Amount 2,00,000

The air conditioner taken by the Mr.Badri is not a an electronic good, but Electronic good, hence considered as other asset and depreciation shall be provided at 10% p.a. on Straight Line Method. EITHER Question No. 4(a): Ms. Vasumathi purchased 10,000 equity shares of Rajesh Co. Pvt. Ltd. on 28.2.2004 for 1,20,000. The company was wound up on 31.7.2007. The following is the summarized financial position of the company as on 31.7.2007 Liabilities 60,000 Equity shares General reserve Provision for taxation Total Rs. 6,00,000 40,00,000 2,50,000 48,50,000 Total 48,50,000 Assets Agricultural lands Cash at bank Rs. 42,00,000 6,50,000

The tax liability (towards dividend distribution tax) was ascertained at Rs. 3,00,000 after considering refund due to the company. The remaining assets were distributed to the shareholders in the proportion of their shareholding. The market value of 6 acres of agricultural land (in an urban area) as on 31.7.2007 is Rs. 10,00,000 per acre. The agricultural land received above was sold by Ms. Vasumathi on 29.2.2008 for Rs. 15,00,000. Discuss the tax consequences in the hands of the company and Ms. Vasumathi. Solution: I. Tax liability at the time of liquidation of company. A. Tax consequences in the hands of company

As per sec 46(2) when assets are transferred by way of distribution to the shareholders of a company on account of Liquidation, such distribution shall not be regarded as transfer in case of the company. The company shall pay dividend distribution tax on the deemed dividend. B Tax consequences in the hands of Ms.Vasumathi Particulars Share of Assets received on Liquidation of Co. a) Market value of land (one acre of land) b) Share of cash (1/6th of Rs.1,00,000) (Rs.6.5 lakhs-Rs.2.5 lakhs-Rs.3 lakhs ) Less : Deemed dividend u/s 2(22)(c) - (1/6th of Rs. 37,00,000/-) (Rs.40 lakhs-Rs.3 lakhs) ____16,667 10,16,667 6,16,667 10,00,000 Amount Amount

Consideration for computing capital gain Less: Indexed cost of acquisition of shares (1,20,000551/463) Long term capital gain II. Tax liability at the time of disposal of the Asset

4,00,000 1,42,808 2,57,192

Particulars Full value of sale consideration Less: Cost of Acquisition (Market value at the time of Liquidation) Short term capital gain

Amount in Rs. 15,00,000 10,00,000 5,00,000

Ms.Vasumathi has sold the property on 29-02-2008. Since the agricultural land is situated within the urban area, the same shall be considered as capital asset and transfer of the same is subject to capital gain. As the transfer took place within 36 months from the date of acquisition, the same shall be treated as short term capital gain. Question No. 4(b) Mr. Narendra, who retired from the services of Hotel Samode Ltd., on 31.1.2008 after putting on service for 5 years, received the following amounts from the employer for the year ending on 31.3.2008: Salary @ Rs. 16,000 p.m. comprising of basic salary of Rs. 10,000, dearness allowance of Rs. 3,000, City compensatory allowance of Rs. 2,000 and Night duty allowance of 1,000. Pension @ 30% of basic salary from 1.2.2008 Leave salary of Rs. 75,000 for 225 days of leave accumulated during 5 years @ 45 days leave in each year. Gratuity of Rs. 50,000.
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Compute the total income of Mr. Narendra for the assessment year 2008-09. Solution: 1. 2. 3. 4. 5. 6. 7. Basic Salary (Rs.10,00010 Months) Dearness Allowance (Rs.3,00010 Months ) City Compensatory Allowance (Rs.2,00010 Months) Night Duty Allowance (Rs.1,00010 Months) Pension (Rs.10,00030%2 Months) Leave Salary (Refer Working Note 1) Gratuity (Refer Working Note 2) Total 1,00,000 30,000 20,000 10,000 6,000 25000 25,000 2,16,000

Note: Leave salary:-sec 10(10AA)

Working Note 1 Rs. Rs. 75,000

Actual leave salary received Less : Exempt u/s.10(10AA) to the extent of least of the following : 1. Cash equivalent of leave to the credit of employee at the time of retirement (Rs.10,0005) 2. 10 months salary (Rs.10,000 10) 3. Maximum amount not taxable 4. Actual leave salary received Taxable leave salary Gratuity:-sec 10(10) Rs Actual Gratuity received Less : Exempt u/s.10(10) to the extent of least of the following: 1. Maximum deduction 2. Half month salary for each completed year of services (5,000 x x 5) 3. Actual Gratuity received Taxable Gratuity (Assumed not to be covered under payment of Gratuity Act)

50,000 1,00,000 3,00,000 75,000

50,000 25,000

Working Note 2 Rs. 50,000

3,50,000 25,000 50,000 25,000 25,000

OR Question No. 4(a) Mr. Dhaval and his wife Mrs. Hetal furnish the following information: Amount in Rs 4,60,000 1,08,000 86,000 7,50,000 48,000 30,000

Sl.No. 1. 2. 3. 4. 5. 6.

Particulars Salary income (computed) of Mrs. Hetal Income of minor son B who suffers from disability Specified in Section 80U Income of minor daughter C from singing Income from profession of Mr. Dhaval Cash gift received by C on 2.10.2007 from friend of Mrs. Hetal on winning of singing competition Income of minor married daughter A from company deposit

Compute the total income of Mr. Dhaval and Mrs. Hetal for the assessment year 2008-09. Solution:

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Computation of total income of Mr. Dhaval & Mrs. Hetal Sl.No 1 2 3 Particulars Salaries Income from Profession Interest on Company Deposit of Minor Married daughter A Rs.30,000 Less deduction as per section 10(32) Rs.1,500 Total Income Mr. Dhaval NIL 7,50,000 28,500 Mrs. Hetal 4,60,000 NIL

7,78,500

4,60,000

Notes: 1. Salary income being derived out of own skill and knowledge shall be subjected to tax in the hands of employee concerned only and accordingly the clubbing provision fails. Therefore, In the given case, Rs.4,60,000 shall be taxable in the hands of Mrs.Hetal. 2. Income of minor children who is suffering from disability specified in sec 80U shall not be clubbed in the hands of parents. Similarly where the minor child derives income by exercising skill and knowledge shall be subjected to tax in their individual hands and not in the hands of their parents. Accordingly, in the given case Rs.180,000 and Rs.86,000 being income derived by disabled minor son and income derived by minor daughter shall be subjected to tax in their individual hands. 3. Any sum received from non relatives otherwise than for consideration is subject to tax in the hands of individual concerned except under certain specific occasions. However where the aggregate amount of gift does not exceedRs.50,000 during the financial year the same shall not be subjected to tax u/s 56(2). 4. Sec. 64(1A) does not exclude the income derived by minor married daughter from the purview of clubbing provision. So long as they are minors, clubbing provision continue to apply. Therefore, in the given case, interest income from company deposit derived by minor daughter A shall be clubbed in the hands of father or mother whose income is greater. In the given case Mr.Dhaval. income of Rs.7,50,000 is greater than Mrs.Hetals income of Rs.4,60,000 and therefore, Rs.30,000 shall be clubbed in the hands of Mr.Dhaval. Off course Mr.Dhaval is entitled for exemption to the extent of Rs.1,500 u/s 10(32) and the net income of Rs.28,500 shall be added for computing the total income.

Question No. 4(b) Mr. Kalpesh borrowed a sum of Rs. 30 lakhs from the National Housing Bank towards purchase of a residential flat. The loan amount was disbursed directly to the flat promoter by the bank. Though the construction was completed in May, 2008, repayments towards principal and interest had been made during the year ended 31.3.2008. In the light of the above facts, state: a) Whether Mr. Kalpesh can claim deductions under Section 24 in respect of interest for the assessment year 2008-09; b) Whether deduction under Section 80C can be claimed for the assessment year, even though the construction was completed only after the closure of the year. Solution: (i) Sec. 24(b) provides that interest accrued during the construction period proceeding the year in which the house property is constructed cannot be claimed as deduction in the respective years. However, the same can be accumulated and be claimed as deduction in five equal annual instalments commencing from the year in which the House Property is constructed. Thus Mr. Kaplesh cannot claim deduction u/s. 24(b) for the A.Y. 2008-09 since construction was completed only on May 2008.

(ii) In order to claim the principal repayment on loan borrowed for house property as deduction, the construction of such property should have been completed and is chargeable to tax under the head Income from House property. In the given case, since the property is completed only on May 2008, principal repayment does not qualify for deduction for the year ended 31st march 2008. Question No. 5 (a) How is advanced salary taxed in the hands of an employee? Is the tax treatment same for loan or advance against salary? (b) Briefly discuss about the interest chargeable under Section 234A for delay or default in furnishing returns of income. (c) List six items of expenses which otherwise are deductible shall be disallowed, unless payments are actually made with in the due date for furnishing the return of income under Section 139(1). When can the deduction be claimed, if paid after the said date? (d) What are the due dates of installments and the quantum of advance tax payable by companies ? (e) Briefly explain the term substantial interest. State any two situations in which the same assumes importance. Solution: 5(a). Refer to the chapter income from salaries in our material. 5(b). Refer to the chapter advance tax in our material. 5(c). Refer to the chapter PGBP (Sec.43B) in our material. 5(d). Refer to the chapter advance tax in our material. 5(e). Refer to the chapter income from salaries in our material.

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