Question 1

How is the residential status of a company determined for the purposes of Income-tax Act, 1961, for the assessment year 2016-17?

Accepted Answer

The residential status of a company is determined under **Section 6(3) of the Income Tax Act, 1961**. A company shall be said to be **resident in India** in any previous year if: (a) it is **incorporated in India**, or (b) its **management and control is situated in India** during that year.

**Incorporation Test**: A company incorporated in India under the Companies Act is automatically classified as a resident of India for tax purposes, regardless of where its operations are conducted. This is an objective test based on the place of registration as evidenced by the Certificate of Incorporation.

**Management and Control Test**: Even if a company is incorporated outside India, it will be treated as a resident if the effective management and control of its affairs is situated in India during the financial year. The term "management and control" refers to the control of the company at the highest level—where the board of directors meets, where major policy decisions are made, and where the ultimate direction originates.

**Determination of Management and Control**: This is a question of fact determined by examining where actual control resides, not merely the location of offices, employees, or nominal authority. Courts have established that **de facto control** (actual control) is relevant, not de jure authority (legal authority). Indicators include the location of board meetings, where strategic decisions are taken, and where executive direction originates.

**Nature of Tests…

Question 2

How is the term 'Assessee' defined under the provisions of the Income-tax Act, 1961?

Accepted Answer

**Assessee** is defined under **Section 2(8) of the Income-tax Act, 1961** as any person by whom any tax or any other sum of money is payable under the Act, or would be payable if the person were resident in India, or would be payable in respect of the income which he is deemed to receive or which may be assessed to him under the Act.

The definition is **broad and inclusive** and encompasses any person who is subject to the liability of payment of income tax or any other sum under the Act. This includes:

**Categories of Assessees:**

1. **Individual** — any natural person, whether resident or non-resident

2. **Hindu Undivided Family (HUF)** — recognized as a distinct taxable entity under Indian law

3. **Company** — as defined in the Companies Act, whether incorporated in India or abroad

4. **Firm** — a partnership firm engaged in business or profession

5. **Association of Persons (AOP)** — two or more persons created by agreement for a common purpose

6. **Body of Individuals (BOI)** — persons bound together by some mutual obligation or common objective

7. **Local Authority** — municipal corporations, gram panchayats, and other local bodies

8. **Any other person** — any entity that earns income or is deemed to be assessable

**Key Characteristics:**

The term assessee is **not confined to persons liable to assessment** but includes any person in respect of whom any proceedings for assessment have been initiated under the Act. The liability arises irrespective of wheth…

Question 3

Compute the total income of the assessee for the assessment year 2016-17, under proper heads of income. Listed share were sold in recognized stock exchange.

Accepted Answer

**INCOMPLETE QUESTION DATA**

The question as stated is incomplete and cannot be solved. While it mentions 'Listed share were sold in recognized stock exchange,' the following critical information is missing:

1. **Cost of Acquisition** - Original purchase price of the shares
2. **Sale Proceeds** - Price at which shares were sold
3. **Holding Period** - Date of acquisition and date of sale (needed to determine short-term vs. long-term capital gains)
4. **Cost of Improvement** - Any expenditure incurred to enhance the shares' value
5. **Transaction Costs** - Brokerage, commission, or other costs of acquisition and sale
6. **Other Income Details** - Any salary, interest, business income, or other sources of income

**What would be computed if data were complete:**

For **short-term capital gains** (holding period ≤ 1 year): Added to income and taxed as ordinary income under the normal slab rates.

For **long-term capital gains** (holding period > 1 year): Taxed separately:
- Listed shares: Taxed at 20% with indexation benefit under Section 48 of the Income Tax Act, 1961
- Indexation factor: Latest cost inflation index ÷ cost inflation index of the year of acquisition

**Formula for LTCG:**
Long-term Capital Gain = Sale Proceeds – (Cost of Acquisition × Indexation Factor) – Costs of Sale – Costs of Improvement

**Total Income** = Income from other heads (salary, business, etc.) + Capital Gains

Please provide the complete numerical data to compute the answer.

Question 4

State the conditions to be fulfilled by a political party for enjoying exemption in relation to certain incomes, under the Income-tax Act, 1961.

Accepted Answer

**Section 13A** of the Income Tax Act, 1961 provides exemption for income of a political party subject to the following conditions:

**1. Registration:** The political party must be registered under the **Representation of the People Act, 1951**. Only organizations meeting this statutory criterion qualify for the exemption.

**2. Nature of Income:** The exemption applies **only to contributions received** by the political party. Income from other sources such as rent, dividends, interest, or any other business income is **not eligible** for exemption under this section, though it may be taxable.

**3. Maintenance of Books of Accounts:** The political party must maintain books of accounts and records in the **manner prescribed by the Central Board of Direct Taxes (CBDT)**. This ensures transparency and accountability in tracking contributions and expenditures.

**4. Filing of Return of Income:** The political party is **obligated to file a return of income** for the relevant assessment year as required under the Income Tax Act. Non-filing forfeits the exemption claim.

**5. Contribution Receipt Requirements:** Contributions must be received **voluntarily** (not coerced). Additionally, contributions exceeding prescribed limits must be received through **crossed cheque, bank transfer, or digital mode**, not in cash. This ensures proper documentation and prevents black money influx.

**6. Donor Information Disclosure:** The political party must **disclose information** about cont…

Question 5

Mr. Suresh has set up an undertaking in SEZ (Unit A) and another undertaking in DTA (Unit B) in the financial year 2010-11. In the previous year 2015-16, total turnover of the unit A is ₹ 180 lacs and total turnover of Unit B is ₹ 120 lacs. Export turnover of Unit A for the year is ₹ 150 lacs and the profit for the unit A is ₹ 60 lacs. Calculate the deduction available, if any, to Mr. Suresh under Section 10AA of the Income-tax Act, 1961, for the Assessment year 2016-17, if the manufacturing started in Unit A in the financial year 2010-11.

Accepted Answer

**Deduction under Section 10AA of the Income-tax Act, 1961 for AY 2016-17**

**Applicable Deduction Percentage:**

Section 10AA provides a deduction to units set up in Special Economic Zones (SEZ). The deduction is available as follows:
- **First 5 years:** 100% of eligible profits
- **Next 5 years (Years 6–10):** 50% of eligible profits
- **Subsequent 5 years (Years 11–15):** 50% of eligible profits (subject to transfer to SEZ Re-investment Reserve)

Unit A commenced manufacturing in **FY 2010-11**. For PY 2015-16 (AY 2016-17), it is operating in its **6th year**. Therefore, the applicable deduction rate is **50%**.

**Formula for computing deduction under Section 10AA:**

Deduction = Profit of the SEZ Undertaking × (Export Turnover of the Unit ÷ Total Turnover of the Unit) × Applicable %

**Computation:**

Eligible Profit = ₹60 lacs × (₹150 lacs ÷ ₹180 lacs) = ₹50 lacs

Deduction @ 50% = ₹50 lacs × 50% = **₹25 lacs**

**Note:** Unit B is in DTA (Domestic Tariff Area) and is not eligible for any deduction under Section 10AA. The total turnover of Unit B (₹120 lacs) is not relevant for this computation as the formula uses only the turnover of the SEZ unit.

**The deduction available to Mr. Suresh under Section 10AA for AY 2016-17 is ₹25 lacs.**

Question 6

Dharmendra Ltd. gives the following particulars relating to the services provided by it to its various clients for the month of January, 2016: (i) Total bills raised for ₹17,50,000, out of which bill for ₹1,50,000 was raised on a SEZ unit for services rendered in the said unit and payment for bills for ₹2,00,000 were not received until 31-01-2016. Service tax is separately charged on the bills raised, wherever applicable. (ii) Amount of ₹1,14,500 (including service tax) was received as an advance from Ramotar Ltd. on 25-01-2016 to whom the services were provided in March, 2016. Assume that service tax is separately charged in the bills as well as for advance payment, wherever applicable. Assessee is not a small service provider. Compute: (i) Value of taxable services, (ii) Amount of servic…

Accepted Answer

**Computation of Service Tax Liability of Dharmendra Ltd. for January 2016**

**(i) Value of Taxable Services**

Under the **Point of Taxation Rules, 2011 (Rule 3)**, the point of taxation is the earlier of: (a) date of invoice, or (b) date of receipt of payment. Since bills are raised in January 2016, the point of taxation is the **date of invoice**, irrespective of whether payment is received.

Services rendered to an **SEZ unit** within the SEZ are **exempt** (zero-rated) under the Service Tax (Export of Services) Rules / SEZ exemption notification. Hence, the bill of ₹1,50,000 raised on the SEZ unit is excluded.

The bill amount of ₹2,00,000 (payment not received) is still taxable in January 2016, as the invoice is already raised (point of taxation = date of invoice).

For the **advance of ₹1,14,500** received from Ramotar Ltd. on 25-01-2016, point of taxation is the **date of receipt of payment** (advance received before services are rendered), so it is taxable in January 2016. Since service tax is included in ₹1,14,500, the value is back-calculated: ₹1,14,500 × 100/114.5 = **₹1,00,000**.

**Total Value of Taxable Services = ₹17,00,000**

**(ii) Amount of Service Tax Payable**

Applicable rate in January 2016: Basic Service Tax @ **14%** + **Swachh Bharat Cess (SBC) @ 0.5%** = **14.5%** (Krishi Kalyan Cess was introduced only from June 2016 — not applicable).

**Service Tax = ₹17,00,000 × 14% = ₹2,38,000**
**Swachh Bharat Cess = ₹17,00,000 × 0.5% = ₹8,500**
**Total Servi…

Question 7

Discuss the taxability or otherwise in the hands of the recipients, as per the provisions of the Income-tax Act, 1961

Accepted Answer

**(i) ABC Private Limited – Issue of Shares at Premium above FMV:**

As per **Section 56(2)(viib) of the Income-tax Act, 1961**, where a closely held company receives consideration for issue of shares exceeding the **Fair Market Value (FMV)** of such shares, the excess is taxable as **'Income from Other Sources'** in the hands of the company (the recipient of consideration).

Here, ABC Pvt. Ltd. is a closely held company. Issue price = ₹130, FMV = ₹120. The excess of ₹10 per share over FMV is taxable. **Total taxable income = 10,000 × ₹10 = ₹1,00,000**, chargeable in the hands of ABC Pvt. Ltd.

Note: The face value of ₹100 is irrelevant for this computation. The comparison is between issue price and FMV.

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**(ii) Mr. A – Forfeiture of Advance Against Sale of House:**

Prior to the Finance Act 2014, forfeited advances were deducted from cost of acquisition under Section 51. However, **Section 56(2)(ix)** (inserted w.e.f. AY 2015-16 by Finance Act 2014) provides that any sum of money received as an advance in the course of negotiations for transfer of a capital asset, which is **forfeited** due to failure of such negotiations, shall be chargeable to income tax under **'Income from Other Sources'**.

Since the advance of ₹50,000 was received on 1-09-2015 (i.e., AY 2016-17) and the contract was subsequently cancelled with the amount being forfeited, the **entire ₹50,000 is taxable in the hands of Mr. A** under Section 56(2)(ix) as income from other sources. Section 51 no long…

Question 8

Compute net VAT liability of Rohan from the following information for the month of February, 2016: Raw material from foreign market (including duty paid on imports @ 20%) ₹1,50,000; Raw material purchased from local market: Cost of raw material ₹3,00,000, Excise duty @ 12.5% ₹37,500, subtotal ₹3,37,500, VAT@4% ₹13,500, total ₹3,51,000; Raw Material purchased from neighbouring state (including CST @ 2%) ₹51,000; Storage and Transportation costs ₹11,000; Manufacturing expenses ₹25,000. Rohan sold goods to Arya and earned profit @ 12% on the cost of production. VAT rate on sale of such goods is 4%. There were no opening and closing stocks.

Accepted Answer

**Computation of Net VAT Liability of Rohan for February 2016**

**Step 1 – Cost of Production**

Under the VAT system, **Input Tax Credit (ITC)** is available only on **VAT paid on local (intra-state) purchases**. Customs duty on imports and **CST on inter-state purchases are NOT eligible for ITC** and hence form part of cost.

The cost of production is computed as follows:

| Particulars | ₹ |
|---|---|
| Raw material from foreign market (incl. import duty — no ITC) | 1,50,000 |
| Raw material from local market (cost ₹3,00,000 + excise duty ₹37,500; VAT of ₹13,500 excluded as ITC is available) | 3,37,500 |
| Raw material from neighbouring state (incl. CST — no ITC on CST) | 51,000 |
| Storage and Transportation costs | 11,000 |
| Manufacturing expenses | 25,000 |
| **Total Cost of Production** | **5,74,500** |

**Step 2 – Selling Price (before VAT)**

Profit @ 12% on cost = 12% × ₹5,74,500 = ₹68,940
Selling Price = ₹5,74,500 + ₹68,940 = **₹6,43,440**

**Step 3 – Output VAT**

VAT on sales @ 4% = 4% × ₹6,43,440 = **₹25,737.60**

**Step 4 – Input Tax Credit (ITC)**

Only VAT paid on local market purchases is eligible: **₹13,500**

**Step 5 – Net VAT Liability**

Net VAT = Output VAT − ITC = ₹25,737.60 − ₹13,500 = **₹12,237.60**

**The Net VAT Liability of Rohan for February 2016 is ₹12,237.60 (approx. ₹12,238).**

Question 9

When can an assessee avail the benefit of Small Service Provider (SSP) exemption for the purposes of service tax? Name two situations in which such SSP exemption is not available.

Accepted Answer

**Eligibility for SSP Exemption:** An assessee can avail the benefit of Small Service Provider (SSP) exemption when the aggregate value of taxable services provided by him in the preceding financial year does not exceed ₹20 lakhs, AND the services provided are not covered under the negative list of services as specified in the Service Tax Rules, 1994.

**Two Situations Where SSP Exemption is NOT Available:**

**1. Services Covered in the Negative/Restricted List:** The SSP exemption does not apply to certain categories of services explicitly excluded from the scheme. These include financial services (banking, insurance, stock broking, merchant banking, credit card services, etc.), telecom services, air transportation services, mining services, and services provided by way of establishment or job work where the service provider has an office or establishment.

**2. Aggregate Turnover Exceeds ₹20 Lakhs:** When the aggregate value of taxable services provided by the service provider in the preceding financial year exceeds ₹20 lakhs, the assessee ceases to be eligible for SSP exemption. The exemption is available only to **service providers with turnover up to the specified threshold**. Once the threshold is breached, the assessee must discharge Service Tax liability from the date of such breach or from the beginning of the next financial year, as per the rules.

Question 10

State with reason, whether the following transactions are true or false, as per the provisions of the Central Sales Tax Act, 1956:

Accepted Answer

**Statement (i): TRUE** — CST is not leviable on inter-State sale of electrical energy. Electrical energy is specifically listed as an exempt article under the Schedule to the Central Sales Tax Act, 1956. The exemption applies to all inter-state sales of electrical energy, regardless of the mode of transmission or distribution. This exemption was maintained throughout the CST regime and reflects the policy of treating essential utilities as exempt from sales tax.

**Statement (ii): FALSE** — Cost of freight will form part of sale price even if not separately shown in the invoice. Under the CST Act, 1956, 'sale price' is defined to include all consideration for the sale, encompassing all charges incidental to the completion of the sale transaction. These incidental charges include freight, insurance, packing charges, and similar costs. The critical principle is that if freight is charged by the seller as part of the sale transaction, it constitutes part of the sale price for CST purposes, irrespective of whether it is itemized separately in the invoice or clubbed with the goods price. The character of the charge (whether separately shown or not) is immaterial; what matters is whether it forms part of the consideration for the goods sold. Only when freight is charged by an independent third party (transporter) and the buyer pays directly to such party—not to the seller—may it be excluded from the sale price. Therefore, the statement is incorrect in suggesting that non-itemized …

Question 11

Mandi & Co. is providing taxable information technology software services. The firm furnishes the following information relating to the services rendered, bills raised, amount received pertaining to the services, for the quarter ending 31-03-2016: Amount received being 10% of the assignment fees on 31-03-2016 for the upgradation and enhancement of the software services (including service tax): ₹ 7,00,000; Services provided to UNICEF, an international organization in Delhi, for design and programming of IT services: ₹ 4,00,000; Services provided to A Ltd. for IT services. Service Tax was not received from the client due to some dispute: ₹ 3,00,000; Services provided to B Ltd. for providing software services. However, Mandi & Co. failed to recover the service tax amount from B Ltd. due to in…

Accepted Answer

**Computation of Value of Taxable Services and Service Tax Payable by Mandi & Co. for the Quarter Ending 31-03-2016**

**Preliminary Note:** Since Mandi & Co. rendered taxable services of ₹110 lakhs during the year ended 31-03-2015 (exceeding the ₹10 lakh threshold), the benefit of SSP exemption under Notification No. 25/2012-ST is **not available**. The applicable service tax rate is **14.5%** (Basic ST 14% + Swachh Bharat Cess 0.5%, effective from 15-11-2015 under Finance Act 2015).

**Treatment of Each Item:**

**Item 1 – Upgradation & Enhancement services (₹7,00,000 inclusive of ST):** Amount received on 31-03-2016; taxable under Point of Taxation Rules, 2011. Value (exclusive) = ₹7,00,000 × 100/114.5 = **₹6,11,353**; Service Tax = ₹88,647.

**Item 2 – Services to UNICEF (₹4,00,000):** UNICEF is an international organisation under the United Nations. Services provided to the UN and its bodies are **fully exempt** under Entry 29 of Mega Exemption Notification No. 25/2012-ST. Value of taxable service = **NIL**; Service Tax = **NIL**.

**Item 3 – Services to A Ltd. (₹3,00,000, ST not received due to dispute):** Under Service Tax law, there is **no provision for bad debt or non-recovery relief**. Service tax is payable on the value of taxable services provided, irrespective of whether service tax is recovered from the client. Value = **₹3,00,000**; Service Tax = ₹43,500.

**Item 4 – Services to B Ltd. (client insolvent, bill issued January 2016):** Bill raised in January 2016…

Question 12

Venus Ltd., engaged in manufacture of pesticides, furnishes the following particulars relating to its manufacturing unit at Chennai (for the year ending 31-3-2016): Opening WDV of Plant and Machinery: ₹20 lacs; New machinery purchased on 1-9-2015: ₹10 lacs; New car purchased on 1-12-2015: ₹8 lacs; Computer purchased on 3-1-2016: ₹4 lacs. All assets were put to use immediately. Computer has been installed in the office. During the year ended 31-3-2015, a new machinery had been purchased on 31-10-2014, for ₹10 lacs. Additional depreciation, besides normal depreciation, had been claimed thereon. Depreciation rate for machinery may be taken as 15%. Compute the depreciation available to the assessee as per the provisions of the Income-tax Act, 1961 and the WDV of different blocks of assets as o…

Accepted Answer

**Computation of Depreciation and WDV of Assets — Venus Ltd. (P.Y. 2015-16 / A.Y. 2016-17)**

Under **Section 32 of the Income Tax Act, 1961**, depreciation is computed on the **Written Down Value (WDV)** of a **block of assets**. Assets falling within the same class (tangible/intangible) and attracting the same depreciation rate form one block. For new manufacturing plant and machinery, **additional depreciation under Section 32(1)(iia)** @ 20% of actual cost is available. If an asset is used for **less than 180 days** in the year of acquisition, both normal and additional depreciation are restricted to **50% of the applicable rate**. Finance Act 2015 introduced a provision allowing the **unabsorbed 50% additional depreciation** (arising due to < 180 days use) to be carried forward and claimed in the **immediately succeeding year**.

**Identification of Blocks:**
- **Block 1: Plant & Machinery + Motor Car @ 15%** — Motor car (non-hire) and general plant & machinery both attract 15%; they form one block.
- **Block 2: Computers @ 60%** — Separate block.

**Period of use in P.Y. 2015-16:**
- New machinery (1-9-2015): 1 Sep to 31 Mar = 212 days → **> 180 days** → Full rate; additional dep @ **20%**
- New car (1-12-2015): 1 Dec to 31 Mar = 121 days → **< 180 days** → Normal dep at **half rate (7.5%)**; **no additional depreciation** (motor cars excluded from Sec. 32(1)(iia))
- Computer (3-1-2016): 3 Jan to 31 Mar = 87 days → **< 180 days** → Normal dep at **half rate (30%)**; **n…

Question 13

Briefly explain the concessional/composition rates of service tax applicable to Air travel agents.

Accepted Answer

**Composition Scheme for Air Travel Agents**

**Eligibility and Nature**: The composition scheme is a simplified taxation mechanism available to service providers, including air travel agents, whose aggregate turnover in a financial year does not exceed ₹1.5 crore. This scheme was introduced to reduce compliance burden and provide tax relief to smaller service providers. Air travel agents are classified as agents providing intermediary services in relation to air travel bookings.

**Applicable Rate**: Under the current GST regime (post July 2017), air travel agent services are subject to a standard GST rate of **5%**. However, when opting for the composition scheme, the rate is fixed at a lower percentage, typically **2.5%** of the turnover, as defined under relevant GST laws and rules. This is significantly lower than the standard rate, providing substantial tax relief.

**Key Features of the Scheme**:

**1. Simpler Compliance**: Composition scheme dealers are not required to file GST returns in every month. They can file quarterly returns, reducing administrative complexity and compliance costs. This is particularly beneficial for smaller travel agencies with limited accounting infrastructure.

**2. Input Tax Credit Not Available**: A significant limitation is that composition scheme dealers cannot claim Input Tax Credit (ITC) on purchases of goods and services used in their business. This means all input taxes paid become a cost to the business.

**3. Ceiling on Turnover**…

Question 14

Discuss whether the following services are chargeable to service tax or not; in March, 2016:

Accepted Answer

**Service Tax Chargeability — March 2016 (under Finance Act, 1994)**

**(i) Indian tour operator — service to Mr. Yuhan (Japanese national) for a tour in Sri Lanka**

This service is **NOT chargeable to service tax**. Under **Entry 18 of Mega Exemption Notification No. 25/2012-ST**, services provided by a tour operator to a **foreign tourist** in relation to a tour **conducted wholly outside India** are exempt from service tax. Since Mr. Yuhan is a Japanese national and the tour is conducted in Sri Lanka (outside India), the exemption applies in full. No service tax is leviable.

**(ii) Mr. Amit (organiser) — services to Mr. Kumar for a business exhibition held in Patna**

This service **is chargeable to service tax**. The business exhibition is held in **Patna, i.e., within the taxable territory of India**. Under **Section 66B of the Finance Act, 1994**, service tax is levied on all services provided in the taxable territory, unless covered by the negative list (Section 66D) or an exemption notification. Services of event organizers/business exhibitions do not fall in the negative list and no exemption covers this situation. Hence, service tax is applicable.

**(iii) Mr. Chandra Bhusan — conducting religious rites at a birth ceremony**

This service is **NOT chargeable to service tax**. Under **Section 66D(b) of the Finance Act, 1994**, services by way of **conduct of any religious ceremony** are included in the **negative list** of services. Conducting religious rites at a …

Question 15

Madhav Enterprises imported some goods from USA. The assessable value of the imported goods is ₹ 20,00,000. Compute the custom duty payable from the following additional information: Date of Bill of entry: 30-09-2015 (Rate of BCD is 10%), Date of entry inward: 25-09-2015 (Rate of BCD is 8%), C.V.D. is payable @ 12.5%, Special C.V.D. @ 4%

Accepted Answer

**Determination of Applicable Rate of Duty:**

As per **Section 15 of the Customs Act, 1962**, for goods entered for home consumption, the rate of duty applicable is the rate in force on the **date of presentation of the Bill of Entry** or the **date of entry inward** of the vessel, **whichever is later**.

Date of Bill of Entry: 30-09-2015 (BCD @ 10%)
Date of Entry Inward: 25-09-2015 (BCD @ 8%)

Since 30-09-2015 (Bill of Entry) is later than 25-09-2015 (Entry Inward), the **applicable rate of BCD is 10%**.

**Computation of Customs Duty Payable by Madhav Enterprises:**

**Step 1 — Basic Customs Duty (BCD):** Levied on the Assessable Value (AV) @ 10%.

**Step 2 — Countervailing Duty (CVD):** Levied under Section 3 of the Customs Tariff Act, 1975 on (AV + BCD) @ 12.5%, equivalent to the excise duty leviable on like goods manufactured in India.

**Step 3 — Special CVD (SAD):** Levied under Section 3(5) of the Customs Tariff Act, 1975 on (AV + BCD + CVD) @ 4%, to countervail the VAT/Sales Tax leviable on domestic goods.

**Total Customs Duty Payable = ₹ 5,74,000**

Question 16

Mr. Aditya furnishes the following details for the year ended 31-03-2016

Accepted Answer

**Computation of Gross Total Income of Mr. Aditya for Assessment Year 2016-17** (Previous Year ended 31-03-2016)

**Step 1 – Intra-head Set-off (Section 70 of the Income Tax Act, 1961)**

**Head: Business/Profession**
Speculative businesses are treated as a separate source under Section 43(5). Loss from speculative business A (₹25,000) is set off against income from speculative business B (₹5,000), leaving a **net speculative loss of ₹20,000**. Under Section 73, speculative losses cannot be set off against non-speculative business income; they can only be set off against speculative profits. Hence, this loss is **not set off** against trading business income and is carried forward.

Loss from **specified business under Section 35AD** (₹20,000) can only be set off against income from other Section 35AD specified businesses under Section 73A. Since there is no other Section 35AD income, this loss is also **carried forward indefinitely**.

Net non-speculative business income (trading): ₹45,000.

**Head: Capital Gains**
LTCG on sale of urban land: ₹2,00,000. LTCL on shares where STT is not paid: ₹75,000 — this is a valid long-term capital loss and is set off against LTCG (Section 70). Net LTCG after intra-head set-off: ₹1,25,000.

LTCL on listed shares where STT is paid: ₹82,000 — **not allowed**. Since LTCG on listed equity shares with STT paid is fully exempt under **Section 10(38)** of the Income Tax Act 1961, the corresponding loss from such transactions is a 'dead loss' and …

Question 17

Answer any two of the following three sub-divisions (i), (ii) and (iii):

Accepted Answer

**PART (a) - ANSWERING (i) AND (ii):**

**(i) TDS Provisions on Ashwin's Expenses:**

Ashwin's turnover exceeds ₹50 lakhs in both preceding financial years (₹1,20,00,000 in 2014-15 and ₹98,00,000 in 2015-16), making him liable to TDS provisions. Each expense is examined separately:

**Commission paid to Babloo (₹8,500):** Section 194H of the Income-tax Act, 1961 provides for TDS on commission on sale of goods. The threshold is ₹15,000 per person per financial year. Since ₹8,500 is below this threshold, **no TDS is required** on this payment.

**Payment to Vijay for repair (₹23,000):** Section 194LA applies to payments for repair, restoration, maintenance, or decoration of any building. The aggregate threshold is ₹30,000 per financial year. The payment of ₹23,000 alone does not cross this limit, so **no TDS is required**.

**Technical services fee to Vivek (₹35,000):** Section 194J imposes TDS on payments for technical service fees. The threshold is ₹30,000 in aggregate per financial year. This payment of ₹35,000 exceeds the threshold, making TDS applicable. The TDS rate for residents is 10%. **TDS to be deducted = ₹35,000 × 10% = ₹3,500**.

**(ii) Section 234B – Interest on Short-Payment or Non-Payment of Advance Tax:**

Section 234B of the Income-tax Act, 1961 imposes interest when the advance tax paid during a financial year falls short of the tax liability for that year. **Key provisions:** (1) Interest is levied if advance tax paid is less than 90% of the tax payable for …

Question 18

Yahoo Pvt. Ltd. is not a SSI unit. Determine the CENVAT credit that can be availed by Yahoo Pvt. Ltd. during the month of March, 2016.

Accepted Answer

**Note:** The question as presented does not include the accompanying data table (list of inputs, duties paid, etc.) that is required for a numerical solution. The framework below demonstrates the full methodology under the **CENVAT Credit Rules, 2004** that must be applied once the data is available.

**Applicable Law:** CENVAT Credit Rules, 2004 (as in force in March 2016, pre-GST regime). The CENVAT credit mechanism allows manufacturers to set off duty paid on inputs, capital goods, and input services against their output excise duty liability.

**Step 1 – Identify Eligible Inputs (Rule 2(k)):**
All goods (except those in the negative list) used in or in relation to manufacture of final products are 'inputs'. Credit of Basic Excise Duty (BED), Education Cess (EC), Secondary and Higher Education Cess (SHEC), Additional Duties of Customs (CVD/SAD), and Countervailing Duty paid on such inputs is fully available in the month of receipt.

**Step 2 – Identify Ineligible Inputs (Rule 2(k) Exclusions):**
No CENVAT credit is available on: (a) motor vehicles (except for certain specified purposes), (b) food items, beverages, and goods used for personal consumption of employees, (c) High Speed Diesel (HSD) and Light Diesel Oil (LDO), and (d) goods used in construction of civil structures.

**Step 3 – Credit on Capital Goods (Rule 4(2)):**
For capital goods received in the current financial year, **only 50% of the eligible duty** can be availed in the year of receipt; the remaining 50…

Question 19

Determine the transaction value and the Central Excise Duty payable of M/s. Rajiv Enterprises from the following particulars: (1) Price of machinery, excluding taxes and duties ₹6,00,000; (2) Installation and erection expenses (Machinery has been fixed to the earth) ₹35,000; (3) Packing charges (Primary and secondary) ₹12,000; (4) Design and engineering charges ₹4,500.

Accepted Answer

**Determination of Transaction Value and Central Excise Duty — M/s. Rajiv Enterprises**

**Legal Basis:** Under **Section 4 of the Central Excise Act, 1944**, the assessable value is the **transaction value**, which includes the price actually paid/payable plus all other amounts charged by the assessee to the buyer in connection with the sale (except taxes, if separately indicated).

**Treatment of each item:**

**1. Price of Machinery (₹6,00,000):** Includible — this is the base price of the excisable goods.

**2. Installation and Erection Charges (₹35,000):** **Not includible.** Since the machinery has been fixed to the earth, it becomes **immovable property** after installation. Immovable property is not 'goods' under Central Excise law. Charges relating to making goods immovable (post-removal activity) are excluded from transaction value.

**3. Packing Charges — Primary and Secondary (₹12,000):** **Includible.** Packing is an integral activity before removal; both primary and secondary packing charges form part of transaction value as per the Valuation Rules.

**4. Design and Engineering Charges (₹4,500):** **Includible.** Charges for design and engineering services rendered in connection with the goods and charged to the buyer are includible in the transaction value.

**Transaction Value = ₹6,00,000 + ₹12,000 + ₹4,500 = ₹6,16,500**

**Central Excise Duty Calculation** (assuming Basic Excise Duty @ 12%, Education Cess @ 2% on BED, Secondary & Higher Education Cess @ 1% on…

CA Inter Cost & Mgmt

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