162 0105

Question Paper
Economic Legislation II (162) – January 2005

• Answer all questions.
• Marks are indicated against each question.
1. Mr.Surender is a non-specified employee of High-Fi Ltd. Both Mr.Surender and his wife Lata were <
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provided one credit card each by his employer. During the previous year 2003-04, the annual fees of
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the credit cards amounting to Rs.700 per card was paid by the employer. The value of perquisite in the
hands of Mr.Surender for the assessment year 2004-05 is
(a) Rs.500 (b) Rs.700 (c) Rs.1,000 (d) Rs.1,400 (e) Rs.Nil.
(1 mark)
2. Which of the following is true in respect of Mr. X, who is not registered under the Local Sales Tax <
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Act and wants to register as a dealer under the Central Sales Tax Act?
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(a) He will be permitted to register since he is not registered under the Local Sales Tax Act
(b) He is not permitted because, where a person intends to register under the Central Sales Tax Act,
he will necessarily have to be registered under the Local Sales Tax Act
(c) He will be permitted, but he has to pay both taxes at higher rates
(d) Registration is not necessary, mere submission of application is sufficient
(e) A dealer for inter-state sales may or may not register under the Central Sales Tax Act.
(1 mark)
3. Based on the following information, calculate the net income from house property of Mr.Dayal for the <
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assessment year 2004-05:
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Particulars Rs.
Fair rental value 1,81,000
Municipal value 1,80,000
Standard rent 1,79,000
Actual rent received 1,80,000
Municipal taxes paid 22,000
Insurance 12,000
Repairs 26,000
(a) Rs.1,20,000 (b) Rs.1,18,500 (c) Rs.1,10,600 (d) Rs.1,11,300 (e)
Rs.1,19,000.
(2 marks)
4. X sells products at 4% central sales tax. The total of sales including central sales tax (against ‘C’ form) <
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for the year 2003-04 is Rs.16,95,200. Sales of Rs.36,400 (including central sales tax) were returned
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after 6 months. What is the total central sales tax payable by X for the year 2003-04?
(a) Rs.59,000 (b) Rs.67,808 (c) Rs.65,200 (d) Rs.62,470 (e) Rs.63,800.
(2 marks)
5. Depreciation is allowed on which of the following intangible assets (acquired after March 31, 1998) <
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for the assessment year 2004-05?
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I. Technical know-how II. Licences
III. Franchises IV. Copy rights V. Trademarks.
(a) Both (I) and (II) above (b) Both (II) and (III) above
(c) (II), (III) and (IV) above (d) (I), (II) and (V) above
(e) (I), (II), (III), (IV) and (V) above.
(1 mark)
6. Under the Income Tax Act, 1961, the payments made otherwise than by the crossed cheques or <
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demand drafts, beyond the limit prescribed by the Act are disallowed to the extent of
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(a) 5 percent of such expenditure (b) 10 percent of such
expenditure
(c) 15 percent of such expenditure (d) 20 percent of such
expenditure
(e) 25 percent of such expenditure.
(1 mark)
7. Which of the following payments made by the company, out of its accumulated profits to its <
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shareholders is not a deemed dividend for the purpose of the Income Tax Act?
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(a) Any distribution on the liquidation of the company
(b) Any distribution on the reduction of the capital
(c) Any payment by way of loan or the advance by a closely held company (not in the ordinary
course of business) to a shareholder having substantial interest
(d) Any distribution entailing the release of the company’s assets
(e) Any distribution in respect of the preference shares issued for full consideration.
(1 mark)
8. Which of the following incomes is/are taxable under the head ‘Income from other sources’? <
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I. Mining rent and royalties II. Ground rent III. Rent of a plot of >
land.
(a) Both (I) and (II) above (b) Both (I) and (III) above
(c) Only (II) above (d) (I), (II) and (III) above
(e) Both (II) and (III) above.
(1 mark)
9. Mr.John a non-resident foreign national, has the following assets as on March 31, 2004: <
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Particulars Rs. >
Property in Mumbai (India) used solely for the residential purpose 36,00,000
Property held abroad 47,00,000
Jewellery held in India 50,00,000
Motor car (Imported) held in India 36,00,000
Motor car held abroad 45,00,000
Compute the taxable wealth in the hands of Mr.John for the assessment year 2004-05?
(a) Rs.77,00,000 (b) Rs.92,00,000 (c) Rs.71,00,000
(d) Rs.1,07,00,000 (e) Rs.1,18,00,000.
(2 marks)
10. Which of the following contributions cannot be made by the HUF? <
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(a) Payment in respect of the non-commutable deferred annuity >
(b) Payment for the notified annuity plan of LIC
(c) Subscription to the notified units of the Mutual Fund or UTI
(d) Subscriptions to the notified Government securities
(e) Subscription to the home loan account scheme of the National Housing Bank.
(1 mark)
11. A vessel carrying goods imported for home consumption entered the Indian territorial waters on <
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January 14, 2004 on which date the ad valorem duty was payable at 30%. The duty was increased to
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60% on January 25, 2004. The importer presented the bill of entry on January 31, 2004. The rate at
which the duty is payable by the importer is equal to
(a) 30%
(b) 60%
(c) The average rate prevailing between the date of entry inwards and the date of presentation of the
bill of entry
(d) Nil
(e) 50%, being the general rate of duty.
(1 mark)
12. Which of the following statements are true as per the Income Tax Act, 1961? <
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I. Deductions under sections 80CCC to 80 GGA are in relation to the various investments and the >
payments made by an assessee.
II. Deductions under sections 80HHB to 80U are in respect of certain incomes.
III. Deductions under section 80 are made from the gross total income.
IV. The aggregate amount of the deductions cannot exceed the gross total income.
(a) Both (I) and (II) above (b) (I), (II) and (III) above
(c) (II), (III) and (IV) above (d) (I), (II), (III) and (IV) above
(e) Both (III) and (IV) above.
(1 mark)
13. If the imported goods are used for 20 months and then exported, the amount of duty that is eligible for <
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draw back is
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(a) 85% of import duty (b) 70% of import duty
(c) 60% of import duty (d) 50% of import duty (e) 40% of import duty.
(1 mark)
14. In which of the following situations, are the assets held by a minor included in the wealth of the <
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parent?
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(a) Assets held by a minor suffering from total blindness
(b) Assets held by a married minor daughter
(c) Assets acquired by a minor out of his/her own skill, knowledge and experience
(d) Assets held by an unmarried minor daughter
(e) Assets acquired by a minor from manual work.
(1 mark)
15. If an assessee contributes any amount towards Pension Fund scheme of the Life Insurance <
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Corporation of India, the maximum amount of deduction u/s 80CCC of Income Tax Act is
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(a) Rs.60,000 (b) Rs.40,000 (c) Rs.20,000 (d) Rs.15,000 (e) Rs.10,000
(1 mark)
16. A resident individual incurs an amount of Rs.65,000 on the treatment of his mother who is resident in <
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India and aged 68 years. The entire amount was reimbursed by the insurance company. What is the
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amount that the assessee can claim under section 80DDB of the Income Tax Act for the assessment
year 2004-05?
(a) Rs.35,000 (b) Rs.60,000 (c) Rs.80,000 (d) Rs.40,000 (e) Rs.Nil.
(1 mark)
17. Rent paid under the Rent Control Act is called <
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(a) Municipal rent (b) Standard rent >
(c) Ground rent (d) Expected rent (e) Fair
rent.
(1 mark)
18. A return of income is not to be considered as defective, when <
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(a) The return is filed by an eligible employee through his eligible employer in the specified places >
(b) The proof of the tax deducted at source is not enclosed
(c) The proof of the self assessment tax paid is not enclosed
(d) The return of income is not duly filled in
(e) Audit report under section 44AB has not been enclosed in the relevant cases.
(1 mark)
19. Mr.Chandu purchased a car on the April 1, 2003 by availing a concessional loan of Rs.6,00,000 from <
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his office at 5% interest per annum, repayable from December 2003 in 24 equal monthly installments.
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The installments fall due on the 1st of every month. What is the taxable value of the perquisite in
respect of the concessional loan for the Assessment year 2004-05?
(2 marks)
20. Mrs. Radha works for a company at Baroda for a basic salary of Rs.15,000/- p.m. She gets the <
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following additional emoluments:
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DA (not forming part of the salary for retirement benefits) 15% of the basic pay
Bonus 3 months basic pay
Project allowance 6% of the basic pay
She has been given an option by the company either to accept a Rent Free Accommodation provided
by them or to take House Rent Allowance. In both the cases the cost to the company is Rs.10,000/-
p.m. The house will be taken on lease by the company. The rent which Radha has to pay if she takes a
house on rent is Rs.10,000 p.m. Assuming that she accepts the best possible option i.e. to get a higher
gross salary, the taxable income of the assessee for the assessment year 2004-05 is
(a) Rs.2,56,380 (b ) Rs.2,80,800 (c) Rs.2,86,380 (d) Rs.3,10,800 (e)
Rs.2,01,600.
(2 marks)
21. Mr.Vamsi, a government employee was drawing a salary of Rs.9,750 on April 01, 2003. On December <
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31, 2003 his salary has been revised to Rs.10,250 with retrospective effect from September 01, 2002
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and the arrears were paid on January 01, 2004. The gross salary of Mr. Vamsi (before standard
deduction) for the assessment year 2004-05 is
(a) Rs.1,17,000 (b) Rs.1,25,000 (c) Rs.1,26,500 (d) Rs.1,18,500 (e)
Rs.1,23,000.
(2 marks)
22. The maximum tax rebate allowable to senior citizens u/s 88B of the Income Tax Act, for the <
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assessment year 2004-05 is
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(1 mark)
23. Mr. Rajneesh is provided with a car along with a chauffeur by his employer and the maintenance expenses <
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are being met by the employer. The cubic capacity of the car exceeds 1.6 litres. The car is taken on
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hire by his employer at a rent of Rs.4,000 per month. Mr. Rajneesh uses the car for both official and
personal purposes. The salary of Mr. Rajneesh (excluding the benefits not provided by way of monetary
payments) is Rs.45,000 per annum. The value of taxable perquisite in respect of motor car, in the hands of
Mr. Rajneesh for the assessment year 2004-05, is
(a) Rs.14,400 (b) Rs.12,000 (c) Rs.26,400 (d) Rs.7,200 (e) Rs.Nil.
(2 marks)
24. Ms. Rubina owns a house property, which is self occupied by her. The property was purchased in the <
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year 1998 by availing a house property loan and the interest on the loan for the previous year 2003-04
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is Rs.73,000. The fair rent of the property is Rs.1,00,000, municipal value is Rs.1,12,000 and the
standard rent is Rs.1,06,000. The insurance charges paid are Rs.15,000 and the municipal taxes are
Rs.4,500. What is the net income from the property for the assessment year 2004-05?
(a) Rs.73,000 (loss) (b) Rs.39,000 (c) Rs.27,000
(d) Rs.30,000 (loss) (e) Rs.33,000.
(2 marks)
25. Mr. X is an employee of a private company and draws the following emoluments during the previous <
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year 2003-04:
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Basic Rs.1,25,000
Bonus Rs. 12,000
Commission Rs. 10,000 Besides, the employer also
reimburses the telephone expenses of Rs.16,000.
What is the gross salary of Mr.X for the assessment year 2004-05?
(a) Rs.1,63,000 (b) Rs.1,47,000 (c) Rs.1,33,000 (d) Rs.1,38,000 (e)
Rs.1,17,000.
(2 marks)
26. Mr. Dinesh purchases a house property during April 1980 for an amount of Rs.1,15,000 and incurs an <
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additional amount of Rs.45,000 on repairs. The fair market value of the property as on April 1, 1981 is
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Rs.2,00,000. During the year 1995-96, an amount of Rs.2,75,000 was spent on the construction of the
first floor. The house was sold during the month of December 2003 for an amount of Rs.14,00,000.
What is the amount taxable as capital gains in the hands of Mr.Dinesh for the assessment year 2004–
05?
Cost of inflation index:
1981-82 100
1995-96 281
2003-04 463 (a) Rs.20,886 (Long term gain) (b)
Rs.20,886 (Long term loss)
(c) Rs.2,06,086 (Long term gain) (d) Rs.2,06,086 (Long term loss)
(e) Rs.Nil.
(2 marks)
27. Which of the following goods is not considered as capital goods under Rule 2 of CENVAT Credit <
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Rules, 2001?
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(a) Pollution control equipment (b) Moulds and dies
(c) Refractories and refractory material (d) Storage tank
(e) Any equipment or the appliance used in the office.
(1 mark)
28. Mr. Mahavir owns a house property which is self occupied for the purpose of residence. The fair rent <
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of the property is Rs.1,95,000, municipal value is Rs.2,10,000 and the standard rent is Rs.1,98,000. He
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incurred Rs.75,000 on repairs, Rs.18,000 on municipal taxes and Rs.5,750 on insurance. The interest
on the capital borrowed for the repairs is Rs.65,000. What is the income from the house property in
respect of the assessment year 2004-05?
(a) Rs.30,000 (Loss) (b) Rs.65,000 (Loss) (c) Rs.66,000 (Loss)
(d) Rs.32,250 (e) Rs.Nil.
(2 marks)
29. Mr.Sudarshan retired from service on June 30, 2003 from a private company. He draws an amount of <
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Rs.1,500 p.m. as pension till the end of October 2003 and thereafter commutes his pension to the
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extent of 50% and receives an amount of Rs.60,000. He also receives an amount of Rs.6,500 towards
gratuity. What is the taxable amount of the pension for the assessment year 2004-05?
(2 marks)
30. Ms.Rajani was employed during the previous year 2003-04 only for 45 days and her salary for the said <
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period is Rs.65,000. What is the standard deduction she is eligible to claim for the assessment year
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2004-05?
(a) Rs.30,000 (b) Rs.Nil (c) Rs.26,000 (d) Rs.13,000 (e) Rs.16,250.
(2 marks)
31. Mr.Ramesh purchased 40,000 fully convertible debentures of Rs.10 each for Rs.60,000 on January 31, <
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2001. The debentures were converted into 40,000 equity shares of Rs.10 each on February 01, 2003.
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The fair market value of the shares on February 01, 2003 was Rs.90,000. The shares were sold on
January 20, 2004 for Rs.1,10,000.
Cost inflation index:
Year Index
1999-2000 389
2000-2001 406
2001-2002 426
2002-2003 447
2003-2004 463 The taxable amount of capital gains in the hands of Mr.Ramesh for the
(a) Rs.43,941 (Long term) (b) Rs.15,563 (Short term)
(c) Rs.41,054 (Short term) (d) Rs.50,000 (Short term) (e) Rs.20,000 (Long
term).
(2 marks)
32. Mrs. Pravallika is working in Provident Fund department of Central Government. She received <
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Rs.1,78,600 as gratuity at the time of her retirement on December 31, 2003. The amount of gratuity
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chargeable to tax for the assessment year 2004-05 is
(a) Rs.1,78,600 (b) Rs.1,00,000 (c) Rs.89,300 (d) Rs.44,650 (e) Rs.Nil.
(2 marks)
33. Ms.Sita purchases a house property during the month of April 1988 for an amount of Rs.4,95,000. She <
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spends an amount of Rs.1,35,000 towards the repairs in the month of April 1989. The first floor was
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constructed in the month of June 1992 at a cost of Rs.3,25,000. The property was sold in the month of
December 2003 for a price of Rs.21,75,000.
Cost of inflation index:
1988-89 – 161 1992-93 – 223
1989-90 – 172 2003-04 – 463
1990-91 – 182 What is the amount of the capital
gain/loss in the hands of Ms.Sita for the assessment year 2004-05?
(a) Rs.2,86,685 (long term loss) (b) Rs.2,86,685 (long term gain)
(c) Rs.3,88,090 (long term gain) (d) Rs.86,716 (long term gain)
(e) Rs.11,46,824 (long term gain).
(2 marks)
34. Indirect taxes are those which the tax payer pays while <
Answer
I. Rendering the services. >
II. Buying the commodities.
III. Importing the goods.
(a) Only (I) above (b) Only (II) above
(c) Only (III) above (d) Both (II) and (III) above
(e) (I), (II) and (III) above
(1 mark)
35. Mr.Jayant received an amount of Rs.4,75,000 from LIC on the maturity of his policy with an assured <
Answer
value of Rs.3,50,000. The annual premium paid by him was Rs.35,000 for a period of 10 years. What
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is the amount that is taxable in the hands of Mr.Jayant for the assessment year 2004-05?
(a) Rs.4,75,000 (b) Rs.3,50,000 (c) Rs.1,25,000 (d) Rs.Nil (e) Rs.62,500.
(1 mark)
36. Mr.Xavier has the following assets as on March 31, 2004: <
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Particulars Rs. >
Gifts of jewellery made to the spouse 1,50,000
Flat purchased from a co-operative society (used for 7,25,000
residential purpose)
Loan due on the above flat 2,75,000
Vacant plot of land (construction permitted) 3,50,000
Gold Bonds (under the Gold Deposit Scheme) 50,000
Cash on hand 75,000 The taxable wealth
of Mr.Xavier for the assessment year 2004-05 is
(a) Rs.5,25,000 (b) Rs.9,75,000 (c) Rs.4,75,000 (d) Rs.10,25,000 (e) Rs.Nil.
(2 marks)
37. Y, a resident individual, deposits an amount of Rs.12,000 under the scheme of Life Insurance <
Answer
Corporation for the purpose of the treatment of his grandfather suffering from a major disability. The
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said disease is a specified one, under the Income Tax Act, for claiming the deduction. Which of the
following statements is true in respect of the amount that Y can claim for the assessment year 2004-
05?
(a) The entire amount of Rs.12,000 can be claimed by Y
(b) An amount of Rs.50,000 can be claimed by Y irrespective of the actual amount deposited
(c) The deposit under the scheme does not qualify for the deduction
(d) Y cannot claim any deduction as the beneficiary for the same is his grandfather
(e) An amount of Rs.75,000 can be claimed by Y irrespective of the actual amount deposited.
(1 mark)
38. The maximum amount not chargeable to tax under section 10 (10AA) of Income Tax Act, in respect <
Answer
of earned leave at the time of retirement is
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(a) Rs.79,920 (b) Rs.2,40,000 (c) Rs.1,35,360 (d) Rs.3,00,000 (e)
Rs.5,00,000.
(1 mark)
39. Which of the following are not treated as assets for wealth tax purposes? <
Answer
(a) Heavy motor vehicles (b) Gold biscuits >
(c) Diamonds (d) Semi-precious stones (e) Motorcars.
(1 mark)
40. A dealer effected the interstate sales during the first quarter of the year 2003-04 as per the details <
Answer
given below:
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Particulars Sale inclusive of Sale excluding
the taxes (Rs.) taxes (Rs.)
Sale to A 1,15,000
Sale to B 1,82,000
Sale to C 1,70,560
Sale to D 96,000
Sales returns from B 41,600
(within 6 months) What is
the central sales tax payable by the dealer?
(2 marks)
41. The wealth tax is levied on the net taxable wealth at < Answer
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(a) 5% (b) 10% (c) 15% (d) 1% (e) 12%.
(1 mark)
42. A Ltd., was established in the year 2002 and the written down value of its assets as on April 1, 2003 < Answer
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was as under:
Name of the asset Written down value as on April % of depreciation
1, 2003
Building 15,00,000 10
Machinery 45,00,000 25
Vehicles 12,00,000 20
What is the
normal depreciation that can be claimed by A Ltd. for the previous year 2003-04?
(a) Rs.7,5,7500 (b) Rs.15,15,000 (c) Rs.7,20,000 (d) Rs.11,25,000 (e)
Rs.1,50,000.
(2 marks)
43. The cash on hand in respect of an individual for the wealth tax purposes, is exempted upto < Answer
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(a) Rs.20,000 (b) Rs.25,000 (c) Rs.50,000 (d) Rs.1,00,000 (e)
Rs.10,000.
(1 mark)
44. Which of the following statements are true in respect of the deductions under section 80 of the < Answer
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Income Tax Act, 1961?
I. The deductions will be allowed irrespective of whether the assessee claims or not.
II. The aggregate amount of the deductions under the sections 80CCC to 80U cannot exceed the
gross total income.
III. An association of persons and the members of the association, both can claim the deductions
under the section in their respective returns.
IV. In computing the gross total income for this purpose, the long term capital gains and the
winnings from the lotteries are excluded.
(a) Both (II) and (III) above (b) (I), (II) and (III) above
(c) (I), (II) and (IV) above (d) Both (I) and (III) above
(e) Both (II) and (IV) above.
(1 mark)
45. The notional value fixed by the government from time to time for the purpose of calculating the < Answer
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excise duty is called
(a) Maximum retail price (b) Tariff value
(c) Retail price exclusive of the taxes (d) Basic price
(e) Specific price.
(1 mark)
46. Salary for the purpose of the calculation of gratuity (covered by the Payment of the Gratuity Act) < Answer
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includes
(a) Only basic pay
(b) Basic plus Dearness allowance
(c) Basic, Dearness allowance and commission at fixed percentage
(d) Basic, Dearness allowance and all other taxable perquisites
(e) Basic, Dearness allowance and all other taxable allowances.
(1 mark)
47. Which of the following statements is false in respect of the CENVAT credit on capital goods? < Answer
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(a) Credit is available only if the goods are used in the factory for the manufacture of the eligible
final products
(b) Ownership of the capital goods is essential to avail the CENVAT on the capital goods
(c) Credit on the capital goods received in the initial stages is allowed after the factory is registered
and commences the production
(d) Capital goods used for the manufacture of the exempted intermediate products, are entitled for
the CENVAT credit, if the final product is chargeable to duty
(e) Capital goods obtained on a hire purchase agreement are entitled for the CENVAT credit.
(1 mark)
48. Tuition fees paid by an individual to any university, college or other educational institution in India for < Answer
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the full time education for any two children of the tax payer, qualifies for income tax rebate under
section 88 of the Income Tax Act, 1961. The maximum amount which qualifies for tax rebate for the
(a) Rs.10,000 per child (b) Rs.12,000 per child
(c) Rs.15,000 per child (d) Rs.20,000 per child
(e) Rs.1,000 per child.
(2 marks)
49. Which of the following statements is true in respect of the wealth tax? < Answer
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(a) Wealth tax is a charge not on the estate but on the person holding the estate
(b) The method of accounting i.e. cash system or the mercantile system followed by the assessee is
important in the calculation of the wealth tax
(c) The Hindu deity is not subject to the wealth tax
(d) The trustees of the trust are not liable to pay the wealth tax
(e) A co-operative society is liable to pay the wealth tax.
(1 mark)
50. Which of following is not a ‘related person’ as per the Central Excise Act? < Answer
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(a) The interconnected undertakings
(b) Both buyer and seller are relatives
(c) A relative and distributor of the assessee
(d) Both buyer and the seller are interested in the business of one another
(e) The self reliant ancillary units.
(1 mark)
51. Mr.Vikram owns a house property that has been let out as per the details given below: < Answer
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Municipal valuation Rs.1,76,000
Fair rent Rs.1,65,000
Standard rent Rs.1,70,000 The property has been let out at
Rs.12,000 per month upto September 2003 with an increase of 15% from October 2003. The property
has been transferred on February 1, 2004 for an adequate consideration. What is the gross annual
value of the property for the assessment year 2004-05 in the hands of Mr.Vikram?
(a) Rs.1,76,000 (b) Rs.1,70,000 (c) Rs.1,41,667 (d) Rs.1,27,200 (e) Rs.1,65,000.
(2 marks)
52. Which of the following statements is false in respect of the deductions that can be availed under the < Answer
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Income Tax Act, 1961, by the undertakings established in the free trade zone and those setup as 100%
export oriented units?
(a) The tax benefit is lost on the change of the ownership of the eligible undertaking
(b) The tax benefit is not lost on the conversion of the firm / sole proprietary concerns into company
(c) The tax benefit is not lost on the transfer by way of slump sale
(d) Where the transfer is under a scheme of amalgamation or demerger, the deduction is allowed to
the amalgamated or the resulting company only
(e) The tax benefit is not lost on the conversion of the sole proprietary concern into a firm.
(1 mark)
53. Any person not being a registered dealer under the Central Sales Tax Act, falsely represents himself to < Answer
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be so, at the time of a sale, is liable for a punishment of
(a) A simple imprisonment of 6 months
(b) A nominal fine
(c) A fine of fifty rupees everyday
(d) Either a simple imprisonment for six months or a fine or both
(e) Either a simple imprisonment for six months or a fine of Rs.50/- everyday or both.
(1 mark)
54. According to section 2(17) of the Customs Act, 1962, the term ‘Examination’ in relation to any goods < Answer
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includes
(a) Measurement of goods
(b) Weighment of goods
(c) Verification of shipping bill
(d) Checking of Tariff value
(e) Measurement and the weighment of the goods.
(1 mark)
55. D Ltd., purchases raw materials on credit from E who has a substantial interest in D Ltd., for an < Answer
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amount of Rs.35,000 (The market price of these goods is Rs.18,000). The payment for the same was
made by D Ltd. in cash. What is the amount disallowed while calculating the income from the
business?
(2 marks)
56. Mrs.Maya purchases a house property in March 1981 for Rs.1,80,000 and an amount of Rs.95,000 < Answer
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was spent on the improvement and repairs of the property before the end of March 1981. The property
was proposed to be sold to Mrs. Jaya in the month of June 2000 and an advance of Rs.40,000 was
taken from her. As the entire money was not paid in time Mrs.Maya forfeited the advance and
subsequently sold the property to Mrs.Laya in the month of March 2004 for Rs.12,50,000. The fair
value of the property on April 1, 1981 was Rs.2,90,000. Cost of inflation index:
1981-82 100
2000-01 389
2002-03 447
2003-04 463 What is the capital gain taxable in the hands of
Mrs.Maya for the assessment year 2004-05?
(a) Rs.92,700 (Long term capital loss)
(b) Rs.92,500 (Long term capital gain)
(c) Rs.23,250 (Long term capital loss)
(d) Rs.23,250 (Long term capital gain)
(e) Rs.92,700 (Long term capital gain).
(2 marks)
57. Under the Central Sales Tax Act, the value of the sales returns will be deducted from the aggregate < Answer
>
sales, if the goods are returned within a period of
(a) 3 months of sale (b) 6 months of sale (c) 5 months of sale
(d) 8 months of sale (e) 10 months of sale.
(1 mark)
58. The CENVAT credit in case of capital goods is allowed at < Answer
>
(a) 100% in the year of buying the goods
(b) 50% in the first year and the balance in the next financial year
(c) 25% for the first four years
(d) 40% in the first year and the balance in the next financial year
(e) 50% in the first year and the balance in the next two financial years at 25% per year.
(1 mark)
59. Mr.Krishna is an employee of a private company in the city of Jaipur. His annual salary is Rs.2,40,000 < Answer
>
(basic) plus other perquisites as given below:
Particulars Rs.
Free lunch during the office hours (Rs.55 per day for 200 days) 11,000
Allotment of 200 shares at Rs.100 per share (Market value Rs.125) 20,000
Free telephone facility at the residence given by the employer 21,500 The
employer also provided a car of 1250 c.c for both official and personal use.
What is the gross salary of Mr.Krishna for the assessment year 2004-05?
(a) Rs.2,55,400 (b) Rs.2,75,400 (c) Rs.2,96,900 (d) Rs.2,76,900 (e)
Rs.2,86,900.
(2 marks)
60. Mr.Ranjan who resides in Delhi in his own house, is an employee of a private company. His < Answer
>
emoluments for the previous year 2003-04 are as under:
Particulars Rs.
Basic salary 1,60,000
Dearness allowance (forming part of the retirement benefits) 40,000
House rent allowance (taxable portion) 72,000
Bonus 36,000
Arrears of salary (not included in the return of income) 25,000
Total 3,33,000 What is
the taxable income from salary of Mr.Ranjan for the assessment year 2004-05?
(a) Rs.3,03,000 (b) Rs.3, 08,000 (c) Rs.2,97,000 (d) Rs.3,33,000 (e)
Rs.2,93,000.
(2 marks)
61. The Central excise duty payable on the basis of value of the commodity manufactured/ produced is < Answer
>
known as
(a) Specific duty (b) Ad valorem duty (c) Special additional duty
(d) Additional duty (e) Countervailing duty.
(1 mark)
62. The following are the details of the premium paid on the mediclaim policies taken by Mr.Ram for the < Answer
previous year 2003-04: >
Particulars Rs.
On self 6,000
On spouse 9,000
Dependant daughter 8,000
Major son (earning member and not dependant) 12,000
Dependant mother (aged 66 years) 7,500
Dependant grandfather 12,000 What is the amount of
deduction that Mr.Ram can claim under section 80D of the Income Tax Act, 1961, for the assessment
year 2004-05?
(a) Rs.10,000 (b) Rs.30,500 (c) Rs.15,000 (d) Rs.23,000 (e)
Rs.35,000.
(2 marks)
63. In case of captive consumption, for the purpose of excise duty, valuation shall be done on the basis of < Answer
>
cost of production plus
(a) 25% (b) 20% (c) 15% (d) 10% (e) 5%.
(1 mark)
64. The demand of the customs duty, once confirmed has to be paid within a period of < Answer
>
(a) One month (b) Two months
(c) Three months (d) Four months (e) Five months.
(1 mark)
65. The maximum marginal rate of tax is the rate of income tax including the surcharge, applicable in < Answer
>
relation to the highest slab of income of
(a) Individuals
(b) Firms
(c) Corporate assessee
(d) Co-operative societies
(e) Hindu undivided family.
(1 mark)
66. Which of the following is treated as ‘manufacture’ under the Central Excise Act? < Answer
>
(a) Testing and inspection of items manufactured by others
(b) Slitting or cutting of the jumbo rolls
(c) Printing on a glass bottle
(d) Sawing of timber logs
(e) Assembling of computers from duty paid bought out parts.
(1 mark)
67. The essential condition(s) to be fulfilled for the purpose of the valuation of the goods under the < Answer
>
Customs Act is/are
I. The sale or the offer for sale should be in the course of the international trade and there should be
no mutuality of interest between the seller and the buyer.
II. The price should be the sole consideration for the sale or the offer for sale.
III. The terms of price should be for delivery at the time and place of importation or exportation.
(a) Only (I) above (b) Only (II) above (c) Only (III) above
(d) Both (II) and (III) above (e) (I), (II) and (III) above.
(1 mark)
68. Which of the following is true in respect of the registration under the Central Sales Tax Act? < Answer
>
(a) No registration is required if the gross turnover is less than Rs.50,000
(b) No registration is required if the gross turnover is less than Rs.1,00,000
(c) No registration is required if the gross turnover is less than Rs.1,50,000
(d) No exemption of registration is allowed under the Central Sales Tax Act
(e) No registration is required if the gross turnover is less than Rs.2,00,000.
(1 mark)
69. According to the Central Excise Rules 2002, in case of goods removed during the month of March < Answer
>
2004, the duty shall be paid by
(a) March 31, 2004 (b) April 1, 2004 (c) April 10,
2004
(d) April 15, 2004 (e) April 20, 2004.
(1 mark)
70. Mr.Y contributes an amount of Rs.50,000 to an approved scientific research institute for carrying on < Answer
>
the research related to his business. What is the amount of deduction Mr.Y can claim for the
assessment year 2004-05 under the Income Tax Act, 1961?
(1 mark)
71. The term ‘baggage’ includes < Answer
>
(a) All dutiable articles (b) Unaccompanied baggage
(c) Goods imported through courier (d) Articles imported under the import licence
(e) All the dutiable articles and the unaccompanied baggage.
(1 mark)
72. For which of the following purposes can the Central Government prohibit import or export of goods < Answer
>
of specified description u/s 11 of the Customs Act, 1962?
I. Maintenance of security of India.
II. The protection of deceptive practices.
III. The conservation of exhaustible natural resources.
IV. The prevention of smuggling.
(a) Both (I) and (III) above (b) Both (II) and (IV) above
(c) Both (I) and (II) above (d) (I), (II) and (III) above
(e) (I), (II), (III) and (IV) above.
(1 mark)
73. Which of the following is treated as a ‘sale’? < Answer
>
(a) Sale of illegal goods (b) Hypothecation of goods
(c) Free replacement of the spare parts during the warranty period of goods
(d) Mortgage of goods (e) Barter or the exchange of goods.
(1 mark)
74. Income from house property in respect of self occupied property can be negative on account of < Answer
>
(a) Municipal taxes (b) Repairs (c)
Insurance
(d) Interest on the house loan (e) Standard deduction.
(1 mark)
Suggested Answers
Economic Legislation II (162) – January 2005
1. Answer : (d) < TOP >
Reason : The amount of expenses including membership fees and annual fees incurred by the employee or any member of his
household, which is charged to a credit card provided by the employer including the addition card (or otherwise paid
or reimbursed by the employer) shall be taken to be the value of perquisite chargeable to tax. It is taxable in the hands
of all employees whether specified or not. Hence the value of taxable perquisite is Rs.1,400 (i.e.Rs.700×2).
2. Answer : (b) < TOP >
Reason : Where a person intends to get registered under the CST Act. he will necessarily have to be registered under the Local
Sales Tax Act. Thus, a person who is not registered as a dealer under the Local Sales Tax Act cannot get himself
registered under the CST Act.
3. Answer : (c) < TOP >
Reason : Calculation of the net income from the house property of Mr.Dayal for the assessment year 2004-05
Step I
Fair rental value or the Municipal value subject to a maximum of 1,79,000
the standard rent (a)
Step II actual rent received (b) 1,80,000
Gross annual value is the higher of the above two (a) or (b) 1,80,000
Less municipal taxes 22,000
Net annual value 1,58,000
Standard deduction@30% 47,400
Net income from the property 1,10,600
Reason :
Total sales (including CST) 16,95,200

Less Sales returns ( not allowed as it is beyond six months) -
Net sales (including CST) 16,95,200
CST included at 4% (16,95,200 * 4/104) 65,200
5. Answer : (e) < TOP >
Reason : Depreciation under the Income Tax Act, 1961 is allowed on all the following intangible assets at 25%. (i) Technical
know-how (ii) Licences (iii) Franchises (iv) Copy rights, (v) Trademarks, if acquired after March 31, 1988. Hence
the option (e) is the answer.
Reason : Any payment in excess of the prescribed limit in a mode otherwise than by a crossed cheque or the demand draft, is
disallowed to the extent of 20% of such expenditure.
Reason : All the following payments by the company out of its accumulated profits, to its shareholders are deemed dividends
for the purpose of the Income Tax Act, 1961: (a) Any distribution on the liquidation of the company (b) Any
distribution on the reduction of the capital (c) Any payment by way of loan or the advance by a closely held company
to a shareholder having substantial interest (d) Any distribution entailing the release of the company’s assets. But
option (e) any distribution in respect of the preference shares issued for full consideration is not a deemed dividend.
Reason : All the following incomes are taxable under the head income from other sources : (a) Mining rent and royalties(b)
Ground rent(c) Rent of a plot of land.
Reason : Computation of the taxable wealth of Mr.John for the assessment year 2004-05: Mr.John being a foreign citizen, only
the wealth held in India is taxable and the assets held outside India are tax free.
Wealth in India : Rs. Rs.
Property (Not taxable as it is held for the –
residential purposes)
Jewellery in India 50,00,000
Motor car 36,00,000 86,00,000
Less the amount exempted 15,00,000
Taxable wealth 71,00,000
10. Answer : (a) < TOP >
Reason : Payment in respect of the non-commutable deferred annuity can be made only by an individual.
Reason : In the case of the goods imported for the home consumption, the rate of duty payable is the one prevailing on the date
of presentation of the bill of entry and not the rate on the date of the entry inwards. Hence the rate payable is 60%.
Reason : All the following statements are true : (I) Deductions under section 80CCC to 80 GGA are in relation to the various
investments and the payments made by an assessee (II) Deductions under section 80HHB to 80U are in respect of
certain incomes (III) Deductions under section 80 are made from the gross total income (IV) The aggregate amount
of the deductions cannot exceed the Gross total income. Hence the option (d) is the answer.
Reason : If the imported goods are used for more than 18 months but not over 24 months, the amount of duty drawback is 50%
of import duty.
Reason : Inclusion of assets held by minors in the parent’s wealth is dealt by section 4(1) (a) (ii) of the Wealth Tax Act 1957.
According to this section the assets acquired by minor shall be included if the assets are held by an unmarried minor
daughter of the parent (d). It shall not be included if assets held by a minor who is suffering from any disability as
specified u/s 80U of the Income Tax Act (a); Assets held by a married minor daughter (b) shall not be included in the
wealth of the parent. If the assets of a minor are acquired by him out of his abilities, skill, knowledge and experience
(c) will not be clubbed with the assets of the parent. The assets acquired by a minor from manual work (e) shall not be
included in the net wealth of a parent.
Reason : The maximum amount of deduction under section 80CCC of the Income Tax Act is Rs.10,000, if the amount is
contributed towards Pension Fund Scheme of LIC.
Reason : When the actual reimbursement of the medical expenses is more than the maximum amount of Rs.40,000 allowed as
a deduction, the assessee cannot claim any amount under section 80DDB.
Reason : The rent as fixed under the Rent Control Act is called as the standard rent.
Reason : The return of income filed by an eligible employee through his eligible employer in specified places is treated as a
proper return as per the provision of Sec. 139 (IIA).
Reason : The value of the concessional loan is taken as under :

Balance outstanding Interest Rs.
April to November, 2003 (Rs.6,00,000 x 5% x 8/12) 20,000
December, 2003 (Rs.5,75,000 x 5% x 1/12) 2,396
January, 2004 (Rs.5,50,000 x 5% x 1/12) 2,292
February, 2004 (Rs.5,25,000 x 5% x 1/12) 2,188
March, 2004 (Rs.5,00,000 x 5% x 1/12) 2,083
Total interest 28,959
The taxable value of the perquisite of
concessional loan is Rs.28,959. The value of the concessional loan is taken as the simple interest calculated @ 10%
per annum on the maximum outstanding monthly balance as reduced by the interest if any actually paid by him.
Since he has paid interest @ 5% p.a., the perquisite value is calculated @ (10 – 5) = 5%
Reason :
RFA HRA
Basic Salary 1,80,000 1,80,000
Dearness Allowance (15% of Basic) 27,000 27,000
Bonus ( 3 Months Basic pay) 45,000 45000
Project Allowance (6% of the Basic) 10,800 10,800
Value of the RFA 23,580
House Rent Allowance(taxable) 48,000
Gross Salary 2,86,380 3,10,800
Less Standard Deduction 30000 30000
Net Taxable Income 2,56,380 2,80,800 The maximum amount of the taxable
salary is Rs.2,80,800. Working notes Lease rent paid for the house 1,20,000.00. 10% of the salary 23,580.000. Since
the lease rent is in excess of 10% of the salary, the taxable value of the RFA will be 10% of the salary. House rent
Allowance : 40% of the Salary (only basic as the DA is not forming part of the Salary) 72,000.00. Actual HRA
received 1,20,000.00. Excess of rent paid over 10% of the salary (1,20,000-18,000) 1,02,000.00. Taxable HRA
(1,20,000-72,000) = 48,000
Reason : Salary for 9 months April 2003–December 2003 = Rs.9,750 x 9 = Rs.87,750

Salary for 3 months January 2004 – March 2004 = Rs.10,250 x 3 = Rs.30,750
Arrears from September 2002 to December 2003 = 16 x 500 = Rs.8,000
Total salary = Rs.1,26,500.
< TOP >
22. Answer : (e)
Reason : The tax rebate allowable to senior citizens u/s 88B is the amount of income-tax before giving any rebate under
Section 88, 88B, 88C & 89 (1) or Rs.20,000, whichever is less.
< TOP >
23. Answer : (e)
Reason : Where the car is provided by the employer, the perquisite in respect of motor car is taxable only in case of specified
employees. As, Mr. Rajneesh draws a salary of less than Rs.50,000, he is not a specified employee and hence the
value of perquisite in respect of motor car is nil.
Reason : Calculation of the net income from the property in respect of the self occupied property of Ms.Rubina for the
assessment year 2004-05
Particulars Amount Rs.
Gross annual value Nil
Less Municipal taxes (not allowed) Nil
Net annual value Nil
Less standard deduction under section 24 Nil
Less interest on the loan (Restricted to (30,000)
Rs.30,000 as the loan was borrowed before
April 1, 1999).
Net income from the property (30,000)
Reason : The taxable salary (gross) is calculated as under:

Basic Rs.1,25,000
Bonus Rs. 12,000
Commission Rs. 10,000
Total Rs.1,47,000
The reimbursement or the payment of the tel bills by the employer is not taxable perquisite.
Reason : The capital gains are calculated as under :

Cost of acquisition (Either the actual cost or the fair market 9,26,000
value as on April 1, 1981 which ever is higher)
(R.s.2,00,000 x 463/100)
Cost of construction of first floor in 1995-96 (Rs.2,75,000 x 4,53,114
463/281)
Total cost of the acquisition 13,79,114
Sale consideration 14,00,000
Long term capital gain (14,00,000 –13,79,114) 20,886 The value as on April 1, 1981 : The fair
market value as on April 1, 1981 being higher than the actual cost, it is taken as the cost of acquisition,. Hence the
cost of the repairs incurred prior to April 1, 1981 is also ignored.
Reason : According to Rule 2 of the CENVAT Credit Rules, 2001 capital goods means all goods falling under chapters 82, 84,
85, 90 of the First schedule to the Tariff Act; components, spares and accessories of the goods specified above;
moulds and dies; refractories and refractory materials; tubes and pipes and fittings there of; pollution control
equipment and storage tank. Thus, as per the definition, the goods mentioned in alternatives (a) pollution control
equipment (b) moulds and dies (c) Refractories and refractory material and (d) storage tank are capital goods. Hence,
the answer is ‘e’ as the definition does not include and equipment or the appliance used in an office.
Reason : The annual value in respect of the self occupied property is taken as nil. The fair rent, municipal value and the
standard rent are irrelevant in respect of the self occupied property. Also no deduction is allowed in respect of the
various expenses incurred by the assessee. In respect of the interest on the capital borrowed for the purposes of
repairs, the maximum amount that can be claimed is Rs.30,000. Hence the income from the property is calculated as
under: Annual value Nil. Less deduction in respect of the interest on loan (Rs.30,000) Net income from the property
(Rs.30,000)
Reason : Calculation of the taxable pension of Mr.Sudarshan for the assessment year 2004-05 : Calculation of the
uncommuted pension :
July to October, 2003 (Rs.1,500 x 4) 6,000
November, 2003 to March, 2004 (Rs.1,500x50%x5) 3,750
Total uncommuted pension 9,750
Calculation of the commuted pension :
Commuted value of the 50% of the normal pension 60,000
Commuted value of the full pension (Rs.60,000x100/50) 1,20,000
As Mr.Sudarshan receives gratuity, only 1/3 is of the commuted 40,000
pension is exempt (1,20,000/3)
Taxable portion of the commuted value of the pension (60,000- 20,000
40,000)
The
taxable pension in the hands of Mr.Sudarshan for the assessment year 2004-05 is Rs.29,750 (9,750 + 20,000)
Reason : Ms.Rajani is entitled to claim 40% of her salary as standard deduction or Rs.30,000 whichever is lower. 40% of
Rs.65,000= Rs.26,000 is the standard deduction.
Reason : The cost of acquisition of shares is the cost of debentures i.e. Rs.60,000. To find out whether or not the shares are
long-term capital asset or short-term capital asset, the period of holding shall be determined from the date of
allotment of shares. In the given problem, the period of holding of shares is from February 01, 2003 to January
20,2004 i.e. less than one year. Hence, the shares are short-term capital assets. The capital gains taxable in the hands
of Mr.Ramesh is
Particulars Rs.
Sale consideration 1,10,000
Less : Cost of acquisition 60,000
Capital gains (short term) 50,000
Reason : Gratuity received by a Government employee will be fully exempt from tax under section 10(10) (i). Hence, the
gratuity chargeable to tax is Rs.Nil.
Reason :
Sale proceeds 21,75,000
Cost of acquisition (4,95,000 x 463/ 161) 14,23,509
Cost of the repairs (1,35,000 x 463/ 172) 3,63,401
Cost of the construction of the first floor (3,25,000 x 463 / 223) 6,74,775
Total cost of the acquisition to be deducted from the sale proceeds is 24,61,685
Long term capital loss ( Sale proceeds – total cost) (2,86,685)
Reason : Indirect taxes are those which the tax payer pays while rendering the services, buying the commodities and importing
the goods.
< TOP >
35. Answer : (d)
Reason : As per the provisions of the section 10(10D) of the Income Tax Act, 1961, any sum received on the LIC policies
including the bonus is not chargeable to tax if the premium paid in any of the years does not exceed 20% of the sum
assured. In the given case the premium paid is less than 20% of the sum assured, hence the entire amount is exempt
from the tax.
Reason : The taxable wealth of Mr.Xavier for the assessment year 200-405 is computed as below :
Jewellery gifted to the spouse 1,50,000
Flat purchased from the co-operative society 7,25,000
Less taken for the purchase of the property 2,75,000
One residential property used solely for the –
residential purposes is exempted
Vacant plot of land 3,50,000
Gold bonds (Exempted) -
Cash on hand (75,000-50,000) 25,000
Net wealth 5,25,000
Since the taxable net is less than the exemption
Nil
limit, there is no wealth taxable.
Reason : The provisions of section 80DD do not cover the grandfather as a dependant for the purposes of the treatment by an
assessee of any specified disease. Hence the option (d) is the correct answer.
Reason : The amount specified by the Government as not chargeable to tax u/s 10 (10 AA) on account of money received on
unutilized earned leave from his employer after April, 1998 is Rs.3,00,000.
Reason : Motorcars other than the heavy vehicles are treated as assets if they are not used in the business of running them on
hire or treated as stock-in-trade. Any jewellery (including diamonds, semi precious stones, gold biscuits ) are treated
as assets as they are taxable even if they are not worked or sewn into a wearing apparel.
Reason :
Sales CST Gross sales
Sale to A (Excluding taxes) 1,15,000 4,600 1,19,600
Sale to B (Including taxes) 1,75,000 7,000 1,82,000
Sale to C 1,64,000 6,560 1,70,560
Sale to D 96,000 3,840 99,840
5,50,000 22,000 5,72,000
Less: Sales returns within 6 months 40,000 1,600 41,600
Gross sale turnover
115000+135000+164000+96000 5,10,000
Sales tax at 4% 20,400 5,30,400
Reason : The wealth tax is chargeable on the net taxable wealth i.e taxable wealth less the exempted amount of Rs.15,00,000 at
1%.
Reason : Calculation of the normal depreciation of A ltd., for the year 2003-04 :
Name of the asset WDV as on April 1, % Normal
2003 depreciation
Building 15,00,000 10 1,50,000
Machinery 45,00,000 25 11,25,000
Vehicles 12,00,000 20 2,40,000
Total depreciation 15,15,000
Reason : The cash on hand in respect of an individual or HUF is exempted upto Rs.50,000.
Reason : In respect of the deductions an assessee can claim under section 80, the following two statements are true : The
aggregate amount of the deductions under the sections 80CCC to 80U cannot exceed the gross total income. In
computing the gross total income for this purpose, the long term capital gains and the winnings from the lotteries are
excluded.
Reason : The notional value fixed by the government from time to time for the purpose of fixing the duty is called the tariff
value.
Reason : Salary for the purpose of the calculation of the gratuity covered by the Payment of Gratuity Act. means the basic plus
dearness allowance but excludes bonus, commission, HRA, overtime wages and any other allowances. Hence the
option (b) is the correct answer.
Reason : The following statements are true: (a) Credit is available only if the goods are used in the factory for the manufacture
of the eligible final products(c) Credit on the capital goods received in the initial stages is allowed after the factory is
registered and commences the production(d) Capital goods used for the manufacture of the exempted intermediate
products, are entitled for the CENVAT credit, if the final product is chargeable to duty(e) Capital goods obtained on a
hire purchase agreement are entitled for the CENVAT credit. Option (b) is false. The ownership of the capital goods is
not essential to avail the CENVAT on the capital goods. Sharda Motors v CCE.
Reason : Tuition fees paid by an individual to a university, college or other educational institution for full time education for
any two children of the tax payer qualifies for tax rebate under section 88. The maximum amount which qualifies for
tax rebate for the assessment year 2004-05 is Rs.12,000 per child.
Reason : The option (a) that the Wealth tax is a charge not on the estate but on the person holding the estate is true. All the
other alternatives (b) to (e) are false: The method of the accounting i.e. cash system or the mercantile system followed
by the assessee is important in the calculation of the wealth tax, The Hindu deity is not subject to the wealth tax, The
trustees of the trust are not liable to pay the wealth tax, A co-operative society is liable to pay the wealth tax, are all
false.
Reason : As per the provisions of the Central Excise Act, the following persons shall be deemed to be related if (i) they are
inter-connected undertakings (ii) they are relatives (iii) amongst them the buyer is a relative and the distributor of the
assessee or a sub-distributor or (iv) they are so associated that they have interest directly or indirectly in the business
of each other. Ancillary units, which have come up on their own with own finance and function independently are not
related to parent unit. Hence sale by a parent company to a self reliant ancillary unit is not covered by the section 4
(3) (b).
Reason : Computation of the annual value of the property of Mr. Vikram for the assessment year 2004-05 :
Municipal value Rs.1,76,000
Fair rent Rs.1,65,000
Standard rent Rs.1,70,000
Step I : Municipal value or the fair rent whichever is higher subject to a Rs.1,70,000
maximum of the standard rent (i.e Rs.1,65,000 orRs.1,76,000 subject to
a max. of Rs.1,70,000)
The value arrived at above is to be considered only for 10 months as the Rs.1,41,667
property has been transferred on February 1st , 2004. (Rs.1,70,000 x 10 /
12 )
Step II Actual rent received ((Rs.12,000 x 6) + (Rs.13,800 x 4) Rs.1,27,200
The standard rent as per the step I being higher than the rent actually Rs.1,41,667
received, the same is treated as the annual value
Reason : The tax benefit under section 10A/10B is, not lost on the change of the ownership of the eligible undertaking i.e
conversion of the partnership/ sole proprietary undertakings to company, transfer by way of slump sale or the
amalgamation or the demerger. Also in the case of the amalgamation or the demerger, the deduction is allowed to the
amalgamated or the resulting company and the amalgamating or the demerged company cannot claim any deduction
for the previous year in which the amalgamation or the demerger takes place. Hence the option (a) that the tax benefit
is lost on the change of the ownership of the eligible undertaking is false.
Reason : If any person not being a registered dealer, falsely represents himself to be so, at the time of the sale is liable for a
punishment of a simple imprisonment of 6 months or a fine or both.
Reason : According to section 2 (17) of the Customs Act, 1962 the term ‘examination’ in relation to any goods, includes
measurement and weighment thereof. Verification of shipping bill or checking of Tariff Value have no relevance.
Reason : Out of the purchases of Rs.35,000 an amount of Rs.17,000 is disallowed being unreasonable( excess of the price paid
over the market value for similar goods). The balance amount of Rs.18,000, even if paid in cash is allowed in full as
the same does not exceed the permissible limit of Rs.20,000.
Reason : The capital gains in the hands of Mrs. Maya for the assessment year 2004-05 are computed as under :
Cost of acquisition (Fair market value as on April 1, 1981) 2,90,000
Less advance taken and forfeited 40,000
Cost for the purposes of indexation 2,50,000
Indexed cost of acquisition (Rs.2,50,000 x 463/100) 11,57,500
Sale proceeds 12,50,000
Less indexed cost of acquisition as computed above 11,57,500
Long term capital gains 92,500
Reason : In case of the sales returns, only in respect of the goods returned within a period of 6 months, the sale price is
deducted from the aggregate sale price.
Reason : The CENVAT credit is available instantly i.e as soon as the inputs reach the factory. In case of the capital goods it is
allowed at 50% in the current year and the balance in the subsequent financial year.
Reason : Calculation of the taxable income of Mr.Krishna for the assessment year 2004-05 :
Particulars Rs.
Free lunch facility (200 x (Rs.55-Rs.50) 1,000
Allotment of shares (not taxable) -
Free telephone facility (Not taxable) -
Motor car (Rs.1,200 x 12) 14,400
Gross salary 2,55,400
Reason : The taxable salary of Mr.Ranjan for the assessment year 2004-05 is calculated as under :
Particulars Rs.
Dearness allowance (forming part of the retirement benefits) 40,000
House rent allowance 72,000
Bonus 36,000
Arrears of salary (not included in the return of income) 25,000
Total 3,33,000
Less standard deduction 30,000
Net taxable income 3,03,000
The total HRA is taxable as Mr.Ranjan is
residing in his own house. The arrears are also fully taxable, as the same has not been included in the return on
income earlier.
Reason : The Central Excise duty payable on the basis of value of the goods manufactured or produced is known as Ad
valorem duty
Reason : The deduction under section 80D that Mr,Ram can claim for the year 2004-05 is as under :
On self 6,000
On spouse 9,000
Dependant daughter 8,000
Major son (earning member and not dependant) (not deductible) Nil
Dependant mother (aged 70 years) 7,500
Dependant grandfather ( not eligible) Nil
Total claim 30,500 The maximum deduction under section
80 D is restricted to Rs.10,000. But an additional deduction of Rs.5,000 is allowed if the mediclaim policy is taken on
the life of a person who is a senior citizen. In the given case, a policy is taken on the dependent mother who is 66
years. Thus the total deduction is Rs.15,000.
Reason : In case of captive consumption, under the Central Excise Duty, valuation shall be done on the basis of cost of
production plus 15%.
Reason : Demand once confirmed, must be paid within three months.

Reason : The maximum marginal rate of tax as defined by section 2(29C) of the income tax act is the rate of income tax
including the surcharge applicable in relation to the highest slab of the income in the case of an individual as specified
by the relevant finance act.
Reason : Alternative (a) to (d) are not treated as manufacture. Only the alternative (e) is manufacture as decided in the case of
Sheth Computers v CCE. Testing and inspection of items manufactured by others (a), (b) Slitting or cutting of the
jumbo rolls, (c) Printing of a glass bottle (d) Sawing of timber logs are not treated as manufacture. Option (e)
assembling of the computers from the duty paid bought out parts is the answer.
Reason : The essential conditions to be fulfilled for the purpose of the valuation of the goods under the Customs Act are (I)
The sale or the offer for sale should be in he course of the international trade and there should be no mutuality of
interest between the seller and the buyer. (II) The Price should be the sole consideration for the sale or the offer for
sale (III) The terms of price should be for delivery at the time and place of importation or exportation. Hence option
(e) is the answer.
Reason : Under the CST Act, there is no exemption limit. Any amount of sale (even very small amount) is taxable.
Reason : According to the Central Excise Rules, 2002, in case of goods removed during the month of March, the duty shall be
paid by 31st March.
Reason : An assessee can claim 125% of the amount of the donation given to an approved institution for the purpose of the
scientific research. 50,000 × 125% = 62,500.
Reason : The term ‘baggage’ includes all dutiable articles and the unaccompanied baggage.
Reason : Section 11 of the Customs Act 1962 gives power to the Central Government to prohibit import or export of goods of
specified description, by notification in the official Gazette, for certain purposes. The purposes are provided in
subsection (2) of Section 11 of the Act and include all the purposes given in statements (I), (II), (III) and (IV).
Reason : The sale of the illegal goods is treated as sale. All the others are not sale.
Reason : The annual value in case of the self occupied property is taken to be nil. Only the interest on the house loan can be
claimed by an assessee and he is not entitled to claim any deduction in respect of the municipal taxes ort the standard
deduction. There is no separate deduction allowed in respect of the repairs and insurance. Hence the option (d) is
correct.
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Question Paper

Economic Legislation II (162) – January 2005

Total sales (including CST) 16,95,200

Reason : The value of the concessional loan is taken as under :

Reason : Salary for 9 months April 2003–December 2003 = Rs.9,750 x 9 = Rs.87,750

Reason : The taxable salary (gross) is calculated as under:

Reason : The capital gains are calculated as under :

36. Answer : (e) < TOP >

59. Answer : (a) < TOP >

Reason : Demand once confirmed, must be paid within three months.

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